Is Illinois a Good Place to Retire? Financial Considerations Before You Decide

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Is Illinois a good place to retire? The answer depends on more than the state’s reputation for high taxes. Illinois does not tax Social Security benefits, pensions or qualified retirement account withdrawals, which can be an advantage for retirees. However, Illinois property taxes, sales taxes, healthcare costs and estate taxes can all affect your retirement budget. Before deciding whether to stay in Illinois or retire elsewhere, it’s important to look at how taxes, housing, healthcare and your overall financial plan work together for your specific situation.

Key Takeaways:

Illinois is friendlier to retirees than its high-tax reputation suggests, but mainly on income. The state doesn't tax Social Security, pensions, or retirement-account withdrawals, which is a genuine advantage. The catch shows up in other taxes.
The costs that hurt are property, sales, and estate taxes. High property taxes, some of the steepest sales and gas taxes in the country, and a low estate-tax threshold can offset the income-tax break, depending on your situation.
Whether Illinois works for you comes down to your specifics. Where you live, whether you own or rent, your health, and the size of your estate all shape the answer, so it pays to run your own numbers before deciding.

Illinois has a reputation as a high-tax state, and in many ways it earns it. But when it comes to retirement income specifically, it’s one of the most generous states in the country: Illinois doesn’t tax Social Security, pensions, or withdrawals from retirement accounts like 401(k)s and IRAs.¹ For a lot of retirees, that alone is a meaningful reason to stay.

The rest of the picture is more mixed. Property taxes are among the highest in the nation, sales and gas taxes are steep, and the state has an estate tax that kicks in far earlier than the federal one. So whether Illinois is a good place to retire really depends on your own situation, and it’s worth weighing the full financial picture before you commit.

Understand How Illinois Taxes Your Retirement Income

Start with the good news, because it’s the biggest financial reason retirees stay put. Illinois is one of only a handful of states that fully exempts most retirement income from its state income tax. The main sources break down like this:

Social Security benefits: Illinois doesn’t tax Social Security at all. Your federal treatment still applies, but the state takes nothing, which is a straightforward win for retirees.

Pension and employer-plan income: Qualified pensions, 401(k)s, 403(b)s, IRAs, and similar retirement-plan withdrawals are also exempt from Illinois income tax. For a retiree living largely on these sources, the state income tax bill can be close to zero.

Income Illinois still taxes: The flat 4.95% state income tax still applies to other income, like wages from part-time work, interest, dividends, and most capital gains. So if you keep working or draw meaningful income from a taxable brokerage account, Illinois will tax that part.

Budget for Housing, Property Taxes, and Local Cost Differences

Illinois makes up for the income-tax break elsewhere. For retirees, property taxes are usually the big one: Illinois ranks among the highest in the nation, and unlike a mortgage, that bill never goes away. The state’s combined sales tax runs close to 9% and its gas tax tops 66 cents a gallon, both among the steepest in the country.² Add it up, and Illinois collects one of the higher overall tax burdens per resident anywhere.

Compare Regional Housing and Everyday Costs

Illinois is really two different cost environments. The Chicago area runs expensive, with higher home prices and the steepest local sales taxes. Much of central and downstate Illinois is considerably more affordable, which is a big reason the state’s overall cost of living lands close to, and even a little below, the national average despite those high taxes.

Housing is the bright spot. Illinois’ median home value sits well below the national median,³ so your housing dollar often stretches further here than in many states, especially outside the Chicago suburbs. For a retiree who owns a home outright, that affordability can offset a good chunk of the property-tax sting.

The trade-off is the everyday stuff. Those high sales and gas taxes show up every time you shop or fill up, and they add up over a long retirement, particularly if you drive a lot. When you compare Illinois to a neighboring state, look at the whole basket, taxes, housing, and daily costs together, rather than any single line.

Check Which Illinois Property-Tax Relief Programs May Apply

If property taxes are your biggest concern, don’t overlook the relief Illinois offers older homeowners. Several programs can meaningfully lower what you owe, but you generally have to apply, and eligibility rules vary by county. A few worth looking into:

Senior Citizens Homestead Exemption: This reduces the taxable value of your home once you reach the qualifying age, lowering your property tax bill. It's one of the most widely used breaks for Illinois seniors.
Senior Citizens Assessment Freeze: For income-eligible seniors, this can freeze your home's assessed value, so rising assessments don't keep pushing your tax bill higher year after year. Income limits apply.
Senior Citizens Real Estate Tax Deferral: This allows qualifying seniors to defer some or all of their property taxes, which are repaid later, typically from the sale of the home or the estate. It can ease cash-flow pressure, though it's essentially a loan against your home.
Veteran and disability exemptions: Additional exemptions may apply if you're a veteran, have a disability, or meet other criteria. These can stack with the senior breaks in some cases, so it's worth checking everything you qualify for.

Plan for Healthcare and Long-Term Care Costs

Wherever you retire, healthcare is a major expense, and Illinois is roughly middle-of-the-pack on medical costs, neither a bargain nor the priciest. Medicare works the same in Illinois as it does anywhere, so the bigger state-specific question is long-term care.

Long-term care in Illinois isn’t cheap. A nursing home or assisted living facility can cost tens of thousands of dollars a year, and those costs tend to rise faster than overall inflation. It’s a risk worth planning for well before you need it, since Medicare doesn’t cover most long-term care.

The better news is that Illinois has Medicaid and other programs that can help with long-term care for those who qualify, and planning ahead, through insurance, savings, or the right account structure, can keep a long-term care event from derailing the rest of your retirement. This is one area where the state’s lower housing costs can free up room in the budget for care.

Evaluate Your Exposure to the Illinois Estate Tax

Illinois is one of the minority of states with its own estate tax, and its threshold sits far below the federal one, so families who’d owe nothing federally can still owe Illinois. Work through these before you assume you’re in the clear:

Calculate the full estate value: Illinois taxes estates above $4 million.4 That sounds like a lot until you add up a paid-off home, retirement accounts, life insurance, and other assets, which can push more households over the line than you expect. Start by tallying everything you own.
Compare your Illinois and federal estate-tax exposure: The federal exemption is many times higher than Illinois', so it's entirely possible to owe Illinois estate tax while owing nothing to the IRS. Knowing where you stand against both thresholds is the starting point for any planning.
Coordinate married-couple planning: Illinois doesn't allow a surviving spouse to automatically use the deceased spouse's exclusion as federal law does, so couples with larger estates often need deliberate planning, such as certain trust structures, to make full use of both exemptions. This is worth handling with an estate attorney well in advance.

Is Illinois a Good Place to Retire FAQs

1. Which state is better to retire in, Wisconsin or Illinois?

It depends on your priorities. Both exempt Social Security, but Wisconsin taxes most other retirement income while Illinois exempts it, an edge for Illinois if you rely on pensions or retirement accounts. Wisconsin, though, has lower property and sales taxes. If your income is mostly retirement income, Illinois often comes out ahead; if property taxes are your worry, Wisconsin may.

2. Which state is the best for retiring with good finances?

There’s no single winner, since it depends on your income sources, spending, and what you value. States with no income tax or no estate tax often top “best places to retire” lists, but low taxes don’t help much if the cost of living or healthcare is high. The best state is the one whose full financial picture fits your specific situation.

3. Which city in Illinois is considered the best to retire in?

It varies by what you’re after, but retirees often favor mid-sized cities and suburbs that balance affordability, healthcare access, and amenities, and places in central Illinois and the collar counties tend to come up. Chicago offers world-class healthcare and culture, but at a higher cost. The best city depends on your budget, health needs, and lifestyle.

4. Is Illinois a good place to retire if you rent instead of own?

It can be, and renting sidesteps the property-tax issue that weighs on Illinois homeowners. You lose the home-affordability advantage and the senior property-tax breaks, but you also skip the state’s biggest retiree cost. For renters, Illinois’s retirement-income tax exemption and moderate overall cost of living can make it quite reasonable.

5. What financial assistance programs are available to Illinois retirees?

Illinois offers several, including senior property-tax exemptions and freezes, the real estate tax deferral program, and Medicaid and related programs that can help with healthcare and long-term care for those who qualify. There are also benefit programs for veterans and people with disabilities. Eligibility and amounts vary, so it’s worth checking with the state and your county.

6. How does living in Illinois part-time affect state residency and taxes?

It hinges on where you’re a legal resident, which determines which state taxes your income. Spending part of the year elsewhere doesn’t automatically change your residency, and states have specific rules, often around where you spend more than half the year, for deciding it. If you split time between Illinois and a lower-tax state, it’s worth getting the residency question right, since the tax stakes can be significant.

Get Help Deciding If Illinois Fits Your Retirement

So the honest answer to whether Illinois is a good place to retire is that it depends on you. The state’s exemption of retirement income is a genuine advantage, but high property, sales, and estate taxes can chip away at it, and how that math works out varies a lot from one household to the next.

That’s the kind of thing we help Illinois retirees sort out at Goldstone. Because we’re based right here, we know the state’s tax landscape well, and we can run your actual numbers, your income sources, your property taxes, and your estate exposure to show whether staying in Illinois works for your plan or whether another state might serve you better.

From there, we can help you make the most of Illinois’ advantages, claim the relief programs you qualify for, and plan around its estate tax, so your decision rests on your actual numbers instead of a general reputation. If you’d like help deciding whether Illinois is right for your retirement, schedule a complimentary retirement review with our team.

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Disclosure:

Goldstone Financial Group, LLC (“GFG”) is an investment adviser registered with the U.S. Securities and Exchange Commission. Registration does not imply a certain level of skill or training. This material is provided for informational and educational purposes only. The opinions expressed herein are those of GFG as of the date of publication and are subject to change without notice.

Nothing contained in this material is intended to constitute personalized investment, tax, legal, or insurance advice, or an offer to sell or a solicitation of an offer to buy any security or insurance product. The information presented should not be relied upon as the sole basis for any financial decision and is not intended to address the particular needs, circumstances, or objectives of any individual. Individuals should consult with appropriate financial, tax, legal, or other professionals regarding their specific circumstances. Tax laws and programs are subject to change, and eligibility depends on individual circumstances. Consult a qualified tax or legal professional regarding your specific situation.