The conventional narrative: Illinois taxes are high, Arizona taxes are low, and retirees who move from Chicago suburbs to Phoenix or Scottsdale save money. The narrative is incomplete for a specific and significant group of Illinois retirees — those receiving Illinois public pensions from IMRF, TRS, CTPF, SURS, or SERS.
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Talk to a Specialist →The Trap: Arizona Taxes Illinois Pensions
Illinois exempts all retirement income from state income tax — including Illinois state and local government pensions. Arizona does not. If you move to Arizona, Arizona taxes your Illinois IMRF pension, your Illinois teacher pension, your Illinois firefighter pension, at Arizona's 2.5% flat rate. Illinois collected nothing on that income. Arizona will collect 2.5% of everything.
A retired Naperville firefighter drawing $72,000/year from IMRF pension and $28,000/year in Social Security:
- Illinois income tax on $100,000 total: $0 (both pension and SS are exempt)
- Arizona income tax on $100,000 total: $2,500/year (2.5% flat on all income including SS and pension)
- 10-year Arizona income tax cost on this income: $25,000
The Full Picture — Property Tax Offset
Arizona property taxes on a $380K Scottsdale home run roughly $2,300–2,800/year. The same $380K home in Kane County, Illinois runs $9,120/year. That $6,300+ annual gap is real and it partially offsets the income tax flip. But here is where the math turns:
- Arizona property tax savings vs. Illinois: ~$6,300/year
- Arizona income tax on $100K pension/SS income: ~$2,500/year
- Net Arizona tax savings: ~$3,800/year
- Illinois homeowners insurance savings vs. Arizona: roughly comparable
- Net financial advantage of Arizona: real but smaller than the property tax gap suggests
For a pensioner drawing $160,000/year (common for long-tenured public safety retirees), Arizona collects $4,000/year in income tax. The property tax savings on a similar home may only be $5,000–6,000. Net Arizona advantage: $1,000–2,000/year — a real but modest number that should be weighed against family proximity, medical continuity, and the social cost of rebuilding a life from scratch in a new state.
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Who Should Take This Seriously
This analysis is specifically important for: Illinois teachers (TRS pension), Illinois state employees (SERS), Chicago Teachers (CTPF), university employees (SURS), IMRF participants (municipal and county employees), and Illinois police and fire pension fund recipients. These are the pensioners whose Illinois-exempt income becomes Arizona-taxable income upon moving. If you are drawing a significant public pension, run the income tax math explicitly before assuming Arizona saves money.
The Bottom Line
Arizona wins on taxes for most Illinois retirees — but by less than commonly assumed, and potentially near zero for high-income Illinois pensioners. The analysis requires your specific numbers, not the generic narrative. And the financial analysis is only one input into a decision that should also weight family proximity, climate preference, and what you are actually leaving behind.
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Talk to an AgentRelated: Illinois Retirement Income Tax Guide · IL vs. Arizona Tax Comparison · Chicago Metro 55+ Communities