Relocation
Best States for Military Retirees in 2026
By Marcus Webb · April 30, 2026
Military retirement pay averages over $40,000 a year, and the state you choose determines how much of that you actually keep. From zero income tax on military pensions to free VA healthcare access and property tax exemptions for disabled veterans, the gaps between states are enormous. Here is where the math points.
Military retirement pay averaged roughly $43,000 annually for an E-7 with 20 years of service as of late 2025, and that figure gets a 2.5% COLA increase in 2026, bringing it to approximately $44,075. The state you retire in can mean the difference between keeping nearly all of it or losing $3,000 to $6,000 a year to income taxes alone.
Why Taxes Are Only Half the Equation
Forty-one states now fully exempt military retirement pay from state income tax, up from 38 just three years ago. That means the tax angle, while still important, no longer separates the best states from the rest. What does separate them is the combination of property tax relief for disabled veterans, VA medical center access within a reasonable drive, cost of living, and in many cases, concealed carry and firearm laws that matter to this demographic.
A 100% disabled veteran in Texas pays zero property taxes on their primary residence. In Florida, the exemption is partial and income-tested. In Virginia, localities set their own veteran exemptions, which means two counties 30 miles apart can treat you very differently. Details like these move the needle far more than income tax status alone.
The Top States for Military Retirees in 2026
Texas sits at the top of most serious rankings for good reason. No state income tax, no tax on military retirement pay, a total property tax exemption for 100% disabled veterans, and a cost of living index around 92 (national average is 100) outside the major metros. The state has 11 VA medical centers and a large active-duty presence, which means contractor and federal employment pipelines for veterans who want to keep working. The tradeoff is property taxes for non-disabled retirees, which run around 1.6% effective rate statewide.
Florida offers no state income tax, full military retirement pay exemption, and a $5,000 additional homestead exemption for veterans with a service-connected disability. The cost of living varies wildly, with coastal metros pushing 110 to 120 on the index while the Panhandle and Central Florida stay under 95. Florida also has one of the most VA-dense healthcare networks in the country. See our breakdown of Florida vs. California: The Tax Reality for a broader comparison.
South Dakota has no state income tax, no military retirement tax, and a cost of living index around 88. It also has no estate tax, which matters for retirees thinking about what they leave behind. Check our guide to Estate Tax by State: Where Your Heirs Pay Most for full context. The VA hospital network is thinner than Sun Belt states, but telehealth has narrowed that gap significantly.
Wyoming rounds out the tier-one group. No income tax, no military retirement tax, property tax relief programs for disabled veterans, and a cost of living index around 90. Gun laws are among the most permissive in the country, a factor that consistently ranks high in veteran surveys about retirement priorities.
Tennessee and Nevada also deserve mention. Tennessee eliminated its investment income tax entirely by 2023, has no wage income tax, and fully exempts military retirement pay. Nevada mirrors that structure with no income tax, though its cost of living in Las Vegas and Reno is climbing toward 105 on the index.
States to Avoid
California taxes military retirement pay as ordinary income, with rates up to 13.3%. A retired E-7 pulling $44,075 could owe over $3,000 in state income tax annually depending on total household income. New Jersey has a partial exemption that phases out for higher earners and pairs it with an effective property tax rate of 2.13%, the highest in the country. Neither state makes the list for any serious retirement planning purpose. For a fuller look at what high-tax states actually cost over time, read The True Cost of Living in High-Tax States.
Virginia is a cautionary tale. It exempts military retirement pay, but income taxes run up to 5.75%, and the cost of living in Northern Virginia is among the highest in the country. The VA access is excellent, but you pay for the zip code.
Key Takeaways
- A 20-year E-7 receives approximately $44,075 in annual retirement pay in 2026 after the 2.5% COLA adjustment. Choosing a zero-tax state versus a state that taxes it at 5% saves roughly $2,200 per year, every year.
- 100% disabled veterans in Texas pay zero property taxes on their primary residence. In Florida, the benefit is capped and means-tested. The difference over a 20-year retirement can exceed $60,000.
- South Dakota, Wyoming, Texas, and Florida all have no state income tax, full military retirement exemptions, and cost of living indexes below 95, making them the four strongest all-around choices for military retirees in 2026.
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