Retirement Planning in Maryland

What retirement looks like in Maryland

Maryland retirees fall into a few groups. Some spent decades with the federal government and receive a pension, Social Security and a Thrift Savings Plan balance. Others worked for the state, a county school system, a hospital or a university, and have a defined benefit plan. A third group built wealth through private careers in finance, law, medicine, defense or biotech, and rely on 401(k) and IRA balances. Whatever the source, the planning task is the same: combine income streams, keep taxes down and stay flexible when something unexpected comes up.

According to the U.S. Census Bureau, 2020 to 2024 American Community Survey, about 16.7 percent of Maryland residents are 65 or older, about 67.6 percent of homes are owner occupied and the median home value is about $419,900. Many retirees hold most of their wealth in a house, so the decision to stay, downsize or move away matters.

How retirement income is taxed

Maryland does not tax Social Security benefits. It does tax most other retirement income, including IRA and 401(k) withdrawals and private pensions, at graduated state rates, and then adds the county or Baltimore City income tax. A pension exclusion lets residents who are 65 or older, or who are totally disabled, subtract part of qualifying pension income, up to a limit tied to the Social Security wage base and reduced by Social Security benefits received. Military retirement pay can qualify for a separate subtraction. Rules and amounts change, so confirm the current ones with the Comptroller of Maryland or a tax professional.

Federal tax can reach up to 85 percent of Social Security benefits, depending on your income. Required minimum distributions from traditional accounts start in your seventies. A Roth conversion in the years before those start can reduce later bills, though it raises income in the year you do it, which can affect Medicare premiums two years on. Our retirement planning guide explains how conversions and distributions work.

Federal pensions, FERS and CSRS

Most federal retirees under FERS receive a basic annuity based on years of service and the average of the highest three years of pay, plus a Social Security benefit and a Thrift Savings Plan balance. Some also get a special supplement if they retire early. Workers under CSRS have a different formula and typically do not receive Social Security from that service. At retirement you choose whether to leave a survivor benefit for a spouse, and the choice cannot be undone, so the numbers deserve a calm look.

TSP funds should be reviewed as well. Many retirees keep the TSP, others roll it to an IRA, and each choice has tradeoffs in fees, investment options and withdrawal flexibility. A common approach is to treat the pension as a floor and keep the TSP invested for growth. An advisor with federal experience can run the cases with your agency’s retirement counselor.

Health coverage: FEHB, Medicare and the choices

Federal retirees who meet the requirements can carry Federal Employees Health Benefits into retirement. Many then enroll in Medicare Part B as well, because Medicare becomes the primary payer and FEHB fills gaps, though some retirees skip Part B to save the premium. The decision depends on plan costs, how much you use the doctor and how long you expect to need coverage. Others in Maryland, such as private-sector retirees, compare Medigap plans with Medicare Advantage plans that use networks. Because many residents rely on Johns Hopkins, the University of Maryland Medical System, MedStar and Kaiser or other systems, check whether your doctors participate before you enroll. Higher incomes pay surcharges on Medicare premiums, so large Roth conversions can raise those costs.

Military retirees at Aberdeen, Fort Meade and Pax River

Maryland is home to Aberdeen Proving Ground, Fort Meade, Joint Base Andrews, Naval Air Station Patuxent River and the Naval Academy in Annapolis. Many career service members settle nearby after retirement and take a civilian job. The state offers a subtraction from income for military retirement pay, with limits that depend on age, and many retirees also qualify for property tax benefits for disabled veterans. A retiree in Lexington Park with a pension, a VA disability payment and a defense contractor job has three streams to coordinate. VA disability pay is not taxed federally. Survivor Benefit Plan and TRICARE for Life decisions deserve attention too.

Making the portfolio last

How long your savings last depends on your spending, your investments, the order of returns and your willingness to adjust. Many planners keep one to two years of spending in cash or short-term bonds to avoid selling stocks in a downturn. Others use a bucket approach or a flexible spending rule that trims withdrawals after bad years. A Maryland couple who retire at 62 with a pension covering fixed costs can usually draw less from their savings than a couple without one. Stress-test the plan against a bear market in the first five years, which does the most damage.

The house and property tax

Maryland counties tax real property, and a state agency reassesses homes on a cycle. The Homestead Property Tax Credit limits the yearly increase in taxable value for a primary residence. The Homeowners’ Property Tax Credit gives income-based relief to some owners, and some counties offer additional credits for seniors or veterans. Renters may qualify for a separate credit. A retired couple in Catonsville might stay put if the home is paid off and the tax cap holds, while another couple in Montgomery County might downsize to cut upkeep. Our budgeting and saving guide helps with comparing monthly costs.

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Retirement on the Eastern Shore and in the mountains

The Eastern Shore draws retirees to places like Easton, Chestertown and Berlin, where homes cost less than in the Washington suburbs and the pace is slower. Buyers should check flood zones, because many properties sit near the bay or tidal creeks, and compare the cost of insurance before making an offer. Health care access is thinner than around Baltimore, so ask where the nearest hospital and specialists are. Garrett County and Allegany County in Western Maryland attract retirees who want mountains, lower prices and four seasons. Winters bring snow removal costs and longer drives to specialists, which is worth knowing before you move.

Long-term care costs

Care is the largest unplanned expense for many families, and Medicare pays for little of it. Nursing home costs in Maryland are high, and assisted living can run several thousand dollars a month. Medicaid helps those who meet income and asset limits and reviews gifts made in the five years before an application. Options include savings, long-term care insurance, hybrid life policies with care benefits, and early work with an elder law attorney. Federal employees can look at the Federal Long Term Care Insurance Program. Our estate planning guide covers powers of attorney and health directives that are needed if you cannot decide for yourself.

Leaving an estate in Maryland

Two taxes matter at death. The estate tax applies to larger estates above a state exemption, and the inheritance tax applies to certain heirs. Spouses, children, grandchildren, parents and siblings are generally exempt from the inheritance tax, while nieces, nephews and friends generally are not. Retirement accounts pass by beneficiary form, and non-spouse heirs usually must empty inherited accounts within a set number of years under federal rules. Naming a spouse first and then children, and keeping forms current, prevents mistakes. A Maryland estate attorney can explain current thresholds.

Social Security timing

You can claim between 62 and 70. Each year of delay after full retirement age raises the check, and claiming early reduces it for life. For married couples, the higher earner’s age at claiming also sets the survivor benefit. Federal and state workers who paid into a pension instead of Social Security should check how recent changes in federal law affect their benefit, since the rules for pension offsets have changed. The Social Security Administration has its headquarters in Woodlawn, Maryland, and its online account shows your own estimate.

Picking a retirement advisor

Look for someone who asks about your goals before they pitch products. Ask how they are paid, whether they act as a fiduciary and whether they have worked with federal retirement systems. Check the SEC adviser database and FINRA BrokerCheck, read the Form ADV and contact the Securities Division of the Maryland Attorney General. For annuities and insurance, the Maryland Insurance Administration licenses sellers and takes complaints.

Maryland state and school system pensions

Teachers, state workers, law enforcement officers and many local government employees belong to the Maryland State Retirement and Pension System or a county plan. The benefit usually depends on years of service, age at retirement and a formula applied to average pay over a set number of years. Some members also have a supplemental retirement plan, and some participate in Social Security while others do not. Before you retire, request an estimate from the system, compare payment options and decide how to protect a spouse. A teacher in Frederick County who retires at 60 may face a different calculation than one who retires at 65, and the cost-of-living adjustment is set by the system, not certain to match inflation.

If you worked in both a public and a private job, check each plan separately and see how they fit together. Retirement dates matter too, since leaving a few months earlier or later can change the pension, the health subsidy and the first Social Security payment. Keep copies of every statement and beneficiary form.

Part-time work and phased retirement

Plenty of Marylanders keep working in some form after they leave a career job. A federal employee in Greenbelt may take a consulting contract, a nurse may shift to part-time hours and a professor at a state university may teach one course a semester. Earnings before full retirement age can reduce Social Security benefits temporarily if you claim early and earn above an annual limit, and the withheld amounts are credited back later. Wages also affect taxes and Medicare premiums. A planner can compare working two more years with retiring now, including the value of extra pension service, additional savings and a delay in claiming Social Security. The investing guide helps you decide how to hold the money you do not need yet.

Frequently asked questions