My wife and I are planning to downsize and retire in the next few years. I decided to do some research on some cheaper options for retirement locations. Almost any place is cheaper than where we currently live. New York City.

The first thing I did was to find which are the most tax friendly States for retirement.

I found that Kiplinger lists each State and its tax friendly status. The following are their findings of the top 10 most tax friendly States:

Alaska

“The Last Frontier is a true tax haven for retirees. Alaskans pay no state income tax or state sales tax. In addition, the state sends all permanent residents (who have lived there for at least one year) an annual dividend check from the state’s oil wealth savings account. The 2012 dividend was $878, a nearly $300 drop from the 2011 dividend of $1,174. While Alaska taxes real estate, homeowners 65 and older, or surviving spouses 60 and older, are exempt from municipal taxes on the first $150,000 of the assessed value of their property.”

Florida

“The Sunshine State is very popular with retirees, not just because of its year-round sunshine but also because of the absence of a state income tax. Sales taxes, though, can go as high as 7.5%. Real estate is assessed at 100% of market value. Permanent residents are entitled to a homestead exemption of up to $50,000, regardless of age, and seniors may qualify for an additional exemption.”

South Carolina

“The Palmetto State extends its Southern hospitality to retirees. The state does not tax Social Security benefits and provides a generous retirement-income deduction when calculating state income tax. State income tax rates are reasonable, and property taxes are very low. Taxes are based on 4% of the market value of the home, and senior homeowners qualify for a homestead exemption.”

Georgia

“The Peach State is a peachy tax environment for retirees. Social Security income is exempt, and so is up to $35,000 of most types of retirement income. For those 65 and older, the 2013 exemption is $65,000 per taxpayer. The statewide sales tax is 4%, but jurisdictions may add up to 4% of their own taxes. Full-time residents qualify for a homestead exemption, and residents 65 and older may qualify for additional deductions from property taxes.”

Mississippi

“The Magnolia State offers a sweet income tax deal for retirees. It not only exempts Social Security benefits from state income taxes, but it also excludes all qualified retirement income. Remaining income is taxed at a maximum 5%. Mississippi is home to some of the cheapest property taxes in the nation. Residential property is taxed at 10% of its assessed value, and seniors qualify for a homestead exemption on the first $75,000 of value.”

Louisiana

“The Pelican State offers a bayou full of tax breaks to retirees. Social Security, military, civil-service, and state and local government pensions are exempt from state income taxes. Up to $6,000 per person of pension and annuity income are exempt from income taxes. Personal income tax rates are low. Property taxes are among the lowest in the nation, and assessments are based on 10% of the fair market value.”

Arizona

“The Grand Canyon State is a major retirement destination, with plenty of sunshine and a low personal income tax rate that tops out at 4.54%. Social Security benefits are exempt, as is up to $2,500 of some retirement income. Arizona’s state sales tax is 5.6%. There is no inheritance tax, gift tax or estate tax.”

Nevada

“The Silver State offers retirees a jackpot of tax savings because there is no state income tax. But its state sales tax is 6.5%, and counties may add up to an additional 1.25%. Plus, almost every jurisdiction in Nevada gets a bite of the property tax apple. The assessed value for tax purposes is based on 35% of the fair market value of the property.”