Retiring in 2026? How Moving Could Affect Your Social Security and Medicare Benefits

As you approach and enter retirement, there are gobs of issues to consider. Ideally, you will have had a comprehensive retirement plan, having socked away enough money to support you for perhaps decades. You will have considered and planned for some big expenses, such as healthcare. You might even be thinking about relocating for retirement.

If relocation to a different state is on the table, you might want to consider how a new home might affect your Social Security benefits and Medicare.

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Your Social Security benefits

You may or may not realize this, but Social Security benefits are often taxed -- and much depends on where you live. Fully 42 states, plus the District of Columbia, don't tax Social Security benefits at all. Here are the eight states that do tax Social Security benefits:

• Colorado
• Connecticut
• Minnesota
• Montana
• New Mexico
• Rhode Island
• Utah
• Vermont

The news here is pretty good, though, because if you live in one of these states, you'll generally be taxed lightly, if at all. Some of these states phase out taxation by income, so lower earners often pay no tax. Others phase out taxation by age, so those 65 and older avoid it.

But here's a bit of bad news: While most states don't tax Social Security benefits, the federal government does taxes some.

It all depends on your "combined income," which is your adjusted gross income (AGI) plus non-taxable interest, plus half of your Social Security benefits. The table below spells it out:

Data source: Social Security Administration.

Again, low earners can escape taxation, but the rest of us may see some or most of our benefits subjected to taxation.

Your Medicare

Medicare begins for most of us at age 65, and when we enroll in it, we have to choose between original Medicare, which features Part A (hospital coverage) and Part B (physician/medical insurance), or a Medicare Advantage plan, sometimes referred to as Part C.

If you choose original Medicare, it will work the same in any of the 50 states -- with most doctors accepting Medicare. But remember that healthcare is not equally accessible nor equally affordable in every state. If you're moving, you'll want to look into the quality and availability of healthcare in your desired new home region. The Motley Fool's research report on "The 50 Best Places to Retire in the U.S. in 2026" can help a bit with that.

Meanwhile, if you choose a Medicare Advantage plan, it will be a plan offered by a health insurance company, which is obligated to offer as much coverage as original Medicare. Most such plans actually offer more, such as dental, vision, and hearing coverage. Again, your location matters. At the Medicare website, you can research the Medicare Advantage plans available near your expected new address, and you can see how each is rated. Think twice before moving to an area with no highly rated plans -- or opt for original Medicare. (I myself had been planning on opting for Medicare Advantage -- until I changed my mind.)

Should you relocate for retirement?

Social Security and Medicare are just two things to think about when considering relocating. Think, too, about what your new life will be like. You may miss your local friends and loved ones, and they may not visit as much as they thought they would.

It's a great idea to test out any location you're seriously considering. Try living there for a few months or even a year, to see how you like the climate, the recreational and other activities you'd be interested in, the friendliness of the people there, and so on. Remember that if you're looking to save money by moving, you might just move to a smaller home in your same area -- and perhaps reduce your household's fleet of vehicles by one or two.

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