According to the Pennsylvania government, more than 2.5 million of the state’s 13 million residents were 65 or older in 2020. This older adult community continues to grow at 20 times the rate of the state’s population. The question is, what draws retirees and older adults to PA? One of the key reasons why people move to PA to live after 65 is its retirement tax policies, including those on Social Security, retail purchases and pensions.
Does PA Tax Social Security?
Social Security income is the monthly benefit you receive when you retire or from age 62. Your Social Security adds up from payroll deductions made during your employment. You can start receiving payouts from these savings from the age of 62. In some states, this income is taxable. You don’t have to pay taxes on your Social Security income in PA, but you may still have to pay federal tax on the payments.
Forty percent of recipients have to pay federal taxes on their Social Security benefits. You may have to pay federal income tax if you have another notable income source outside your benefits, including savings interest, dividends and self-employment income.
When Can I Start Collecting Social Security Checks?
The Social Security Agency’s national full retirement age is 67. That’s when you can collect 100% of your benefits as a beneficiary. If you have a spouse, they can receive 50% of your Social Security.
If you retire early or need access to your funds sooner, you can start withdrawing from your retirement benefits at age 62. You’ll receive reduced, tax-free payments for you and your spouse. At 62, you can get 70% of your benefits. Payments will increase monthly until they reach 100% when you’re 67.
Does Pennsylvania Tax Pensions and Other Forms of Retirement Income?
Almost all retirement income is not taxed in Pennsylvania. You can enjoy most of your income tax-free, a fact that invites many older adults to the state to retire. Recognized retirement funds, such as your 401(k), IRA distributions and pension, are not taxable at the state level. There are exceptions to this. Funds like IRA distributions are taxable in PA if you collect them before age 59½. Federal taxes will also still apply to your retirement income.
Other Cost of Living Advantages for Older Adults in Pennsylvania
As you plan your retirement, you may begin to think about various parts of your life. Pennsylvania has several systems in place to make living and financial management easier for older adults. In addition to untaxed Social Security benefits, the state’s tax-friendly offerings include:
- Untaxed pensions and other retirement income like 401(k) and IRA funds
- Housing cost rebates with the Department of Revenue
- Inheritance and estate tax exemptions
Your cost of living in any state also depends on state-wide factors like sales taxes. Although Pennsylvania has a sales tax of 6%, you can expect not to pay tax on some essential products. Groceries, prescription drugs and clothing are items that don’t have sales taxes in the state. You can expect to save on living expenses with tax-free products like these in PA.
In 2023, PA’s cost of living was 2.1% above the national average, but it had the third-lowest living costs compared to its neighboring states, such as Ohio, New York, Maryland, New Jersey, Delaware and West Virginia. According to the Center for Rural Pennsylvania, the state had the lowest cost of living among the northeastern states. Older adults from all over the country are moving to Pennsylvania to enjoy affordable retirement living.
