Retirement Planning in Arkansas

Two phases of retirement planning

There are really two jobs in retirement planning. First you accumulate: you fund accounts and aim at a target. Later you distribute: you turn those accounts into a monthly paycheck, and errors cost more because new earnings no longer cover them. The practical sequence is to estimate what you will spend, subtract the income that is already promised to you, and then choose a pace of withdrawals that makes up the shortfall without draining the accounts too soon.

According to the U.S. Census Bureau, 2020 to 2024 American Community Survey, about 17.6 percent of Arkansas residents are 65 or older, the median age is about 38.5 and about 66.4 percent of homes are owner occupied. The median home value is about $188,000. Many retirees arrive from Texas, Oklahoma, Missouri and the Midwest, drawn by cost of living, the lakes and the hills, while many lifelong residents simply stay in the town where they raised a family.

How Arkansas treats retirement income

The state does not tax Social Security benefits. It has also exempted a portion of qualifying retirement income, such as pension payments and withdrawals from IRAs, with caps and eligibility rules that have been revised more than once. Military retirement pay has received special treatment as well. Because the lawmakers keep changing the details, confirm current rules with the Arkansas Department of Finance and Administration or a tax professional before you decide how much to withdraw.

Federal tax still applies. Up to 85 percent of your Social Security can be taxed federally, depending on your other income. A common approach is to look at your bracket each year and balance withdrawals between taxable, traditional and Roth accounts. Required minimum distributions from traditional accounts begin in your seventies, and large balances can push your income higher than expected, which is why many retirees convert some money to Roth in their sixties.

Claiming Social Security

Benefits can start at 62, at your full retirement age or at 70, and the monthly amount grows the longer you wait. Delaying past full retirement age adds roughly eight percent for each year until 70, while starting at 62 shrinks the check by up to about a third, and the reduction never goes away. Health, family longevity, other income and marital status all push the answer one way or the other. For married couples the two benefits should be studied together, since the larger one becomes the survivor benefit when the first spouse dies. Our retirement planning guide explains the basics, and your account at ssa.gov shows your own estimate.

APERS, ARTRS and LOPFI

The Arkansas Teacher Retirement System covers teachers and school staff, the Arkansas Public Employees Retirement System covers state and many local employees, and the Local Police and Fire Retirement System, known as LOPFI, covers many city and county first responders. Benefits are generally based on years of service and a final average salary, and the formulas depend on when you started. Some plans let you work and draw a pension on certain terms, and others have a deferred retirement option or similar features.

Before you set a date, request an estimate in writing. Ask what the monthly payment would be under each survivor option, since choosing a higher payment now can mean less for a surviving spouse. Ask also how health insurance works in retirement and whether you will be eligible for Social Security from your public job or from earlier work. Some public employees receive less than they expect from Social Security because of federal offset rules, so confirm early.

Healthcare when you stop working

Most people become eligible for Medicare at 65. The original program pays for hospital and doctor services but comes with deductibles and no cap on what you might owe, which is why many buyers add a supplement policy or pick a Medicare Advantage plan instead. Drug coverage is a separate choice. Medicare Advantage networks differ by region, and in a state with rural hospitals and long drives to specialists, the network you choose can matter more than the monthly premium. Check which hospitals and clinics a plan includes before you enroll, and review your choice every fall.

If you retire before 65, you will need coverage for the gap. Options include a spouse’s plan, retiree coverage from a former employer, COBRA for a limited time or a marketplace plan. Income affects subsidies, so planning withdrawals carefully in those years can lower your premiums.

Where Arkansas retirees settle

Hot Springs has long drawn retirees with its spa heritage, lake access and medical services. The area around Lake Hamilton and Lake Ouachita offers waterfront living. Northwest Arkansas around Bentonville and Fayetteville attracts people who want trails, culture and a university town, though housing costs there run higher than in most of the state. The Ozarks east of Mountain Home, with Bull Shoals and Norfork lakes, suit people who want quiet. Greers Ferry Lake and the town of Heber Springs are popular in the center of the state, and some retirees choose Little Rock for the proximity to major hospitals.

A couple in their mid sixties selling a house in Texas for $450,000 and buying a lake home in Arkansas for $300,000 might free up money for a retirement account, though they would add costs for boat storage, a dock and higher insurance. Visit in the off season before you commit, because some lake communities close their shops after the summer.

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Property tax and housing in retirement

Arkansas limits how fast assessed values can rise, and homeowners can claim a homestead credit. Homeowners who are 65 or older, or who are disabled, may be able to freeze the assessed value of their primary home. You normally apply with the county assessor, and the details can change. Remember that a frozen assessment does not freeze your insurance premium, which has risen in many storm prone areas. Ask your agent about wind and hail deductibles, and if you retire to a floodplain or near a river, price flood insurance before you buy.

Paying for long-term care

Medicare covers short stays in a skilled nursing facility after a hospital visit but does not pay for ongoing custodial care. Costs vary by region and type of care. Options include long-term care insurance, hybrid life policies with a care rider, savings or, for those with limited assets, Arkansas Medicaid. Medicaid has strict limits on income and assets, a five year look-back on gifts, and estate recovery rules that may reach the home. An elder law attorney can explain the rules, and you should speak to one before giving away assets.

Estate documents for retirees

Arkansas does not tax estates or inheritances, so the goal is to make things easy for the people left behind. Keep a will, a durable power of attorney, a healthcare directive and updated beneficiary forms on retirement accounts and insurance. Beneficiary forms override the will, so check them after a death, divorce or birth. Our estate planning guide covers the basics, and our investing guide explains how to invest during retirement.

Building a sustainable withdrawal rate

A common starting guide is to withdraw about four percent of savings in the first year and adjust for inflation afterward, but it is only a starting point. If you retire early, you may need a lower rate. If you have a pension that covers most expenses, you may withdraw more. Many retirees divide money into buckets: cash for the next year or two, bonds for the following several years and stocks for the long term, which helps them avoid selling stocks in a down market.

Choosing a retirement advisor

Look up the advisor in the SEC adviser database and FINRA BrokerCheck, and ask the Arkansas Securities Department about state registration. Read the Form ADV and ask how the advisor is paid. Be cautious about free dinner seminars that lead to product sales, and about anyone who pushes you to roll over an old plan without comparing costs. If you are weighing coverage for a spouse, see our page on life insurance, and if you want help with the portfolio, see the investment advisor page.

A sample budget for a couple in Hot Springs

Take a couple who retire at 66 and 64 and settle near Lake Hamilton. Their house is paid for, they receive $3,800 a month from Social Security together, and they have $450,000 in IRAs and a 401(k). They estimate spending of $5,200 a month, including Medicare premiums, supplemental coverage, drugs, property tax, homeowners insurance and a boat slip. The gap is $1,400 a month, or $16,800 a year, which is about 3.7 percent of their savings. That is a manageable rate, but it leaves little room for a roof replacement after a hailstorm or a long nursing stay. A planner would test the numbers against a market drop in the first few years and suggest holding a reserve in cash.

Working a few more years or part time

Retirement is often a gradual change. Hospitals, schools, lake resorts and the many small businesses around Hot Springs and the Ozarks hire seasonal and part time workers, and a few years of earnings can reduce how much you draw from savings. If you claim Social Security before full retirement age and keep working, benefits are temporarily withheld when earnings pass an annual limit, so check the current rule. After full retirement age, the limit no longer applies. Consulting or farm leasing can also fill a gap. Our budgeting and saving guide shows how to track the new, lower level of spending.

Distance from care and family

Many Arkansas retirees choose small towns for peace and low cost, and the tradeoff is access. A rural county may have a critical access hospital but few specialists, so a cardiology or cancer visit can mean a drive of an hour or more to Little Rock, Fayetteville, Fort Smith or Memphis. Budget for fuel and lodging, consider telehealth, and think through what happens if one spouse can no longer drive. Some couples buy a home that is a short drive from a regional medical center, and others plan to move closer to children when health changes. A plan that covers both choices is more flexible than one that assumes you stay put.

Frequently asked questions