Retirement Planning in Virginia

Who retires in Virginia

Three groups shape the state’s retirement scene. The first is federal civilians, concentrated in Northern Virginia, who retire with a pension under the Federal Employees Retirement System, a Thrift Savings Plan account and Social Security. The second is military retirees, especially in Hampton Roads and near the Pentagon, who receive monthly retired pay, Tricare for Life after 65 and, for many, VA disability compensation. The third is everyone else: teachers and state workers in the Virginia Retirement System, private-sector employees with 401(k) plans and people who have moved to Virginia for the coast, the mountains or the colonial towns. According to the U.S. Census Bureau, 2020 to 2024 American Community Survey, about 16.7 percent of residents are 65 or older, the median home is valued near $383,700 and about 67.3 percent of homes are owner occupied.

Each group asks different questions. A planner starts by finding out which pension rules, health plans and tax breaks apply, then builds a monthly income around them.

How Virginia taxes retirement income

Virginia does not tax Social Security benefits. Pensions, IRA and 401(k) withdrawals and other income are taxed at graduated rates that reach their top level at a low income, which means most retirees with meaningful income pay near the top rate on additional dollars. Residents 65 and older may claim an age deduction against income, which phases out for higher earners, so keeping income under the thresholds can matter. A subtraction for military retirement pay has been expanding in recent years. Because limits and phase-outs change, confirm current figures with the Virginia Department of Taxation before you plan withdrawals or conversions. Our tax planning guide explains how state and federal tax work together.

Federal retirees: the decisions that matter

Federal retirement offers valuable benefits and a short list of decisions that cannot be undone.

The pension and the survivor annuity. FERS pays a monthly annuity based on years of service and your highest three years of pay. You choose whether to reduce the annuity to provide a survivor benefit for a spouse. The reduction is permanent, and a spouse’s written consent is generally required to decline it. Compare the cost with buying life insurance on your own.

The FERS supplement. Employees who retire before 62 with enough service may receive a supplement that approximates their Social Security benefit until 62. It is subject to an earnings test, which affects people who work after retiring.

The Thrift Savings Plan. Retirees can leave money in the plan, take installments, buy an annuity or roll to an IRA. The plan has very low costs, so many retirees leave a large balance there. Withdrawal options are flexible but have rules.

Health coverage. Federal Employees Health Benefits can continue into retirement if you were enrolled for the five years before retiring. At 65, many retirees keep both FEHB and Medicare Part B, while others drop Part B to save the premium. The right choice depends on the plan and your health, and the decision is hard to reverse. Penalties apply for enrolling in Part B late.

Social Security. Many federal employees hired after 1983 are covered, and some earlier hires have both CSRS and limited Social Security. The Social Security Fairness Act, signed in January 2025, repealed the Windfall Elimination Provision and Government Pension Offset, so request an updated estimate. Our retirement planning guide covers the broader steps.

Facing a federal retirement decision?

A Virginia retirement advisor can compare your survivor annuity, TSP and health coverage choices for free, and no purchase is expected.

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Military retirees

Virginia is home to a large share of the country’s military retirees. Retired pay is taxed federally, and Virginia allows a subtraction of part of it, subject to age and other conditions. VA disability compensation is not taxable income. Tricare for Life supplements Medicare after 65, but you must be enrolled in Medicare Part B. The Survivor Benefit Plan lets you provide a monthly annuity to a spouse, at a cost, and it should be compared with life insurance. Many retirees also begin second careers, as civilians or contractors, which affects the timing of Social Security and the choice of health coverage. A planner can run the numbers for different combinations of retired pay, work income and benefits.

State and local employees

Teachers, state employees and many local government workers participate in the Virginia Retirement System. The plan you belong to depends on your hire date, and choices include payment options and survivor benefits. Some employees also participate in a hybrid plan with a defined benefit and a defined contribution component. Ask VRS for an estimate, compare options and keep an eye on any deadline. Employees who plan to retire and work part time for another public employer should check the rules on returning to work.

Property taxes and the car tax

Localities set property tax rates, and many offer relief to older owners. Programs vary and may include exemptions or deferrals for owners 65 or older, or disabled, with income and net worth limits. Disabled veterans with a 100 percent service-connected rating can qualify for a full exemption on their home. Ask your local commissioner of the revenue or treasurer what is available and when to apply. The yearly car tax continues in retirement, though a household with one older vehicle will pay less than a family with newer cars. Include it in your budget.

Where to live

Virginia offers several retirement settings. Northern Virginia has well-regarded hospitals and the highest costs. The Richmond area offers a middle ground with good healthcare and lower prices. Williamsburg and Hampton Roads provide golf, history and the coast, with flood risk and, in some places, high insurance. The Shenandoah Valley, the Blue Ridge and the Charlottesville area offer scenery and cooler summers, along with steeper roads and longer trips to specialists. The Eastern Shore and the Northern Neck offer quiet waterfront living at the price of distance from care and storm exposure. Test the costs of a place by renting for a season before you buy, and look at insurance quotes before you fall in love with a house.

Medicare and long-term care

Eligibility for Medicare begins at 65. Virginia’s counseling service, VICAP, gives free and impartial help with Medicare decisions, and it is smart to call before picking between original Medicare with a supplement and a Medicare Advantage plan. Confirm provider networks for any plan under consideration, particularly if you travel often or live part of the year in another state.

Paying for long-term care is the biggest open question. Medicare covers only short stays after a hospital visit. Medicaid pays for people who satisfy income and asset tests and reviews gifts made in the previous five years. Families weigh long-term care insurance, hybrid life policies and paying out of pocket, and an elder law attorney can explain how a spouse and a house are treated. Veterans may qualify for additional benefits such as Aid and Attendance, which a planner can help check.

From savings to paycheck

A helpful picture is three buckets sorted by when the money will be spent. The nearest holds cash and short-term bonds for the first few years of withdrawals. The middle one holds balanced funds for the following decade. The farthest holds stocks that must outpace inflation. Retirees with a solid pension can usually afford a larger stock bucket than those relying on savings alone. Timing matters, because a market slump just as withdrawals begin hurts more than the same slump ten years in. Our investing basics guide explains diversification. For federal retirees, the low-cost Thrift Savings Plan funds often form the core of the bucket plan.

What retirement advice costs

Choosing a retirement advisor in Virginia

1. Request a written illustration of how your savings and pensions turn into monthly income.
2. Ask about experience with FERS, the Thrift Savings Plan, military retirement and the Virginia Retirement System.
3. Check the advisor with the SEC, FINRA and Virginia’s Division of Securities.
4. Obtain the total yearly cost expressed in dollars.
5. Make sure claiming ages are tested for each spouse.
6. Talk with a few firms and leave any that lead with a sales pitch.

Social Security and the survivor

Choosing a Social Security start date locks in a lifetime income level. Checks are available at 62 and increase with every year of delay until 70. In a couple, the bigger of the two checks becomes the survivor’s, which is why holding off on the larger benefit protects the longer-lived spouse. Households that also have a federal or military pension must weigh the survivor annuity and taxes alongside, and testing several start ages for each spouse reveals the right pairing.

Estate papers

The lack of a state estate or inheritance tax does not remove the need for paperwork. Your will states who inherits. A durable power of attorney and an advance medical directive appoint the people who can act when you cannot. Beneficiary forms on retirement accounts, the Thrift Savings Plan and life insurance override the will, and federal plans have their own beneficiary forms that should be kept current. Married couples who hold a home as tenants by the entirety should check how that title fits the estate plan. Our estate planning guide explains each document.

Frequently asked questions