Retirement Planning in Nebraska

Retiring in a state that is easing taxes on retirees

Nebraska used to be known among retirees mainly for taxing Social Security. That has been changing. Lawmakers have approved a phased exemption for benefits and have lowered income tax rates in steps, and the state also offers relief to military retirees. According to the U.S. Census Bureau, 2020 to 2024 American Community Survey, about 16.7 percent of Nebraska residents are 65 or older and the median age is 37.2. About 66.5 percent of homes are owner occupied and the median home is valued near $238,600. Housing costs are modest compared with most of the country, which helps stretch retirement income, though property tax is a real expense.

Because tax rules for retirees have been revised more than once, check the current year’s rules before you decide when to claim benefits or move money.

Social Security timing for Nebraska couples

Checks can start at 62 and grow each year you wait until 70. For married couples the larger benefit becomes the survivor benefit, so the higher earner often delays to protect the spouse who lives longer. With Nebraska phasing out state tax on benefits, the claiming decision depends mostly on federal tax, health, other income and how long your family members tend to live. Consider a couple in Grand Island, both 64. He earned more and has a benefit estimate of $2,800 a month at full retirement age. She could claim earlier and live on her own pension while he waits. Running three or four scenarios shows which combination produces the highest lifetime income and the safest survivor check. Our retirement planning guide explains the claiming rules.

Public pensions through NPERS

Teachers, school staff, state employees and county employees in Nebraska earn benefits through the Nebraska Public Employees Retirement Systems. Plans differ. The school plan is a defined benefit plan, while the state and county plans use a cash balance design, in which your account grows by contributions and a set interest credit and converts to a benefit at retirement. The State Patrol and judges have their own plans. Many of these employees also paid into Social Security, but not all districts and agencies did, so check your own record. The main decisions are when to retire, which payout option to select and how to protect a spouse. A single life option pays the most, a joint option pays less but continues to a spouse. Request an official estimate and compare it with your living costs before you decide.

Retiring from the farm or ranch

For many rural Nebraskans, the largest retirement asset is land. A farmer who is 66 and has farmed 1,200 acres for forty years may want income without selling, which opens several paths. Cash renting the land to a neighbor or a son brings predictable income. A crop share lease shares risk but keeps the owner involved. Selling part of the land funds retirement but may trigger capital gains tax. An installment sale spreads the tax across years. If you stay in the farmhouse, keep in mind that Medicaid and nursing home costs can force a sale, so long term care planning belongs in the same conversation. When the owner dies, land generally receives a new cost basis, which can erase much of the gain for heirs. Natural resources district rules and irrigation rights can affect what the land is worth, so ask your advisor to include them.

Transferring the operation to a son or daughter is as much a family matter as a financial one. Families who write down expectations early tend to avoid conflict later. Our estate planning guide covers wills and trusts.

Military retirees and Offutt

Offutt Air Force Base and the nearby Omaha area draw many military retirees who stay after leaving the service. Nebraska has offered an income tax exclusion for military retirement pay, and the details have been adjusted over time. Retirees also have TRICARE for health coverage, which coordinates with Medicare at 65, and the Survivor Benefit Plan, which pays a spouse after death. Compare SBP premiums with an equivalent life insurance policy before deciding. Veterans may also qualify for homestead property tax exemptions in some situations, so ask the county assessor.

Where to retire inside Nebraska

Some retirees prefer Omaha or Lincoln for hospitals, airports and cultural events. Others choose smaller towns such as Kearney, Hastings or Norfolk, where homes cost less and neighbors know each other. The tradeoff is health care access. Critical access hospitals serve much of the state, but specialists are often hours away, so many retirees plan for travel costs or a move closer to Omaha or Lincoln later in life. Winters can be hard and summers hot and stormy, which is why some retirees spend part of the year in a warmer state. If you split time, understand each state’s residency rules for tax purposes.

Wondering where to live in retirement?

An advisor can compare the cost of staying put with moving across the state or out of it. Request a free call.

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Turning savings into a paycheck

Most retirees blend sources: Social Security, a pension if available, rent from land, and withdrawals from IRAs and 401(k) plans. The order of withdrawals can change your tax bill. Many retirees draw from taxable accounts first, then tax deferred accounts, and use Roth accounts last, but the right sequence depends on the bracket you want to stay in. Required minimum distributions begin at an age set by federal law, and ignoring them brings a penalty. A bucket approach keeps a couple of years of spending in cash and bonds so that a market decline does not force you to sell stocks at a loss. Our investing guide covers the building blocks.

Medicare and health costs

Medicare begins at 65, with an enrollment window around your birthday. Late enrollment can bring permanent penalties for Part B and Part D. You choose between original Medicare with a supplement and a Medicare Advantage plan, and the options differ by county, partly because provider networks are thinner in rural areas. The Nebraska Senior Health Insurance Information Program, called SHIIP, offers free counseling through the Department of Insurance. High income retirees pay surcharges on Part B and D premiums based on income from two years earlier, so a large Roth conversion or land sale can raise the bill.

The inheritance tax and your heirs

Nebraska has no estate tax, but counties tax what heirs receive, with the rate based on relationship. A spouse owes nothing, children and siblings pay the lowest rate above an exemption, and other relatives or friends pay more. Retirees who want to leave money to a niece, a caregiver or a friend should talk to an attorney about gifting and about naming beneficiaries on accounts. Beneficiary forms can pass money outside probate, but they do not necessarily avoid the inheritance tax. Review your forms after any major family change.

Choosing a retirement advisor in Nebraska

1. Ask whether the advisor works as a fiduciary for all advice, in writing.
2. Request a full cost summary in dollars per year.
3. Look up the advisor with the SEC and FINRA databases, and with the Nebraska Department of Banking and Finance for smaller firms.
4. Make sure the plan tests Social Security claiming for both spouses.
5. Check experience with public pensions, farms or military benefits, depending on your situation.
6. Walk away from anyone who pressures you to buy an annuity on the first call.

Documents to update

A retiree should have a will or trust, a durable power of attorney, a health care directive and current beneficiary forms. Nebraska permits transfer on death deeds for real estate, which can move a home to a named person without probate, but they interact with the inheritance tax, so ask an attorney. Store copies where family can find them, and tell your executor where the originals are.

Taxes in retirement: a worked example

Take a retired couple in Columbus, both 67. They receive about $40,000 a year in combined Social Security, $20,000 from a school pension and rent of $24,000 from 160 acres they own. They also hold $600,000 in IRAs. If they need $90,000 a year to live on, the gap is covered by IRA withdrawals of roughly $6,000 plus a little extra from savings. Their federal bracket stays moderate, and they have room to convert some IRA money to a Roth account each year. Nebraska tax still applies to the pension, rent and withdrawals as part of income, but the Social Security portion may be exempt. Each choice changes the total, which is why advisors model it year by year instead of using a single rule of thumb. The numbers here are round examples, not predictions for your household.

Long term care and keeping the farm

A nursing home stay in Nebraska can cost many thousands of dollars a month. For a couple who want to keep land in the family, that cost is a real threat. Options include long term care insurance purchased in the late fifties or sixties, hybrid life policies with a care rider, self funding from rent and savings, and Medicaid planning with an elder law attorney. Medicaid has a look back period for gifts, and the state may seek repayment from an estate, so do not transfer land to children without legal advice. A planner can estimate how many years of care your assets could cover and when buying coverage still makes sense. Our life insurance guide explains hybrid policies.

Working longer or part time

Nebraska’s unemployment rate is low, and employers in health care, agriculture and logistics often welcome older workers. Part time work before claiming Social Security can bridge income, and working past 62 while collecting benefits may reduce them temporarily if earnings exceed a federal limit. Many retirees keep a small seasonal job or consult for their old employer. Farmers often keep working in a reduced role, driving a combine at harvest or managing cattle, while a younger family member takes over daily chores. A plan should treat that income as temporary and show what happens if it stops.

Frequently asked questions