Retirement Planning in Michigan

The Michigan retiree

Michigan has one of the older populations of any large state, with about 18.6 percent of residents 65 or older, according to the U.S. Census Bureau, 2020 to 2024 American Community Survey. The median home is valued near $231,600, well below the national figure, and roughly 73 percent of homes are owner occupied. Many retirees live in the house where they raised their children, with the mortgage paid, and that is a real financial advantage. It is also a risk, because an aging house needs roofs, furnaces and accessibility changes just when income becomes fixed.

The typical Michigan retirement has a few distinctive features. A pension is more common than in many states, especially among former autoworkers, teachers and public employees. Retiree health coverage, once widespread, has shrunk and needs attention. Winters are long, so many retirees consider spending part of the year in Florida, Arizona or the Carolinas. And the Great Lakes shoreline tempts people to buy or keep a cottage.

How Michigan taxes retirement income

Social Security benefits are not taxed by Michigan. Other retirement income, including pensions, annuities and IRA or 401(k) withdrawals, follows a system that depends on birth year. People born before 1946 have one set of deductions, people born from 1946 through 1952 have another, and people born after 1952 have a third that has been changing under recent legislation. The direction of the changes has been toward larger deductions, but the details, including how pensions, IRA withdrawals and other income are counted, are specific. Check the current rules for your birth year with the Michigan Department of Treasury before you choose withdrawals or conversions.

Because the rules differ by birth year, two neighbors with identical incomes can owe different state tax. Married couples should also look at each spouse’s birth year, since the better deduction may belong to one of them. Our tax planning guide explains how state and federal tax work together.

Pensions, buyouts and retiree health

Many Michigan workers retire from the auto industry, schools, universities, hospitals or government. Their plans are different, and so are the decisions.

Auto-industry and union plans. A defined benefit pension may pay a monthly amount for life, with options for a survivor and, in some plans, a supplement until Social Security starts. A lump sum may be offered instead. Retiree health coverage varies by contract and has been shifting toward accounts or Medicare supplements. Read the plan documents carefully and ask the plan administrator for a written benefit estimate.

Teachers and school staff. The Michigan Public School Employees’ Retirement System covers most school employees and offers a pension along with retiree health benefits. Choices about payment options, survivor benefits and when to retire can have large effects.

State and local employees. State workers and many city and county employees have their own pensions and health plans. Rules differ by hire date.

In each case, a lump-sum offer or buyout deserves a side-by-side comparison with monthly payments. Include taxes, health coverage, the survivor’s needs and your comfort managing a large sum. Choices are often irreversible and deadlines are short. Anyone with a pension from work outside Social Security, or a spouse with one, should confirm their Social Security estimate because the Social Security Fairness Act, signed in January 2025, repealed the Windfall Elimination Provision and Government Pension Offset. Our retirement planning guide covers the broader steps.

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Property taxes

Michigan homeowners benefit from two features. The principal residence exemption removes most school operating taxes from a home you own and occupy, and you claim it by filing with your local assessor. A cap on taxable value limits yearly increases to the lesser of inflation or five percent while you own the home. When ownership changes, taxable value resets to market value, which is why newcomers can pay more than neighbors with similar homes. Seniors with lower incomes may qualify for the homestead property tax credit, and some can defer summer taxes. Contact your local assessor and the Department of Treasury for current terms.

Staying, snowbirding or moving

Where you spend winter is a financial decision as well as a lifestyle one. Staying in Michigan means heating bills, snow removal and driving in bad weather. Spending winters in Florida or Arizona adds a second set of housing costs but may lower heating, health and fall risks. A few points to plan around:

• Residency. States can tax residents on all income, so keep records of where you spend your time and consider which state you call home.
• Healthcare. Medicare Advantage networks are local. Traditional Medicare with a supplement is usually accepted nationwide, which suits people who divide the year.
• Two homes. Count property tax, insurance and upkeep on both, or on a rental, before you commit.
• Moving permanently. A move to a state without income tax changes the tax picture, but also changes the cost of living and your distance from family.

Medicare and long-term care

Medicare starts at 65. Michigan’s Medicare/Medicaid Assistance Program, called MMAP, offers free, unbiased counseling on plan choices, and a call before you enroll or switch is worthwhile. Confirm that your doctors and hospital are in any plan you consider.

Long-term care is the largest uncertain cost. Medicare pays only for limited stays after a hospital visit. Medicaid pays for care for people who meet income and asset limits and looks back five years at gifts, so transferring property to children shortly before needing care can create a penalty. Families compare long-term care insurance, life insurance with a care rider and self-funding. An elder law attorney can explain how the rules treat a spouse and a home.

Making the money last

Many planners divide retirement money into three buckets by time. The first holds cash and short bonds for the next few years of withdrawals. The second holds balanced funds for the middle years. The third holds stocks for the long run. A retiree with a strong pension can usually hold more in stocks than someone relying on savings. The first years carry special risk, since a market drop just as withdrawals begin does more harm than the same drop later, which is why a cash bucket that avoids forced selling is valuable. Our investing basics guide explains diversification. The order of withdrawals matters too, and in Michigan it should include your birth-year deduction.

The home as a retirement asset

For many Michigan retirees the house is the largest asset and the least flexible. Treat it as part of the plan. Estimate yearly upkeep at one to two percent of its value, and list the big-ticket items coming due: roof, furnace, windows, water heater and driveway. Think about how the home works if mobility declines, including stairs, bathrooms and the distance to stores and doctors. Some retirees modify the house to age in place, some move to a smaller home or a condo, and some rent out a basement apartment for income. Selling can release equity to fund care later and, for a primary residence, a large portion of the gain may be excluded from federal tax. Weigh these paths with a clear budget and not with sentiment alone.

What retirement advice costs

Choosing a retirement advisor in Michigan

1. Have the advisor show on paper how savings and pension become a monthly paycheck.
2. Ask about experience with auto-industry, union, school and public plans.
3. Check the advisor with the SEC, FINRA and Michigan regulators.
4. Get the all-in annual cost in dollars.
5. Confirm that Social Security claiming ages are modeled for both spouses.
6. Interview a few firms, and step back from any that start with a product pitch.

Social Security and your spouse

The date you start Social Security shapes your income for life. Checks can begin at 62, grow every year you wait through full retirement age and keep growing until 70. For married couples, the larger of the two benefits continues for the survivor, so waiting on the bigger benefit protects whoever lives longer. Federal tax may apply to a portion of benefits depending on other income. Running several claiming ages for each spouse shows the break-even point and how a widow or widower would fare.

Estate papers

Michigan has no estate or inheritance tax, but documents still matter. A will names who inherits. A durable power of attorney and a patient advocate designation name people to handle your money and your medical decisions if you cannot. Beneficiary forms on retirement accounts and insurance override the will. Michigan allows an enhanced life estate deed, often called a lady bird deed, which lets an owner keep control of a home or cottage and pass it to heirs outside probate. An attorney should prepare it, and the effect on Medicaid eligibility should be reviewed. Our estate planning guide explains each document.

Frequently asked questions