This Underrated State With A Low Cost Of Living Also Exempts Social Security Income

When people think about retirement destinations, states that don't tax Social Security income might come to mind. These states can allow retirees to retain a larger portion of their retirement benefits, thereby maximizing their disposable income. With Americans increasingly working well past the previous retirement age, states with no income tax, or even low income tax, are also becoming more popular choices. Given this emphasis on tax friendliness, it's unsurprising that Florida, which exempts both Social Security and regular income, is often lauded as the best state to retire in. However, there's another retirement destination that doesn't get as many plaudits, despite beating Florida in important aspects: Iowa. 

Iowa is one of the most financially attractive retirement hubs in the U.S. According to cost-of-living estimates from BestPlaces, the Hawkeye State's cost of living is 19.9% lower than the national average, a significant feat considering the Sunshine State is 3.1% more expensive than the national benchmark. Plus, Iowa fully exempts Social Security benefits, while other types of retirement income — such as IRAs, 401(k) plans, and pensions — can also qualify for exemptions depending on certain state requirements. It's also worth noting that Iowa has one of the lowest tax rates among states that levy an income tax. In fact, Iowa enacted a 3.8% flat income tax in May 2024.

The annual cost of living in Iowa for a single person is $29,600. For context, this is 48.2% cheaper than the national average, per BestPlaces. Iowa's affordable housing is arguably the biggest contributor to the state's relatively low cost of living, especially as Americans continue to spend even more on their home every year. A typical family home, valued at $194,900, costs 42.4% less than the national average. Renting is similarly affordable, with renters paying roughly $930 per month for a two-bedroom unit, or 35% less than average. 

Food and utilities are reasonably priced, too. A four-person Iowan family can expect to spend about $350 per week on food and utilities. For comparison, average annual expenditure estimates by the Bureau of Labor Statistics show that a 2.5-person American household spent $14,610 on these two categories in 2023. That translates to roughly $450 per week for a four-person household, $100 more than what a family in Iowa would spend.

More recent data reinforces the Hawkeye State as one of the most affordable states for retirement. A Council for Community & Economic Research (C2ER) survey, as reported by the Missouri Economic Research and Information Center, shows that Iowa boasted the 8th most affordable cost of living in the U.S. in the second quarter of 2025. Notably, healthcare, grocery, and transportation categories had higher costs than other measures, but still remained below the national average.