Retiring in Texas: No Income Tax, High Property Tax — Is It Worth It?

Ray pulled up the spreadsheet one more time. Column A: their combined California income tax bill — $14,200 last year on retirement income alone. Column B: Texas income tax. Zero. He turned the laptop toward his wife Lorraine and grinned. "That's a new truck every three years."

Lorraine, practical as always, scrolled down to Column C. Property taxes. The San Antonio house they'd been eyeing — a nice three-bedroom with a yard for the grandkids — was listed at $415,000. Annual property tax: $7,470.

"That's not zero," she said.

Ray and Lorraine, 66 and 63, had spent their careers in Sacramento. Him at CalTrans, her managing a dental office. They'd paid off their California home, and the equity — just north of $700,000 — would fund a comfortable Texas retirement with money left over. The dream was simple: lower costs, bigger house, closer to their son who'd moved to Austin after college.

But like thousands of California refugees before them, they were about to learn that "no income tax" doesn't mean "no taxes." Texas just collects its money differently.

The real Texas tax picture

Texas is one of nine states with no personal income tax. No tax on wages, no tax on Social Security, no tax on pension income, no tax on IRA withdrawals, no tax on capital gains at the state level. For retirees with significant retirement income, this represents a genuine and immediate savings compared to high-tax states like California, New York, or Illinois.

But Texas has to fund its government somehow, and property taxes carry much of that weight. The average effective property tax rate in Texas hovers around 1.60-1.80% of assessed value — among the highest in the nation. On a $400,000 home, that translates to $6,400-$7,200 annually. In some counties, particularly in the Houston and Dallas-Fort Worth suburbs, rates exceed 2%.

Compare that to California's roughly 0.75% average rate, and the math gets interesting fast. Ray and Lorraine's California home, assessed at $380,000 (well below market value thanks to Prop 13), generated about $2,850 in annual property taxes. Their Texas home would cost them more than double that.

Sales tax adds another layer. Texas has a 6.25% state sales tax, and most localities add 1-2% on top. The combined rate in San Antonio is 8.25% — applied to most goods but not groceries, which are exempt. Still, on a retirement budget, you feel it.

The bottom line: if your retirement income exceeds roughly $60,000 and you're coming from a high-tax state, Texas likely saves you money even after the property tax hit. If you're living primarily on Social Security — which most states don't tax anyway — the income tax advantage matters less, and the property tax can actually make Texas more expensive than moderate-tax states.

What does it cost to live in the Lone Star State?

Texas offers extraordinary cost-of-living variation depending on where you land. This isn't a single market — it's a continent-sized state with wildly different economics.

Austin has priced itself out of the "affordable Texas" narrative. Median home prices hover around $450,000-$500,000, comparable to many coastal markets. The tech boom brought California-level demand without California-level wages for long-time residents. If you're selling a coastal home with substantial equity, Austin works. If you're moving from the Midwest on a pension, look elsewhere.

San Antonio remains genuinely affordable. Median home prices run $270,000-$310,000, and quality neighborhoods with good infrastructure are available throughout the city. This is where Ray and Lorraine landed, and their money stretches noticeably further than it did in Sacramento. A three-bedroom home that would cost $600,000+ in their old neighborhood runs half that.

Houston offers similar affordability to San Antonio with a much larger metro area and more amenities, though flood risk in certain neighborhoods is a serious consideration. Dallas-Fort Worth falls between Austin and San Antonio in terms of cost, with suburban areas offering strong value.

Smaller cities punch above their weight. Corpus Christi, with its Gulf Coast location and median home prices around $230,000, attracts retirees who want beach access without beach-town premiums. New Braunfels, between San Antonio and Austin, offers Hill Country charm at reasonable prices. Georgetown, just north of Austin, has built an entire identity around being retiree-friendly.

Groceries, utilities, and transportation generally run 5-10% below national averages across most Texas cities. The exception is electricity during summer, when air conditioning can push monthly bills past $300 even in a modest home. Texas's deregulated energy market means you'll want to shop providers — prices vary dramatically.

How is healthcare for Texas retirees?

Healthcare in Texas is a tale of two worlds — and the dividing line is geography.

Major metro areas offer world-class medical care. Houston's Texas Medical Center is literally the largest medical complex on earth — 60+ institutions, including MD Anderson Cancer Center, one of the top oncology centers in the country. Dallas has UT Southwestern and Baylor Scott & White. San Antonio has the South Texas Medical Center complex. Austin has expanded its healthcare infrastructure substantially in the past decade.

Rural Texas is a different story. Over 25 rural hospitals have closed in Texas since 2010 — more than any other state. If you're considering a small town or rural property, research the nearest hospital carefully. A charming homestead outside Fredericksburg looks less appealing when the closest ER is 45 minutes away.

Medicare Advantage plans are widely available in metro areas with competitive premiums and broad networks. Rural availability is spottier. Traditional Medicare with a Medigap supplement provides the most flexibility for retirees who split time between urban and rural areas.

Prescription drug costs in Texas are roughly in line with national averages. The state has not adopted any significant drug pricing reforms, so planning your retirement healthcare budget should account for standard Medicare Part D costs and potential coverage gaps.

Can you handle the heat?

Let's be blunt: Texas summers are brutal. When Lorraine says she "doesn't mind warm weather," she's talking about Sacramento's dry 95°F days. Texas heat is different.

From June through September, much of the state regularly hits 100-105°F with oppressive humidity in Houston, San Antonio, and the eastern half of the state. Dallas bakes under dry heat that routinely exceeds 105°F. Even the relatively mild Hill Country sees weeks of 100°F+ temperatures.

This isn't just discomfort — it's a genuine health concern for older adults. Heat-related illness hospitalizations spike among seniors during Texas summers. Outdoor activities effectively shut down during midday hours for four months. You'll plan your life around air conditioning the way northerners plan around heating.

Winters, by contrast, are mild in most of the state. San Antonio sees frost maybe a dozen times per year. Houston rarely drops below the 30s. North Texas gets occasional ice storms, including the devastating 2021 freeze that exposed the fragility of the state's independent power grid. That event — which left millions without heat for days in sub-freezing temperatures — should factor into any retirement decision.

Spring and fall are glorious. October through November and March through May deliver some of the best weather in the country — mild temperatures, clear skies, and the famous Texas wildflower season that turns entire hillsides into carpets of bluebonnets.

Where should you actually live?

The best Texas cities for retirees depend on your priorities, budget, and tolerance for heat.

San Antonio consistently ranks among the top retirement cities in America. Affordable housing, rich cultural scene (the Riverwalk, historic missions, excellent Tex-Mex), strong healthcare, and a military-friendly community thanks to several major bases. The city has genuine character without Austin's prices or Houston's sprawl.

The Hill Country corridor — Fredericksburg, Kerrville, New Braunfels, Wimberley — offers small-town charm with German-Texan heritage, wineries, and spring-fed rivers. It's 5-10 degrees cooler than the plains in summer. The trade-off is limited healthcare access and higher property costs in the most desirable towns.

Georgetown earned AARP recognition as a top retirement destination. Just north of Austin, it offers the amenities of a growing city with a still-affordable housing market and a vibrant historic downtown. Sun City Texas, a Del Webb 55+ community within Georgetown, houses thousands of active retirees.

Corpus Christi delivers the closest thing to Florida-style coastal retirement at a fraction of the price. Gulf breezes moderate the heat, and the Padre Island National Seashore is minutes away. The trade-off is a smaller metro economy and fewer cultural amenities than the big four cities.

For those who want true city living, Houston's Inner Loop neighborhoods — Montrose, the Heights, the Museum District — offer walkable, culturally rich environments with easy access to world-class healthcare. Just make sure your home has never flooded, and buy flood insurance regardless.

What nobody tells you about retiring in Texas

Property tax reassessments can blindside you. Texas reappraises property annually, and in hot markets, your assessed value — and tax bill — can jump 10-20% in a single year. The over-65 school tax freeze helps, but county and city taxes aren't frozen. Ray and Lorraine's financial advisor warned them to budget for 3-5% annual property tax increases even with the homestead exemption.

The size of the state creates real distance. Texas is 800 miles across. If your family is in Dallas and you retire in San Antonio, that's a four-and-a-half-hour drive — about the same as New York City to Washington, DC. "Close to family" in Texas doesn't mean the same thing as it does in New England.

Insurance costs are above average. Homeowner's insurance in Texas runs 50-80% more than the national average, driven by hail, windstorms, and flood risk. Auto insurance is similarly elevated. Budget $3,000-$5,000 annually for homeowner's coverage depending on your area and the age of your home.

Local politics can feel intense. Texas has strong opinions, and they're not shy about sharing them. Depending on your own leanings, this will either feel energizing or exhausting. The state's approach to public services, education, and regulation reflects a distinctly hands-off philosophy that extends to retirement-relevant areas like consumer protection and healthcare regulation.

The food, however, is non-negotiable. Barbecue, Tex-Mex, breakfast tacos, kolaches, Gulf shrimp — Texas's food culture is deep, diverse, and genuinely outstanding. Lorraine admits this was an underrated factor in their decision: "We eat better here for less money than we ever did in California."

Is Texas worth it for your retirement?

Texas works beautifully for retirees with moderate-to-high retirement income coming from high-tax states — the income tax savings are immediate and substantial. It's ideal for those who want space, affordable housing outside Austin, access to major-city healthcare, and a culture that values independence and community in equal measure.

It's less ideal for retirees on tight fixed incomes who'd feel the property tax and sales tax burden without offsetting income tax savings. It's challenging for anyone who can't tolerate extreme heat or accepts the risk profile of Texas infrastructure. And it requires accepting a state that's bigger, louder, and more intense than anywhere else in America.

Ray and Lorraine are six months into their San Antonio life. Ray bought that truck. Lorraine found a pickleball league within the first week. Their property tax bill stings, but it's still thousands less than what they were paying California in combined state income and property taxes.

"People ask if we miss California," Lorraine says. "I miss the coast sometimes. I miss the weather in May. But I don't miss writing that check to Sacramento every April. Not even a little."

Planning a retirement move to Texas? Talk to a financial advisor who can model the complete tax picture — income, property, sales, and insurance — for your specific situation and target city.