Retirement Planning in Alaska

Retiring in a young state

Alaska has one of the youngest populations in the country. According to the U.S. Census Bureau, 2020 to 2024 American Community Survey, about 13.8 percent of residents are 65 or older and the median age is about 35.8. That has long shaped retirement here: many people arrive for work, raise families and then face a decision about whether to leave. Those who stay often cite family, the outdoors and the lack of state tax on retirement income. Those who go cite winters, travel costs and distance from specialists. Neither choice is wrong, but each deserves a calculation, not a feeling.

A sound plan estimates your spending, lists your dependable income and sets a withdrawal rate for the gap. Our retirement planning guide explains the basic method.

Taxes on retirement income

The state does not tax Social Security, pensions, IRA withdrawals or 401(k) distributions. Federal tax still applies, and up to 85 percent of Social Security can be taxable depending on your income. With no state return, the planning job is to manage your federal bracket across the years. Drawing from taxable accounts in some years, traditional accounts in others and Roth accounts to stay under a threshold can lower the lifetime bill. Required distributions from traditional accounts start in your seventies, and a large balance can push income higher than expected, so some retirees convert part of an account to Roth earlier. Confirm current federal rules with the IRS or a tax professional.

The stay or leave decision

Picture a couple, both 63, who have lived in Eagle River for thirty years. They own a home worth about the state median, have grown children nearby and no state tax. A move to a milder state might cut heating costs and open more medical choices, but it could add state sales or property taxes and take them far from family. A planner builds two budgets, one for each place, and compares them in today’s dollars. One tip: rent for a season in the new place before you sell. Another: understand that leaving changes your dividend eligibility and your Alaska ties.

State and teacher retirement systems

Employees of the state and many local governments belong to the Public Employees Retirement System, and teachers belong to the Teachers Retirement System. Members hired before July 2006 are generally in a defined benefit plan, which pays a monthly amount based on years of service and pay. Those hired later are in a defined contribution plan, where the account value depends on contributions and investment results. That difference matters: a pension can be counted on, while an account needs a withdrawal plan. Request a statement from the Division of Retirement and Benefits and check the survivor options before you set a date.

Social Security and the gap

Many Alaska public employers, including numerous school districts and municipalities, did not participate in Social Security. A person who spent a career in such a job may have little or no benefit of their own, or a reduced benefit due to federal offset rules. Check your own record at ssa.gov before assuming a number. For those who do qualify, claiming at 62, full retirement age or 70 changes the monthly check for life. Married couples should look at both benefits together, since the higher earner’s choice also sets the survivor benefit.

Healthcare in a big, thinly settled state

Medicare covers most people at 65, but access to care differs. Anchorage has major hospitals, while rural residents may fly to see a specialist, and a medical flight can cost thousands of dollars. Check whether your supplement or Advantage plan has doctors where you live. Military retirees can use Tricare, and Alaska Native people may use the Indian Health Service and tribal health systems. A planner will budget for premiums, drug costs, travel and a cushion for care that Medicare does not cover. Long-term care costs here run high, and Medicare covers only short stays after a hospital visit.

Housing and the senior property tax break

Home values are high relative to incomes in some places, and heating a large house in retirement gets expensive. Some retirees downsize to a smaller place in Anchorage or the Kenai Peninsula. Older homeowners may qualify for a state-required property tax exemption on part of the value of a primary home, and some boroughs add their own relief. Rules and amounts change, so ask the borough assessor. The state also runs the Alaska Pioneer Homes, which offer assisted living to eligible residents, so find out about waiting lists and eligibility early.

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Military and federal retirees

With bases at Elmendorf-Richardson, Fort Wainwright, Eielson and Greely, many retirees stay after serving. Alaska does not tax military retirement pay. Retirees keep Tricare, base commissary access and the Survivor Benefit Plan to consider. Federal civilians have their own pension and thrift plan. Because the Veterans Affairs system has clinics in Anchorage and Fairbanks, healthcare logistics can be easier for veterans than for others.

Seasonal workers and the self-employed

Fishermen, guides and small business owners often have no employer plan. A solo 401(k) or SEP IRA lets a self-employed person put away a large share of a good year, within limits. Because income swings, the contribution can swing too. A boat or fishing permit may be the retirement plan on paper, so it should be part of the numbers, with a plan for selling or passing it on. Our investing guide explains how to build a portfolio for withdrawals.

Alaska Native corporation shareholders

Shareholders may receive yearly dividends that can supplement other income. Treat them as income that can change, and keep share records and beneficiary forms in order. Because the stock has transfer limits, consult an attorney familiar with your corporation about wills.

Estate documents for retirees

Alaska has no estate or inheritance tax. Still, you need a will, a power of attorney, a healthcare directive and current beneficiary forms. Store originals where a family member can reach them. Our estate planning guide explains each document.

What to do in the five years before retiring

1. Request benefit statements from Social Security and any pension.
2. Build a monthly budget for retirement, including heating and travel.
3. Review your investments and reduce risk if you will need money soon.
4. Compare Medicare options and your health coverage until 65.
5. Decide where you will live, and rent there first if you can.

How to choose a retirement advisor

Ask whether the advisor is a fiduciary in writing, how the advisor is paid and whether the advice covers taxes and healthcare. Check the firm on the SEC adviser database and with the Division of Banking and Securities. Ask how the advisor serves clients who are far from an office.

Aging in a small community

Staying in a village or a small coastal town means family, subsistence traditions and familiar faces. It can also mean limited clinics, high energy bills and few options for assisted living. A good plan names the supports you have: relatives nearby, a local health aide, a road or an airport. It also names the gaps. If you need a higher level of care later, the plan should say where you would go and how you would pay. Visiting facilities in Anchorage, Fairbanks or Juneau before you need them takes pressure off a later decision.

Spending from your accounts

A withdrawal plan decides which accounts to tap first. A common approach spends taxable savings early, lets traditional accounts grow a bit longer and keeps Roth money for last, then adjusts for brackets each year. The dividend and any dividends from a corporation count as income too. For example, a retiree in Kenai with a modest pension, a dividend and savings can fill the lower federal brackets with traditional IRA withdrawals, then use savings for the rest. Run this each year, since tax law and your needs will change.

Prices, inflation and living a long time

Costs for food, fuel and travel rise over time, and in Alaska they start from a higher base. A plan should assume your spending grows each year, and should test what happens if you live to 95. Pensions with cost of living adjustments are valuable here, so find out whether yours has one. If you are in a defined contribution plan, consider whether a portion should buy an income annuity to cover essential bills. Annuities have fees and rules, so compare offers and read the contract.

The first year of retirement

The first year sets the pattern. Many people spend more than planned while travel and projects are fresh. Track actual spending against the plan every quarter. Keep one year of cash for bills so you do not sell investments after a market drop. Review Medicare enrollment dates and the tax bill from your first year of required distributions. Our financial advisor guide explains how to pick someone to review the plan with you each year.

Paperwork to gather early

Retirement goes more smoothly with a folder of documents ready: birth and marriage certificates, military discharge papers, pension statements, Medicare cards, account numbers for every retirement plan and a list of online logins. Alaskans who spend months away from home, whether at fish camp or on the road system in summer, should share the location of these papers with a trusted person. A spouse or adult child who knows where everything lives can act quickly if something happens.

Winters, travel and part year living

Some retirees split the year, spending summers in Alaska and winters in Arizona or Hawaii. That can lower heating bills and keep family ties, but it needs care. Residency rules for the dividend, vehicle registration, voting and taxes in the second state all depend on where you actually live, so keep a calendar of days spent in each place. Budget for two sets of utilities and a second round of insurance. Ask a tax professional before you buy a second home, since a stay that grows too long can create tax duties in the other state.

Frequently asked questions