Minnesota, known for its beautiful lakes, vibrant cultural scene, and diverse natural landscapes, is a hidden gem for those seeking Financial Independence, Retire Early (FIRE). The state offers a high quality of life with affordable living costs, which makes it an ideal place for early retirees looking for a peaceful yet active retirement.
With moderate tax rates, reasonable healthcare options, and plenty of outdoor activities, Minnesota provides the perfect environment for those who wish to retire early and still stay active in a welcoming community. This guide will cover everything from cost of living to tax considerations and best cities for retirement in Minnesota.
Key Terminology
Here are a few terms that can help clarify what FIRE is all about in Minnesota:
- FIRE (Financial Independence, Retire Early): A lifestyle of aggressive saving, investing, and frugality to achieve financial independence at an early age.
- Geoarbitrage: The practice of moving to an area with a lower cost of living, which can stretch retirement savings.
- Lean FIRE vs. Fat FIRE: Lean FIRE involves living on a minimal budget, while Fat FIRE allows for a higher standard of living.
- 4% Rule: A rule used to calculate how much you can withdraw from your retirement portfolio annually without running out of money.
- State Tax Exemptions: Some states offer tax exemptions for retirees, reducing the tax burden on their retirement income.
What Is Early Retirement in Minnesota?
Early retirement in Minnesota offers retirees the chance to live in a state full of lakes, parks, and friendly communities while enjoying the benefits of low housing costs, good healthcare options, and no shortage of activities.
Minnesota has a relatively low cost of living compared to many states, but it also has higher-than-average property taxes and harsh winters that need to be factored into your retirement plans.
How Does Early Retirement Work in Minnesota?
1. Minnesota’s Tax Structure for Retirees
Minnesota has a fairly neutral tax structure, with certain benefits and drawbacks for retirees.
✅ No Tax on Social Security Benefits: Minnesota exempts Social Security income from state taxation, making it a good state for retirees who rely on Social Security.
✅ Moderate Property Taxes: Property taxes are higher than the national average, but Minnesota offers homestead credits to low-income retirees, helping to offset these costs.
✅ State Income Taxes Apply to Retirement Withdrawals: Minnesota taxes most retirement income (including withdrawals from 401(k)s, IRAs, and pensions), so planning is essential for minimizing the tax burden.
❌ State Income Tax Rates Are Relatively High: Minnesota has a graduated income tax, with higher rates for retirees with substantial income.
❌ Sales Tax Is 6.875%: Minnesota’s sales tax is moderate, and local taxes may add a small amount, making it slightly above average for retail prices.
2. Cost of Living in Minnesota
Minnesota offers reasonable living costs, particularly when compared to other major states with larger urban areas.
Housing Costs (Median Home Prices in Key Cities)
- Minneapolis: ~$325K
- St. Paul: ~$275K
- Rochester: ~$250K
- Duluth: ~$200K
- Mankato: ~$175K
- Bemidji: ~$170K
Rent Prices (Average for 1-Bedroom Apartment)
- Minneapolis: ~$1,200
- St. Paul: ~$1,100
- Rochester: ~$1,100
- Duluth: ~$1,000
- Mankato: ~$900
- Bemidji: ~$850
✅ Affordable Areas: Rochester and Mankato offer lower housing prices, especially when compared to Minneapolis-St. Paul, making them great choices for early retirees looking for a more affordable lifestyle.
3. Healthcare in Minnesota
Minnesota is known for its high-quality healthcare system, with some of the best hospitals in the country. This is especially important for retirees who may need consistent medical care.
- Top Medical Centers: Minnesota is home to Mayo Clinic, one of the most renowned healthcare providers in the world, making it an attractive state for retirees who prioritize medical care.
- Healthcare Costs Are Moderate: The average annual healthcare cost for retirees is about $7,200 in Minnesota, which is slightly below the national average.
- Medicare Advantage & ACA Plans: Minnesota has strong Medicaid and ACA marketplaces, giving retirees access to affordable health insurance plans before Medicare eligibility kicks in.
4. Outdoor Lifestyle and Low-Cost Recreation
Minnesota is a paradise for outdoor enthusiasts, with thousands of lakes, hiking trails, and national forests to explore. Whether you’re into hiking, fishing, or winter sports, Minnesota provides a bounty of activities that won’t break the bank.
- Lakes & Water Sports: Minnesota is known as the “Land of 10,000 Lakes,” and with that comes boating, fishing, and water recreation.
- Hiking & State Parks: Popular spots like Voyageurs National Park and Itasca State Park provide opportunities for scenic hikes, camping, and outdoor activities.
- Winter Sports: Skiing, snowshoeing, and ice fishing are popular winter activities in the state’s snowy winters.
- Cultural Attractions: Minneapolis and St. Paul offer plenty of arts, music, theater, and museums, making it easy for retirees to stay engaged.
How Does Early Retirement in Minnesota Compare to Other States?
- Minnesota vs. Wisconsin: Wisconsin offers lower taxes and housing costs, but Minnesota’s outdoor activities and healthcare options are strong advantages for retirees.
- Minnesota vs. Michigan: Both states offer affordable housing and abundant outdoor recreation, but Minnesota’s strong healthcare system and higher-quality cities make it an appealing option for early retirees.
- Minnesota vs. North Dakota: While North Dakota has a lower tax burden, Minnesota offers more vibrant cities and a greater variety of recreational opportunities.
Pros and Cons of Retiring Early in Minnesota
✅ Pros of Early Retirement in Minnesota
✔ No State Tax on Social Security Income
✔ Affordable Housing & Low Cost of Living
✔ Access to World-Class Healthcare
✔ Abundant Outdoor Activities
✔ Strong Arts and Cultural Scene
❌ Cons of Early Retirement in Minnesota
❌ Higher Property Taxes
❌ State Income Taxes Apply to Retirement Withdrawals
❌ Cold Winters with Heavy Snowfall
❌ Moderate Sales Tax
Best Practices and Tips for FIRE Success in Minnesota
✅ Choose Lower-Cost Cities: Rochester, Duluth, and Mankato offer great affordability and access to outdoor activities.
✅ Plan Your Withdrawals Carefully: Be mindful of taxable retirement income to avoid higher state taxes on withdrawals.
✅ Embrace the Outdoors: Minnesota’s great lakes, hiking trails, and winter activities are free or low-cost, making it a great state for outdoor-loving retirees.
✅ Leverage Minnesota’s Healthcare System: Take advantage of Mayo Clinic and other top-tier hospitals for your healthcare needs.
Conclusion
Minnesota is a great state for early retirement, offering affordable living, plenty of outdoor activities, and world-class healthcare. With a reasonable tax burden, retirees can stretch their savings and enjoy a healthy and fulfilling lifestyle in a welcoming, nature-filled environment.
Would Minnesota be a good fit for your FIRE journey? Let us know in the comments!