If you want to minimize taxes in retirement, Alaska may be on your radar. It has the lowest tax burden of any U.S. state.

Residents also get a cut of the state's oil wealth, courtesy of annual dividends from the Alaska Permanent Fund, which often exceeds $1,000. But if you're nearing retirement age, don't start packing your bags for America's Last Frontier just yet.

An RV travels against the backdrop of mountains.

Image source: Getty Images.

The cost of retiring in Alaska

In addition to stunning scenery, Alaska boasts breathtakingly low tax rates. The total tax burden is just 4.9% when you account for all the taxes the state levies. There's no state personal income tax, so you don't have to worry about part of your retirement distributions or Social Security check going into state coffers.

There's also no state sales tax and a flat property tax rate of just 1.07% of an owner-occupied home's value. And Alaska hasn't experienced the dramatic spike in home prices that's occurred in much of the U.S. since 2020.

But out of the 50 states and Washington, D.C., Alaska has the fifth-highest cost of living. It's topped only by Hawaii, California, the District of Columbia, and Massachusetts.

Life in Alaska is about 25.1% more expensive than the U.S. average, according to the Council for Community & Economic Research (C2ER) survey. Some costs that are significantly higher than average in Alaska:

  • Healthcare (53.1% higher)
  • Utilities (48.9% higher)
  • Groceries (26.5% higher)

The high cost of living may be part of the reason why people 65 and up account for just 13.1% of Alaska's population. Only Utah has a smaller share of retirees.

Quality-of-life considerations

Money isn't the only factor to weigh in choosing a retirement destination. Climate, recreation, transportation, and proximity to loved ones are other considerations.

You may find aging in place difficult, given the relative isolation, or find yourself spending more money on travel when you visit loved ones. If you're thinking about retiring to Alaska, consider renting for a year or two first to see if you're well-suited to the Last Frontier.