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Talk to a Specialist →Illinois is one of only 4 states that fully exempt ALL retirement income from state income tax. Pensions, 401(k) distributions, IRA withdrawals, and Social Security benefits — all $0 in Illinois state tax, despite the state’s 4.95% flat rate on wages and other income.
Arizona charges a flat 2.5% on retirement income. On $80,000 in annual retirement distributions (pension + 401k + IRA), that’s $2,000/year in NEW state income tax you weren’t paying in Illinois.
This surprises Illinois retirees who assume “low-tax Arizona” means lower taxes across the board. On retirement income specifically, Illinois is actually more tax-friendly than Arizona.
Property taxes. Illinois averages 2.08% — the second-highest in the nation. Pima County averages 0.85%. On a $400K home: $8,320/year in Illinois vs $3,400 in Arizona. That’s $4,920 saved on property taxes. Minus the $2,000 new income tax = net savings of $2,920/year. The property tax reduction overwhelms the income tax increase. Every time.
| Tax ($400K home, $80K retirement income) | Illinois | Arizona (Pima) |
|---|---|---|
| State income tax on retirement | $0 | $2,000 |
| State income tax on wages/other | 4.95% | 2.5% |
| Property tax | $8,320 | $3,400 |
| Social Security taxed? | No | No |
| Sales tax | 6.25%+ (up to 10.25% local) | 5.6% + local (~8.7% Tucson) |
| Net annual tax impact | Arizona saves ~$2,920/year | |
Over a 20-year retirement: ~$58,400 in total tax savings. Not transformative like the New Jersey or New York numbers, but meaningful — especially combined with lower home prices and lower cost of living.
| Chicago Suburb Home | After Selling (~7%) | Tucson $400K Home | Equity |
|---|---|---|---|
| $350K (south/west suburbs) | $325K | $400K | -$75K needed |
| $450K (Naperville/Schaumburg) | $418K | $400K | +$18K |
| $550K (North Shore/Hinsdale) | $511K | $400K | +$111K |
Most Chicago suburban sellers are roughly lateral on home price — the financial advantage comes from the annual tax savings and lower cost of living, not from equity extraction. Downstate Illinois sellers (Champaign, Springfield, Peoria) typically face a $50K–$100K gap because home values are lower. Budget accordingly.
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Illinois has some of the largest public pension systems in the country (TRS, IMRF, SERS, SURS). If you’re a retired teacher, state employee, university staff, or municipal worker drawing an Illinois pension, that income was completely tax-free at the state level. Moving to Arizona subjects it to the 2.5% flat rate.
On a $60,000 public pension: $0 in Illinois → $1,500/year in Arizona. On a $90,000 pension (common for veteran teachers and administrators): $0 → $2,250/year. Run your specific pension amount through the 2.5% calculation before assuming Arizona is cheaper.
At what home value do property tax savings equal the new income tax? On $80K retirement income, you’re paying $2,000/year more in Arizona income tax. The property tax rate differential is 1.23% (2.08% IL minus 0.85% AZ). To save $2,000 in property taxes: $2,000 ÷ 0.0123 = $163K home value. Any home over ~$163K in value generates enough property tax savings to offset the income tax increase. Since virtually all 55+ homes exceed $163K, the move is net-positive on taxes for almost everyone.
Illinois retirees tend to value community infrastructure, structured social programming, and proximity to services — they’re used to suburban Chicago’s density. Green Valley’s GVR system (60+ clubs, 13+ centers) maps well to the organized-community mindset. SaddleBrooke’s resort model appeals to Chicago North Shore buyers who expect premium amenities. Continental Ranch Sunflower appeals to budget-conscious south-suburban buyers who want Del Webb quality at $360K.
We’ll calculate your specific pension/retirement income tax impact and match you with the right community.
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