Why Retire in Pennsylvania

Table of Contents

• PA Retirement Taxes
• Does PA Tax Military Retirement Pay?
• Property Taxes for Retirees
• Who Should Retire to Pennsylvania?
• Retirement Age in PA
• Benefits of Retiring in Pennsylvania

What Makes Pennsylvania the Best Place to Retire?

There are countless reasons to settle down in Pennsylvania, from breathtaking views and unique attractions to notable tax benefits. Pennsylvania offers many advantages to retirees. At over 45,000 square miles, it is one of the largest states in the country. It is also home to cities like Harrisburg, Reading, Lancaster and Scranton, which U.S. News & World Report recently ranked as the top places to retire in the United States. Several other cities in Pennsylvania also made the list.

Approximately 19.6% of Pennsylvania’s population is 65 years old or older. The state has nearly 800,000 veterans, making it the country’s fourth-largest veteran population. Pennsylvania is also home to many retirement communities.

This comprehensive guide outlines the major benefits of retiring in the Keystone State, including tax advantages, scenery and places to visit.

Pennsylvania Retirement Taxes and Perks

When looking for the right state to begin retirement, you should consider how the state taxes retirement income and savings. You’ll need to determine taxable income sources in Pennsylvania so you can stretch your retirement income as far as it will go.

Overall, Pennsylvania provides a tax-friendly climate for retirees, making it an excellent place to settle down.

Does Pennsylvania Tax Retirement Income?

No, Pennsylvania does not tax its residents’ retirement income. Retirement income typically pools income from several sources  — Social Security, pension, individual retirement accounts (IRAs) and 401(k)s. Pennsylvania is one of 17 states that consider pension income completely tax-exempt.

The Keystone State also has the lowest flat tax rate in the country at just 3.07%. So, while it is impossible to escape federal income taxes when you retire, you might lower your tax obligation by moving to a state like Pennsylvania where the income tax rate is low.

Does Pennsylvania Tax Social Security?

No — Social Security is also nontaxable in Pennsylvania. Retirees derive a portion of their income from Social Security depending on the amount of money they paid into the system while they were working and their age when they retired.

For instance, a person who retires at 75 will likely receive a higher monthly payment than someone who retires at 67. The earliest possible age for retirement is 62, but the full retirement age is 67. If you choose to retire early at 62, your monthly payments will be lower.

The Social Security Agency (SSA) determines if you’re qualified for these benefits based on credits you earn through working. Those born in 1929 or later must earn 40 credits or work for 10 years to earn retirement benefits from the SSA. You accumulate these credits over time. You won’t lose credits during non-working periods, but you also won’t gain new credits.

Once you reach full retirement age, you can still work and earn your monthly benefits. However, your income from this work must remain below a certain threshold for you to continue earning benefits. Widows and widowers may be entitled to their spouse’s Social Security check by the age of 60 or 50 in the case of a qualifying disability.

Pennsylvania does not tax Social Security income like some states, including West Virginia, Connecticut and Rhode Island.

Are Pensions Taxable in Pennsylvania?

Pennsylvania doesn’t tax pension income for residents aged 60 and older. Pension funds are pools of money that companies collect to distribute to their workers upon retirement. Often, the assets from these funds are invested into assets like stocks and bonds to earn passive income. A group of trustees manages the money to ensure the fund maintains enough assets to pay the promised benefits to retirees. Many retirees today receive pension benefits, either from a public entity or private corporation.

The amount you receive is based on the terms of employment, the number of years you paid in and how well the pension fund was managed. In Pennsylvania, neither public nor private pensions are taxed, offering an advantage over nearby states such as New Jersey, New York and Maryland, which do tax pensions. When you retire and begin receiving pension benefits, you will pay federal taxes on them, but not Pennsylvania taxes.

There are a few payment options for pension funds — single-life annuity, joint and survivor annuity and lump-sum payments. Single-life annuity involves lifetime monthly payments for only the pensioner. Joint annuity payments cover lifetime benefits for the pensioner and their spouse. Some pension funds allow you to take a single lump-sum payment upon retirement instead of monthly benefits.

Most pension funds will allow you to withdraw payments starting at age 65. However, some funds will offer early retirement benefits as early as 55. You can learn more about the specifics of your pension plan from your employer.

Does Pennsylvania Tax IRAs?

Pennsylvania does not tax income on assets held in an IRA.

If your employer did not offer a pension plan, you might have invested money in an IRA to use in retirement. IRAs offer different types of tax advantages on a federal level. Pennsylvania adds an additional tax benefit by not taxing the funds you take out of your IRA as income.

There are two main IRA structures that affect how the earnings are taxed federally. A traditional IRA is taxable upon withdrawal. When you make contributions to this fund, the amounts are tax-deductible, but the withdrawal amounts are classified as income in retirement. A Roth IRA has taxable contributions, and the withdrawal amounts are tax-free upon reaching age 59 1/2.

Are 401(k) Contributions Taxable in PA?

Another retirement investment account, a 401(k), usually includes money you saved and matching funds from your employer. All employer contribution retirement plans are tax-free in Pennsylvania as income.

Employers will offer a percentage match of your income to add to the fund. You have the freedom to add more than the percentage match, but your employer will only contribute up to that matching amount. You may also have some freedom to decide what happens to the money in the fund. These retirement accounts will usually give you mutual fund options to determine how you invest your money.

The funds you have in your 401(k) will depend on your personal contribution habits and how well your employers matched your funds. You can start withdrawing from your 401(k) at 59 1/2 years old. If you withdraw before then, you’ll face an early withdrawal penalty.

When you are a resident of Pennsylvania, your retirement income is tax–exempt. Pennsylvania is one of the most generous states in the country for retirees’ income. It is also helpful when it comes to other taxes.

The state sales tax in Pennsylvania is just 6% — one of the lowest in the country — and there is an average combined local and state sales tax rate of 6.34%. Food and clothing are also exempt from state sales tax. Only Philadelphia and Pittsburgh add a local tax on top of the state tax rates.

Another special exemption to sales tax in Pennsylvania can greatly impact older adults. All prescription and non-prescription drugs are tax-exempt. Since the cost of medication tends to increase as you age, the state is doing what it can to keep those costs low.

Does Pennsylvania Tax Military Retirement Pay?

Pennsylvania proudly provides tax benefits for military service members and veterans. Military retirement pay is not taxed as long as you have fulfilled your years of service or reached retirement age. Military pay is also exempt from personal income tax for those serving in the Pennsylvania Army National Guard or United States Army Reserve, even if their active duty service was performed outside of Pennsylvania.

If you receive Military Disability Retirement Pay as an annuity, pension or similar allowance due to sickness or injury resulting from your time in active service, it should not be included in taxable income as long as you meet the criteria.

If you’re a survivor of a military service member who died while performing their duties, your Dependency and Indemnity Compensation (DIC) is a benefit that is not taxed as long as you live in Pennsylvania.

Property Tax Benefits in Pennsylvania

Pennsylvania offers a rebate ranging from $380 to $1,000 to eligible retirees and individuals with disabilities. This program is supported by funds from the Pennsylvania Lottery. Additionally, the state has a 1.26% effective property tax rate on owner-occupied housing value.

When you reach retirement age, your house may be paid off. Your living costs would be reduced to property maintenance and taxes. In some states, retirees are quick to downsize to lower their tax burden. In other states with high taxes, property taxes on a single-family home can represent a large part of the retirement budget.

Many homeowners hold their property taxes in escrow, which means they pay toward them each month with their mortgage payments. When the mortgage is paid off, and the taxes are collected twice a year, the amount can be shocking. Many communities across the country are struggling with budget shortfalls and are raising taxes to try to close the gap.

In Pennsylvania, if you are over 65, you may be eligible for a rebate on your housing costs, whether you own or rent your home. For older adults who own their home and do not exceed $35,000 in annual household income, the average property tax rebate is $650. With supplemental rebates, that amount can increase. Income calculations to determine eligibility exclude 50% of income that comes from Social Security and Railroad Retirement benefits.

The property tax rate for older adults in Pennsylvania is calculated in their favor. Renters are eligible for a housing rebate even if their income is under $15,000. The same exemptions apply when determining the total amount of income.

At a retirement community such as Cornwall Manor, residents do not pay property taxes.

Pennsylvania Inheritance and Estate Taxes

The amount of taxes charged on your estate can significantly impact the legacy you leave for your children and other heirs. Estate taxes may make it difficult for you to transfer family wealth or property to succeeding members of the family. The most substantial portion of the inheritance and estate taxes is that imposed by the state.

The state of Pennsylvania does not charge an estate tax for spouses or direct heirs aged 21 or younger. The inheritance tax is based on the relationship to the deceased. A direct heir, a child or grandchild, will see their inheritance taxed at a rate of 4.5%. Siblings of the departed will pay 12% in inheritance taxes.

All non-relatives or family members of indirect lineage have an inheritance tax of 15%. Many surrounding states have an estate tax, and some have both an estate and an inheritance tax. Maryland and New Jersey have both.

If you choose to leave part of your estate to a charity, Pennsylvania does not charge charitable organizations an inheritance tax. Nonprofits, government entities and some institutions are exempt from inheritance tax in Pennsylvania. Also, any part of the estate left to a spouse is tax-exempt, and property owned jointly by spouses passes to the surviving spouse without a tax by the state. At the death of a minor child, the parent will not pay taxes on any inheritance.

The tax climate of the state in which you reside can impact your children and grandchildren and the legacy you leave them. Pennsylvania is one of the most lenient taxing authorities in the country, making it financially advantageous to move there for retirement.

Who Should Retire to Pennsylvania?

Many groups can benefit from settling down in the Keystone State, including:

Many groups can benefit from settling down in the Keystone State, including:

• Active individuals: If you are ready to retire but are still active, Pennsylvania is the right place for you. Here, there is so much to do and see that you’ll never get bored.
• People seeking tax benefits: If you have a pension, 401(k) or Social Security income that you want to make the most of, Pennsylvania is the state to retire. Living in Pennsylvania makes your retirement income go further.
• Individuals who travel frequently: If you have children and grandchildren who will want to visit you, Pennsylvania is a convenient place to travel. Philadelphia and Pittsburgh are both major cities with transportation hubs. Pennsylvania is also close to New York City and New Jersey, making it easy to travel in and out.
• Those who desire pleasant weather conditions: If you enjoy moderate weather, you will be comfortable in Pennsylvania, where the summers are warm and the winters are tolerable. With cool summer nights in the mountains and sunny winter days on the ski slopes, Pennsylvania seldom sees extreme weather.
• History buffs: If you have an interest in American history, you can immerse yourself in Pennsylvania’s historical sites. Every city and town in Pennsylvania contains timeless architecture and stories from the Civil War or before. Pennsylvania was an essential part of the founding of this country, and evidence of that fact is scattered around the state.
• People looking to escape city life: If you want to leave the busy, crowded city after you retire, Pennsylvania is the place to enjoy your retirement in rural splendor. There is plenty of farmland, green trees and winding country roads to let you spread out away from the crowd. Likewise, if you want to stay connected to a major city for work after retirement or just enjoy the cultural offerings, Pennsylvania is the right location for you. You can enjoy the tax benefits and elbow room of the rural atmosphere and still travel into the city with ease.
• Individuals who need top-tier health care: If you need access to high-quality medical care after retirement, you will find everything you need in Pennsylvania. Central Pennsylvania is home to first-class medical facilities such as Penn State Hershey Medical Center, Penn Medicine/Lancaster General Health, the VA Medical Center, UPMC, Pinnacle and WellSpan health care systems.

Retirement Age in Pennsylvania

For those born in 1960 or later, the full retirement age, according to the Social Security Administration, is 67. This means you can receive 100% of your Social Security benefits without any reductions. Beneficiaries receive 50% of their spouse’s retirement benefits when they reach 67 years of age.

If needed, the earliest someone can begin receiving Social Security retirement benefits is 62. However, the rate is reduced, and they will only get 70% of their own monthly benefits and 32.5% of their spouse’s retirement benefits. As each month passes, the percentage of their retirement benefits grows until it reaches the full amount at age 67.

What Is the Retirement Age in Pennsylvania for State Employees?

Pennsylvania’s statewide State Employees’ Retirement System, or SERS, is one of the country’s oldest and largest retirement plans for state employees. When the state first hires an employee or when they get close to retirement age, they have many decisions to make about their retirement benefits, including at what age they wish to retire.

The SERS normal retirement age is 65, 60, 55 or 50 years of age, depending on what class of service you were in. A SERS employee’s class of service is determined by when they became a member and the type of work they did. The annual pension for SERS members is calculated with a formula that includes a few variables about your service as a state employee, including:

• Class of service
• Years of credited service
• Final average salary

Benefits of Retiring in Pennsylvania

Deciding where to retire requires careful planning and some research. You want to go where you will be comfortable, where you can enjoy your life and where your retirement income will buy you the most. To do that, you need to look at the housing market, cost of living, the tax structure, the climate and the proximity of healthcare services.

DISCOVER PENNSYLVANIA’S BEST RETIREMENT LIVING OPTIONS

Attractions of the Keystone State

• The Keystone State attracts tourists from around the world. Pennsylvania is full of American history and cultural opportunities. Here are some attractions to consider:
• World Series: The Little League World Series is played in Williamsport, Pennsylvania, every summer. This long-standing little league contest attracts sports fans from around the world. The city holds a week-long celebration to mark the occasion.
• Historic architecture: As the first capital of the U.S., Philadelphia includes some historic buildings and monuments, like the Liberty Bell. The Capitol Rotunda in Harrisburg is considered one of the most beautiful capitol buildings in the country. Cities and towns across Pennsylvania — including Lancaster and Lebanon near Cornwall Manor Retirement Community — are dotted with grand historic architecture.
• Art scene: Pennsylvania is full of world-class museums, historic theaters and spectacular music venues. Philadelphia and Pittsburgh both offer a mix of styles and flavors to attract any art aficionado. The smaller cities include unique art venues all their own, too.
• Craft beer and wineries: Pennsylvania is home to many craft breweries, vineyards and wineries. If you prefer a nonalcoholic beverage, indulge in the state’s many coffee shops.

• Big cities: Pennsylvania is home to several major cities, including Philadelphia and Pittsburgh. Cornwall is just a few miles from the PA Turnpike and just a two-hour drive from downtown Philadelphia. It is about 40 minutes from Lancaster and 20 minutes to Hershey, Pennsylvania.
• Historic sites: One of the defining battles of the Civil War was fought in Gettysburg, Pennsylvania. The area is now home to many war-related remembrances and historic sites. You can take a battlefield tour, visit the Gettysburg National Military Park Museum and brush up on your Civil War history.
• Amish village: Lancaster County is home to one of the largest Amish communities in the country. In addition to seeing Amish men driving their horse-drawn wagons down the streets, you can also learn about the Amish way of life at The Amish Village. While you’re there, enjoy groceries and fresh produce from local farmers markets.
• Beautiful mountains: The Poconos in Northeastern Pennsylvania is a traditional resort region that draws visitors from all over. The area combines the best hiking trails with opportunities for camping, fishing and outdoor adventures with resort hotels and attractions for the whole family. The Poconos also features several amusement parks, ski resorts and romantic retreats.
• Amusement parks: Another well-known attraction is Hersheypark. The whole town of Hershey was built around the chocolate industry and still smells like chocolate. The street lights are shaped like Hershey’s Kisses, and the city plays host to visitors year-round. The amusement park itself offers a historical look at the iconic chocolate company, along with rides and food.
• Lifelong learning: Pennsylvania has many colleges and universities that offer a wide array of learning and cultural opportunities for older adults.

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Call Pennsylvania Home for Your Retirement

When planning your retirement, look for a retirement community such as Cornwall Manor in the state of Pennsylvania. Cornwall Manor offers a variety of housing options with health care and other related services. Cornwall Manor was voted “Best Retirement Community” and “Best Personal Care” by the Lebanon Daily News. Residents of the Continuing Care Retirement Community include people who have moved from down the road and across the country.

Cornwall Manor is one of many reasons to consider Pennsylvania for your retirement. Contact us online to learn more about our community and request a tour — or stay the night as our guest to explore the area and see why Pennsylvania is such a wonderful place to call home.