Retirement Planning in Hawaii

How retirement planning works

Retirement has two stages. In the first you save and invest toward a target. In the second you convert that pile into a paycheck, and mistakes are hard to undo. A plan estimates your monthly spending, lists the income you can count on, and sets a sensible rate of withdrawal from savings for the gap. It also covers taxes, healthcare and where you will live.

Hawaii has an older population than its beach image suggests. According to the U.S. Census Bureau, 2020 to 2024 American Community Survey, about 20.5 percent of residents are 65 or older, the median age is about 40.9, about 63.0 percent of homes are owner occupied and the median home value is about $839,100. People who bought decades ago often hold a home worth many times what they paid, with little or no mortgage left. People who rent face a different problem, since rent can rise faster than a pension.

What the state does and does not tax

Hawaii does not tax Social Security benefits. Pension income that comes from an employer-funded plan, including many public and military pensions, is generally exempt from state income tax, and that is a real advantage for people who spent a career in a government job or the service. The picture is less friendly for personal savings. Distributions from an IRA, or from the part of a workplace plan that you funded yourself, can be subject to state income tax at progressive rates. Confirm the current treatment with the Department of Taxation or a tax professional.

Federal tax still applies, and up to 85 percent of Social Security can be taxable federally, depending on income. Planners often use years between retirement and required withdrawals to convert some pretax savings to Roth accounts at lower rates, which can reduce both federal and state tax later.

Social Security timing

You can claim as early as 62, at full retirement age, or as late as 70. Waiting past full retirement age raises the monthly amount by about eight percent a year until 70, while claiming at 62 cuts it permanently. In a high-cost state, a larger check for life is a real hedge against rising rents, so many Hawaii retirees with good health and other income consider waiting. Married couples should look at both benefits together, since the higher earner’s choice also sets the survivor benefit. Our retirement planning guide covers the basics, and your account at ssa.gov shows your estimate.

ERS pensions for state and county workers

Teachers, state and county employees, university staff and many other public workers belong to the Employees’ Retirement System of the State of Hawaii. The pension depends on years of service, average pay and the plan tier you joined, and newer members face different rules from long-time ones. Members choose a payment option when they retire, such as a higher monthly check that ends at death, or a smaller one that continues for a spouse. That decision cannot usually be changed later, so run both scenarios and consider life insurance if the spouse depends on the income.

Public employees may also have a deferred compensation account, a 457 plan, which can supplement the pension. Retiree health benefits come through the Employer-Union Health Benefits Trust Fund, and rules on cost sharing depend on your years of service and hire date. Ask for the details well before your target date.

Military and federal retirees

Hawaii is home to many retired service members and federal employees who remain after leaving duty. Military retirees have Tricare, access to commissaries and exchanges where eligible, and VA benefits if they qualify, which lowers healthcare and grocery costs. Retirement pay is generally exempt from state income tax. Federal civilian retirees under the Federal Employees Retirement System should check their pension, their Thrift Savings Plan and health coverage options. Those with a survivor benefit election should review it, since an election made at retirement can only be changed in limited cases.

Housing: stay, downsize or leave

For many people the home decides the plan. A homeowner who bought in the 1990s may have a large equity cushion, and downsizing to a condo can free hundreds of thousands of dollars. A leasehold unit, on the other hand, can lose value as the lease runs down, so check the years remaining before relying on it. Property taxes in Hawaii are set by counties, and owner-occupants often pay lower effective rates than owners of investment property, with additional exemptions available to older homeowners in some counties. Confirm the details with the county real property office.

Some retirees choose to move to a smaller island with lower housing costs, while others relocate to the mainland to be near family. Weigh the cost of the move itself, the flights to visit grandchildren, the loss of local support and whether you could return. A written comparison of two or three scenarios is better than a hunch.

Healthcare and long-term care

Medicare covers most medical bills after 65 but does not pay for ongoing help with bathing, dressing or meals. Care at home or in a facility costs more in Hawaii than in most states, and waiting lists for beds can be long. Options include paying from savings, long-term care insurance bought before health problems arise, hybrid life and care policies, or Medicaid, called QUEST Integration in Hawaii, for those who qualify with limited assets. The Kupuna Care program offers some home and community services for older residents. Because specialists are concentrated on Oahu, people on neighbor islands should budget for travel to appointments.

Planning for care costs?

Ask a Hawaii advisor how to pay for care without draining your savings. The first call is free and confidential.

Request a free review →

Staying safe from island hazards

Retirement is not a time to be underinsured. Standard homeowners policies exclude flood, and hurricane deductibles can be a percentage of the home’s insured value, which can run into the tens of thousands of dollars. A retiree who rebuilt after the 2018 lava flows in Puna or who lived through the 2023 Maui wildfire knows how disruptive a loss can be. Review your coverage each year, keep an updated home inventory and store copies of key documents in a place you can reach if you must evacuate.

Passing on the home and the land

Family homes and land are often the biggest part of a retiree’s estate. Hawaii has an estate tax with a threshold much lower than the federal one, so a home plus retirement accounts can push a couple over the line. Wills and trusts help, as do updated beneficiary forms. A transfer on death arrangement or a living trust can let heirs avoid probate. Our estate planning guide explains the main documents.

How to choose a retirement advisor in Hawaii

1. Check registration. Search the advisor in the SEC adviser database and FINRA BrokerCheck, and ask the Securities Compliance Branch about state registration.
2. Ask how they are paid. Compare fee-only, fee-based and commission models.
3. Ask about pensions. An advisor who works with ERS and military retirees will understand survivor options.
4. Request a sample projection. It should show taxes and healthcare, more than investment returns.
5. Confirm the service model. Find out how often you will meet and by what method.

What retirement advice costs

Some advisors charge about one percent of managed assets a year, while others charge a flat fee or an hourly rate for a retirement plan. For a $750,000 portfolio, one percent comes to $7,500 a year. A one-time plan may cost much less, and it can be a good choice if you manage your own investments. Ask for the total price in dollars and what the price includes.

A sample plan for a couple on Oahu

Consider a couple in Kaneohe, both 66, who own their home outright. He receives a state pension, she has a small Social Security check and they hold $400,000 in savings. Their monthly spending is $6,500, covering property tax, insurance, electricity, food, a car and a trip to see family each year. Social Security and the pension cover most of it, and savings fill the gap with modest withdrawals. The plan tests what happens if one of them needs care, if a roof repair costs $20,000 and if the surviving spouse has a smaller pension. Numbers like these turn worry into a list of choices. Rates, benefits and taxes change, so treat the example as an illustration only.

Working part time in retirement

Many Hawaii retirees keep earning, whether through consulting, tutoring, tour work or a seasonal job. Part-time income reduces withdrawals and can delay Social Security. Before full retirement age, earnings above a federal limit temporarily reduce benefits, and the withheld amount is credited back later. Income from a side business may also require general excise tax filings, so ask a tax professional how it works before you start.

Required withdrawals and Roth conversions

Federal rules require withdrawals from traditional retirement accounts starting in your seventies, and large balances can create a high tax bill later. Converting part of the balance to a Roth account in lower income years can shrink future required withdrawals. Because Hawaii has a progressive income tax, spreading conversions over several years can help avoid bracket jumps at both the federal and state levels. Our investing guide explains the accounts, and an advisor can model each year.

Protecting a surviving spouse

When one spouse dies, a household loses one Social Security check and sometimes a part of a pension, while most bills stay the same. Surviving spouses in Hawaii often face the same rent or mortgage on less income. Planning ahead means picking pension options with survivor benefits, keeping beneficiary forms current and reviewing whether term or permanent coverage from earlier years is still in force. Our life insurance guide explains when coverage in retirement makes sense.

Frequently asked questions