Retirement in Texas: Taxes and Cost of Living
Texas draws retirees with no state income tax and a cost of living below the national average. The trade-off is property tax, among the highest in the country. Here is how the math actually works for a retiree, and where in the state your money goes furthest.
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With no state income tax, your property tax bill and withdrawal strategy drive your retirement budget. Run your numbers in the retirement calculator.
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Texas retirement tax rules
Texas has no state income tax, so your 401(k) withdrawals, IRA distributions, pension income, and Social Security benefits are not taxed at the state level (Texas Comptroller). There is no estate tax or inheritance tax either. For a retiree drawing a steady income from savings and a pension, that is a genuine advantage over high-tax states.
The offset is property tax. Texas relies on property taxes to fund schools and local government, and effective rates are among the highest in the nation, commonly in the range of 1.6% to 1.8% of a home's value. On a $400,000 home, that can mean $6,000 to $7,000 a year. For retirees on a fixed income, this is the number that matters most, and it can erase much of the income tax savings if you buy an expensive home.
Texas does soften the blow for older homeowners. As of the 2025 tax year, the general homestead exemption removes $140,000 of value from school district taxes on a primary residence, raised from $100,000 by a constitutional amendment voters approved in November 2025. Homeowners 65 and older qualify for an additional exemption, increased to $60,000, plus a tax ceiling that freezes the school tax portion of their bill. Together these provisions meaningfully reduce the property tax burden for retired homeowners who file with their county appraisal district.
Cost of living in Texas
Texas's cost of living index is approximately 94, below the national average of 100 (MERIC). As you would expect in a state this large, the range is wide. Austin and parts of the Dallas-Fort Worth metro run above average, while San Antonio, smaller cities, and rural areas are well below it.
For retirees, Texas can be very affordable outside the priciest metros. Groceries, utilities, and housing in much of the state cost less than the national norm. The variable that does not show up cleanly in a cost of living index is property tax, so when you compare two towns, look at the local tax rate as carefully as the home price. A cheaper house in a high-rate district can cost more over time than a pricier one where rates are lower.
Does Texas tax retirement income?
No. With no state income tax, every major source of retirement income is untaxed at the state level. Here is how the four most common sources are treated.
| Income type | Taxed in Texas? | Details |
|---|---|---|
| 401(k) / IRA withdrawals | No | No state income tax. Still subject to federal income tax. |
| Pension income | No | Private and public pensions are not taxed by Texas. |
| Social Security benefits | No | Not taxed by Texas. May be federally taxable based on combined income. |
| Capital gains | No | No state capital gains tax. Federal rules still apply. |
Property tax is the exception to the no-tax story. Use the retirement tax calculator to estimate the federal tax you'll still owe on withdrawals and benefits.
Best places to retire in Texas
Georgetown
Just north of Austin, Georgetown is home to Sun City Texas, a large active-adult community, and a well-preserved historic town square. It pairs Hill Country scenery with access to Austin's airport and medical centers, which has made it one of the fastest-growing retirement destinations in the state.
San Antonio
A large city with a notably below-average cost of living, San Antonio offers major hospital systems, a rich cultural history, and a strong veteran community anchored by several military installations. Retirees get big-city healthcare and amenities without big-city housing prices.
Fredericksburg
In the heart of Texas Hill Country wine country, Fredericksburg draws retirees who want a small-town pace, German heritage, and a walkable Main Street. It is more of a lifestyle choice than a value play, with home prices reflecting its popularity, but the setting is hard to match.
New Braunfels
Between Austin and San Antonio, New Braunfels sits on the Comal and Guadalupe rivers and combines outdoor recreation with quick access to both metros' healthcare and airports. Its central location appeals to retirees who want amenities nearby without living in the city core.
Kerrville
A quieter Hill Country option on the Guadalupe River, Kerrville offers a lower cost of living, a mild climate, and a long-standing retiree population. It trades the energy of the bigger cities for affordability and calm, with regional healthcare in town and San Antonio about an hour away.
Texas pension system
Public-sector retirees in Texas are covered by two main systems. The Teacher Retirement System of Texas (TRS) serves public school and higher-education employees and is one of the largest public pension funds in the United States. The Employees Retirement System of Texas (ERS) covers state agency employees. Both pay defined-benefit pensions based on years of service and salary, and that income is not taxed by Texas.
If you have a pension, our pension calculator estimates your monthly benefit from years of service, and can compare a lump sum against monthly payments if your plan offers a choice.
Calculators for your Texas retirement
Retirement Tax Calculator
Estimate the federal tax on your withdrawals and Social Security, even where there's no state tax.
Retirement Income Calculator
See how long your savings last with Social Security, pension, and tax-aware withdrawals.
Social Security Calculator
Estimate your benefit at 62, 67, and 70, and compare break-even claiming ages.
Retirement Calculator
Project whether your savings will support the retirement you want, at any age.
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