South Dakota is an underrated gem for Financial Independence, Retire Early (FIRE) seekers due to its low cost of living, no state income tax, and breathtaking outdoor spaces. If you’re looking for wide-open landscapes, a business-friendly tax structure, and an affordable lifestyle, South Dakota could be a perfect choice.
With no state income tax, low property taxes, and affordable housing, South Dakota is one of the most tax-friendly states for early retirees. The state also offers beautiful national parks, small-town charm, and minimal congestion. However, harsh winters and rural healthcare access are factors to consider when planning an early retirement here.
This guide explores the pros and cons of retiring early in South Dakota, including tax implications, cost of living, healthcare, and the best places for early retirees.
Key Terminology
Before diving in, here are some FIRE-related terms to keep in mind:
- FIRE (Financial Independence, Retire Early): A movement that focuses on building wealth early through saving and investing to achieve financial freedom.
- Coast FIRE: A strategy where you save aggressively early and then let investments grow on their own, allowing for semi-retirement.
- Lean FIRE vs. Fat FIRE: Lean FIRE means retiring on a minimalist budget, while Fat FIRE allows for a more comfortable lifestyle.
- Geoarbitrage: Moving to a lower-cost state or city to maximize retirement savings.
- 4% Rule: A widely used guideline suggesting that retirees can withdraw 4% of their portfolio annually for sustainable income.
- State Tax Exemptions: Policies that reduce the tax burden on retirees, such as no state income tax in South Dakota.
What Is Early Retirement in South Dakota?
Early retirement in South Dakota means taking advantage of one of the lowest tax burdens in the country. Unlike high-tax states, South Dakota has no state income tax, no tax on retirement withdrawals, and low property taxes.
For those seeking affordability and outdoor adventure, South Dakota offers access to the Black Hills, Badlands National Park, and low-cost small-town living. However, the rural nature of the state means limited public transit and healthcare access.
How Does Early Retirement Work in South Dakota?
To achieve FIRE in South Dakota, you’ll need to minimize expenses, optimize tax strategies, and select the right city for your lifestyle.
1. South Dakota’s Tax Structure for Retirees
South Dakota is one of the most tax-friendly states in the U.S.
- ✅ No State Income Tax – South Dakota does not tax income, Social Security, or retirement withdrawals (401(k), IRA, or pensions).
- ✅ Low Property Taxes – The average effective property tax rate is 1.14%, lower than the national average.
- ✅ No Estate or Inheritance Tax – Unlike many states, South Dakota does not tax estates or inherited wealth.
- ❌ Higher Sales Tax – South Dakota’s base sales tax is 4.2%, but local taxes can increase it to 6-7%.
2. Cost of Living Considerations
South Dakota has a low cost of living, especially for housing.
- Housing Costs (Median Home Prices in Key Cities):
- Sioux Falls: ~$320K
- Rapid City: ~$350K
- Aberdeen: ~$250K
- Brookings: ~$280K
- Pierre: ~$270K
- Rent Prices (Average for 1-Bedroom Apartment):
- Sioux Falls: ~$1,200
- Rapid City: ~$1,100
- Aberdeen: ~$900
- Brookings: ~$1,000
- Pierre: ~$1,000
✅ Affordable Housing Options: Aberdeen, Brookings, and Pierre offer some of the lowest home prices in the state.
❌ Higher Housing Costs in Tourist Areas: The Black Hills region (Rapid City) tends to be more expensive.
3. Healthcare in South Dakota
South Dakota has high-quality healthcare in cities but limited options in rural areas.
- ACA Health Insurance Options: South Dakota offers ACA plans, but fewer choices compared to larger states.
- Top Medical Facilities: The best hospitals are in Sioux Falls and Rapid City, including Sanford USD Medical Center and Avera McKennan Hospital.
- Healthcare Costs: The average retiree spends $7,300 annually on healthcare, slightly below the national average.
4. Outdoor Lifestyle and Recreation
South Dakota is perfect for those who enjoy nature, hiking, and outdoor activities.
- National Parks & Landmarks: Explore Badlands National Park, Mount Rushmore, and Custer State Park.
- Hiking & Biking: The Michelson Trail and Needles Highway provide breathtaking outdoor experiences.
- Fishing & Hunting: South Dakota is known for world-class fishing and hunting.
- Small-Town Living: Enjoy a low-stress, friendly community lifestyle in towns like Aberdeen and Pierre.
How Does Early Retirement in South Dakota Compare to Other FIRE-Friendly States?
- South Dakota vs. Florida: Florida has no state income tax but has higher property taxes and living costs.
- South Dakota vs. Texas: Texas has no income tax, but South Dakota has lower property taxes and less congestion.
- South Dakota vs. Wyoming: Both states have no income tax, but Wyoming has fewer people and colder winters.
Pros and Cons of Retiring Early in South Dakota
✅ Pros of Early Retirement in South Dakota
✔ No State Income Tax – Keep more of your retirement savings.
✔ Affordable Housing & Low Cost of Living – Housing is significantly cheaper than in coastal states.
✔ Low Property Taxes – Helps reduce long-term housing costs.
✔ Beautiful National Parks & Outdoor Activities – A paradise for nature lovers.
✔ Small-Town Community Feel – Less congestion, safer neighborhoods, and a relaxed pace of life.
❌ Cons of Early Retirement in South Dakota
❌ Harsh Winters – Cold temperatures and heavy snow in winter months.
❌ Rural Healthcare Access – Outside of major cities, medical care options are limited.
❌ Limited Cultural & Entertainment Options – Fewer big-city attractions compared to urban states.
❌ High Sales Tax in Some Areas – Sales tax can reach 7% in some counties.
Best Practices and Tips for FIRE Success in South Dakota
✅ Choose a City with Healthcare Access – Sioux Falls and Rapid City have the best medical facilities.
✅ Leverage the No Income Tax Benefit – Reduce your tax burden by keeping your residency in South Dakota.
✅ Take Advantage of Free Outdoor Activities – Parks, trails, and fishing offer free or low-cost recreation.
✅ Plan for Winters – Ensure your home is well-insulated, and be prepared for harsh weather.
✅ Consider Downsizing – Moving to a smaller home can further reduce housing costs.
Conclusion
South Dakota is one of the best FIRE destinations for those seeking low taxes, affordable housing, and outdoor adventure. However, harsh winters and rural healthcare limitations are key factors to consider.
If you value financial freedom, a low cost of living, and a laid-back lifestyle, South Dakota could be an excellent place to retire early.
Would you consider retiring early in South Dakota? Let me know your thoughts!