Retirement planning in Texas: what is different here

Most retirement planning works the same anywhere. Three things about Texas change the arithmetic: there is no state income tax, property tax works differently once you turn 65, and many public employees here have pensions instead of Social Security.

No state income tax

Texas does not tax personal income. Social Security benefits, pension payments, withdrawals from an IRA or 401(k) and income from an annuity are taxed only at the federal level. For a retiree moving from a state with an income tax, that can be a meaningful difference in what each dollar of savings is worth.

Federal tax still applies, and it applies differently to different kinds of income. Money that went into a traditional 401(k) or IRA before tax is taxed when it comes out; a Roth account generally is not. How you draw down savings in the first years of retirement can change your federal tax bill for the rest of it, which is worth a conversation with a tax professional before you start.

Property tax is where Texas collects

With no income tax, Texas relies heavily on property tax, and for most retirees who own a home it is the largest tax they pay. Two exemptions reduce the school district portion of that bill on a home you live in. According to the Texas Comptroller, school districts must provide a $140,000 residence homestead exemption, and homeowners who are 65 or older or disabled get an additional $60,000 exemption on top of it.

Those exemptions apply to school taxes, not to city or county taxes, and they are not automatic. You apply through your county appraisal district, and it is worth checking the year you turn 65 that the additional exemption has been added.

Teachers and public employees

Many Texas teachers and other public employees work in jobs that do not pay into Social Security and earn a pension through the Teacher Retirement System or another public plan instead. For decades, two federal rules, the Windfall Elimination Provision and the Government Pension Offset, reduced the Social Security benefits these retirees could collect from other work or from a spouse’s record.

The Social Security Fairness Act, signed on January 5, 2025, repealed both. Benefits increased for months from January 2024 onward. If you or your spouse have a Texas public pension and you set aside Social Security in your plans because of those rules, it is worth recalculating.

Turning savings into income

The harder question in retirement is rarely how much you saved. It is how to turn it into income that lasts as long as you do, without selling investments at the wrong time. Guaranteed income from Social Security and any pension covers part of the monthly budget. For the rest, people use a mix of withdrawals from savings and, sometimes, an annuity that converts part of the savings into income guaranteed by the insurance company. Turning retirement savings into income that lasts walks through how those pieces fit together, and our annuities and retirement income page covers the products.

An annuity is not right for everyone, and it is never right for money you may need on short notice. Annuities issued in Texas are also covered by the state guaranty association, up to limits set in state law, if the issuing company were to fail.

Before 65, and after

Retiring before 65 means paying for health coverage until Medicare begins, which is one of the largest costs early retirees underestimate. After the mortgage is paid and the children are grown, the reason for life insurance usually changes too: from replacing income to covering a funeral, protecting a spouse who would lose part of a pension, or leaving something behind. Final expense insurance is the smallest version of that.

Who you would be talking to

Elavere Life & Retirement is an independent agency. Victor M Robles Soto is a licensed insurance producer who works with eleven insurance companies rather than one. The same conversation is available in Spanish. There is no cost to ask and no obligation to buy.

Common questions

Does Texas tax Social Security or retirement income?

No. Texas has no state personal income tax, so Social Security, pensions, retirement account withdrawals and annuity income are taxed only by the federal government.

What is the over-65 homestead exemption in Texas?

School districts must provide a $140,000 residence homestead exemption, and homeowners 65 or older, or disabled, receive an additional $60,000 exemption from school taxes. You apply through your county appraisal district.

Did the WEP and GPO repeal affect Texas teachers?

Yes. The Social Security Fairness Act, signed January 5, 2025, repealed both rules, which had reduced Social Security benefits for many people with a pension from work that did not pay into Social Security, including many Texas teachers.

Should I buy an annuity for retirement in Texas?

Only if guaranteed income would fill a real gap in your budget and the money is not needed for emergencies. It is one option among several, and the right answer depends on your other income, your health and how long your savings need to last.