Whether you’re a native Illinoisan or looking to explore a new place in your golden years, there are plenty of reasons why you might want to join the more than 2 million seniors that call our great state “home.”
You might think retirement is the same no matter where you go, but there are a variety of laws, expenses and taxes that can affect your income and lifestyle.
Read on to explore nine frequently asked questions about an Illinois retirement and begin the next phase of your life with confidence.
9 FAQs About Retiring in Illinois
1. What’s the cost of living for Illinois retirees?
One recent study found the average U.S. retiree spends about $4,345 a month on essential expenses like housing, transportation, food and healthcare. Of course, that cost varies quite a bit depending on where you live and your specific lifestyle needs.
Illinois clocks in below the national average cost of living, despite being the sixth most populated state. A CNBC article states that the cost of a “comfortable” retirement in Illinois sits around $60,000 as of December 2023. Keep in mind, that number accounts for all the essentials, plus a little extra for your rainy day fund, hobbies or other “fun” expenses. However, your exact mileage may vary depending on your goals and which city you’re in.
Additionally, keep in mind that while the great Midwest offers generally lower prices when it comes to groceries and filling gas tanks, housing costs are considerably higher the closer you get to big cities like Chicago (which has a typical home price north of $286,792!).
2. Does Illinois tax Social Security?
Nope! While some states like Colorado and Connecticut tax Social Security benefits, Illinois does not.
Download a free copy of the ebook, “7 Social Security Secrets”
3. How does Illinois tax 401(k) accounts?
Illinois is also one of the 13 states that exempts most retirement income, including 401(k) distributions, from state income tax. Pensions, Roth IRA accounts and traditional IRAs that have been converted to Roth accounts also enjoy exemptions from income tax.
While residents in sunny California might face anywhere from 1% to 12.3% state income tax on 401(k) distributions for 2023, the typical Illinois retiree won’t pay any!
4. How is income taxed in Illinois – and how does it compare to other states?
Some states have no income tax, while others have a flat tax rate (which applies to everyone) and/or a progressive income tax (which gets higher the more you earn). Illinois has a flat income tax rate of 4.95%.
States that surround Illinois have a variety of income taxes:
- Iowa has a progressive income tax rate between 4.4%-6%
- Missouri has a progressive income tax rate between 0%-4.95%.
- Wisconsin has a progressive income tax rate between 3.5%-7.65%.
- Michigan has a flat income tax rate of 4.05%.
- Indiana has a flat income tax rate of 3.15%.
- Kentucky has a flat income tax rate of 4.5%.
*Data courtesy of NerdWallet
While Illinois’ income tax rate sits on the higher end of those numbers, keep in mind that it also offers exemptions for most retirement income streams.
5. What does Medicare cover in Illinois – and what does it cost?
As of April 2023, there are 1,582,598 individuals enrolled in Medicare in Illinois. Medicare covers a variety of services depending on which Part you are signed up for and the plan you choose. In general, here’s what you can expect:
- Part A: Covers hospital stays, inpatient care, blood transfusions and more.
- Part B: Covers outpatient care like doctor’s office visits, as well as transportation.
- Part C: Also known as Medicare Advantage, this is a private insurance option that usually combines Parts A and B. They might also include dental or vision coverage.
- Part D: Covers prescription drug costs.
These stay the same regardless of where you reside in the U.S., although the plans offered vary depending on your state. In Illinois, top plan providers include Aetna, Blue Cross Blue Shield, Cigna, Humana and UnitedHealthcare.
While most people pay $0 in premiums for Medicare Part A, the average cost can go up to $506 per month in Illinois. Part B costs an average of $164.90 per month.
Related: Everything You Need to Know About Medicare’s 8-Minute Rule
Illinois also has a program called SHIP, or the State Health Insurance Program, which offers free resources and counseling to Medicare members and their caregivers as they navigate through the program.
6. What is the average cost of long-term care in Illinois?
It’s difficult to pinpoint an exact number for long-term care costs, especially because your exact care needs will likely vary from others’. However, we can take a look at current numbers for the cost of long-term care in Illinois to get an idea of what each option looks like price-wise:
| Type of Care | What’s Included | Average Reported Cost |
| Assisted Living Facility | These are generally a good choice for independent seniors who need help with daily tasks but not round-the-clock medical care. | Estimates range from $42,840 to $58,848 per year depending on your care needs and whether you have a private or shared room. |
| Nursing Home (Private Room) | Nursing homes usually provide more extensive healthcare services than assisted living facilities. | Average costs are estimated to be between $185 per day ($67,525 per year) to $93,840, |
| In-home Health Aide | An in-home health aide provides personalized service in the comfort of your own home, which may include housekeeping offerings in addition to medical care. | Reports range from $64,064 to $70,000 per year for a full-time aide, while hourly costs are estimated at $23.50. |
Related: Listen to our Retirement Readiness Episode 10, “How to Pay for Long-term Care”
7. Does Illinois have an estate tax?
Yes, Illinois has an estate tax on estates worth $4 million or more. The tax amount is graduated and maxes out at 16% depending on the size of your estate.
8. What does estate planning look like in Illinois?
Estate planning can include several aspects, from healthcare directives to the distribution of your assets and more.
According to the Illinois Department of Public Health, there are four main advanced health directives recognized within the state: “a health care power of attorney; a living will; a mental health treatment preference declaration, and a Practitioner Orders For Life-Sustaining Treatment (POLST).” Each of these offer a variety of ways to plan for your healthcare in the event that you can no longer make decisions yourself.
As far as your assets, it’s important to distinguish that a “living will” isn’t the same thing as a regular old will – you’ll still need to draft up a separate document detailing who you want to inherit all your things.
If you don’t have a will in place when you pass away, Illinois defaults to distributing your property like this:
- If you have a spouse and no kids, your spouse inherits all your assets.
- If you have a spouse and child(ren), they split your assets.
- If you have no spouse or children, your assets will go to next of kin, such as your parents.
Another interesting aspect of estate planning in Illinois is that you can execute a will remotely (with remote witnesses) under the recent Electronic Wills and Remote Witnesses Act.
9. Is Illinois a great place to retire?
In our humble and unbiased opinion, we would say: Yes!
Of course, where you choose to retire depends on your individual needs and preferences. It is worth noting that Choice Mutual ranked Illinois the 5th best state to retire, citing its tax advantages and home prices!
So if you’re looking for a state with a relatively low cost of living and tax-friendly retirement policies, Illinois could be a good option for you. These eight frequently asked questions are a great way to get familiar with the financial implications for seniors in the great Prairie State and learn more about the benefits of an Illinois retirement.
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