Where You Need More Than $1 Million to Retire

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Updated on Monday, December 6, 2021

Location, location, location. It’s no surprise where you live would make a big difference in how much money you need to retire there. What is interesting/frightening/reassuring — pick your adjective — is just how big of a nest egg retirees need to retire in various locales.

To provide more specifics, MagnifyMoney researchers calculated how much money is required, on average, to retire in every U.S. metro based on average annual spending. Analysts found 28 metros — including 14 in sunny California — where retirees need at least $1 million to retire with an average lifestyle. Wanna change your adjective choice?

Key findings

  • You’ll need more than $1 million to retire with an average lifestyle in 28 of the 384 U.S. metros. A retiree in San Francisco needs a nest egg of $1,564,760, on average — the highest total across the U.S.
  • 14 of the 28 metros in which retirees need more than $1 million to retire are in California. San Jose ($1,424,081) and Santa Cruz ($1,351,937) join San Francisco in the top five metros across the U.S.
  • You can retire with an average lifestyle for less than $500,000 in just one metro: Jackson, Tenn. This Tennessee metro slides just under that mark at $495,942. Danville, Ill. ($510,202), and two Texas metros (McAllen and Brownsville, both $513,406) are closest.
  • Locals may need far less to maintain their incomes near retirement age once they collect Social Security payments. If you focus on the median income of near-retirement age workers rather than average spending by retirees, residents in just three metros would require more than $1 million to retire — San Jose, Calif., San Francisco and Washington, D.C.

28 metros where you need more than $1 million to retire

Are you saving enough for retirement? The answer will depend largely on where you plan to retire, and whether the amount you should be saving is more enormous than other locales.

There are 384 metros in the U.S., and in about 7% of them (28 total), you need more than $1 million saved to retire with an average lifestyle. And if average won’t cut it, you’ll need to save even more.

For this study, analysts based the amount required to retire on the average amount retirees spend in a year in each metro. Researchers calculated the pretax income needed to meet retirees’ average annual spending in these locales, based on federal and state taxes. Then analysts subtracted the average retirement Social Security benefits in that state to figure out how much annual income a person would need from their retirement fund to meet those spending needs. The nest egg size was determined using the 4% rule — a formula where you withdraw 4% of your total assets in the first year of retirement, then adjust that amount each year after based on inflation.

Topping the list is San Francisco. There, retirees need a whopping $1,564,760 to retire based on an annual spend of $62,019. Two other California metro areas make the top five — San Jose at No. 2 and Santa Cruz at No. 4. Honolulu comes in at No. 3, while New York — where you need $1,339,932, on average, to retire — rounds out the top five.

The lineup makes sense, considering the top five most expensive states in which to spend your retirement are (in order) Hawaii, California, New Jersey, Massachusetts and New York. In these states, costs for housing, food, transportation, Medicare, entertainment and personal care run higher than anywhere else in the U.S., so retiring in them will require copious amounts of cash.

There are other reasons that it requires significantly more or less to retire in certain areas, such as state income tax rates. These can vary widely between states, and areas in those states with low or no income tax will generally require less to retire. Taxes also differ when it comes to various retirement plans, such as Social Security benefits.

Need more than $1 million to retire? You might live in California

If you’re California dreamin’ for your golden years, you’re going to need quite a sizable nest egg. While researchers found 28 U.S. metros that require $1 million or more to retire comfortably, half of those are in the Golden State. In fact, after the top five areas listed above, the next five in the top 10 are all in California.

Only four other states — Alaska, Hawaii, New York and Oregon — have more than one metro that requires $1 million or more to retire, and no state other than California has more than two.

In other words, start saving now if you want to retire in California, where all that sunshine seemingly comes at a cost.

Where you need less money to retire

If those numbers are making your eyes bulge, the good news is some places require significantly less to retire — we’re talking less than half as much. At the very bottom of the list is Jackson, Tenn., where you’ll need less than $500,000 to retire. Others in the bottom five include Danville, Ill.; McAllen, Texas; Brownsville, Texas; and Pine Bluff, Ark. In all of these, you’ll need just more than $500,000 to retire.

In general, Southern states and those in the Midwest tend to require the least amount to retire, while those in the West need more. In fact, there’s not a single metro in a Western state in the bottom 50. If you want to retire out West, the lowest amount required to retire is in Yuma, Ariz., where it takes $636,201.

Again, this is in line with the locations in which it’s the least expensive to retire, with Southern states generally being more affordable.

How the list changes when you look at the median income of near-retirement age workers

More good news: You’re likely to need a smaller nest egg once you start collecting Social Security payments. When analysts looked at the median income of near-retirement age workers ages to 65 rather than average spending by retirees, residents in just three metros would require more than $1 million to retire:

  • San Jose ($1,110,958)
  • San Francisco ($1,067,585)
  • Washington, D.C ($1,019,885)

In fact, things change quite a bit when you adjust for this metric. For example, San Jose jumps ahead of San Francisco to the top of this list. Honolulu falls to No. 28, while Jackson, Tenn., moves from its bottom spot, closer to the middle of the pack.

In 272 of the 384 metros analysts reviewed, the median full-time worker between 55 and 65 would need to save less than $500,000 to maintain their current lifestyles. Plus, in 15 of these metros, those local workers would need less than $250,000. For example, in Bloomington, Ind., residents would need only $159,507. Meanwhile, the median older worker in McAllen, Texas, would need $161,103, and those in Logan, Utah, would need $166,744.

5 tips to boost your retirement savings

These required amounts for retirement aren’t exact declarations of what you should save by any means. Various factors can affect what you need to be comfortable in retirement, including what “comfortable” means to you. They do, however, provide a good gauge of what you may need to retire in certain areas. A financial advisor can help you better determine your goals to fit your circumstances.

But how do you reach those goals? Ismat Mangla, MagnifyMoney senior content director, offers the following tips.

  • Start now: “Don’t put off saving and investing for retirement,” Mangla says. “The earlier you start, the better, because then you have the power of compounding on your side. And don’t sacrifice saving and investing for retirement until you’re debt-free.” She encourages people to figure out a budget that allows them to tackle both goals, even if it’s not as much as they want in either category.
  • Take advantage of employer matching: If your employer offers matching funds for your 401(k), take advantage of them. “Remember that employer matching is a part of your compensation package, so if you don’t take advantage of it, you are leaving your money on the table,” she says. In 2022, the IRS has increased the limit of what you can put into your 401(k) to $20,500 a year. If you can’t contribute that full amount, at least put in enough to get the employer match — and then plan to increase your contribution automatically by half a percentage point or one percentage point every six months or every year. And if you’re 50 or older, you can contribute more money into retirement accounts through catch-up contributions.
  • Put savings on autopilot: Automating savings is an easy way to make sure you actually save. You can divert money from your paycheck directly into your retirement accounts and other investment accounts before it even hits your checking account. That way, you can’t miss it.
  • Take a look at taxes: Make sure you’re taking advantage of tax credits when it comes to retirement savings, especially if you’re a lower- or middle-income earner. You may be able to get a tax credit for up to 50% of your retirement contribution.
  • Consider health savings accounts (HSAs): Health savings accounts can be a great tool not only to pay for health care expenses now but to save additional money for retirement. If you can save and pay for those health expenses out of pocket, you can invest the funds in your HSA to grow for retirement. The money you put into an HSA is pretax, and that money can be withdrawn tax-free in retirement to pay for medical expenses.

Methodology

To calculate how much Americans need to retire in each metropolitan statistical area (MSA), MagnifyMoney analysts performed separate calculations:

  • For the first, analysts took the estimated annual expenditures of retirees in each MSA and calculated what the pretax amount would be. Researchers then subtracted the projected average 2022 Social Security retirement benefit for each state to determine the remaining income a retiree would need, on average, to maintain that level of spending. Analysts divided that amount by 4% to apply the 4% rule to calculate the necessary assets required to meet the average spending level.
  • For the second, analysts subtracted the average Social Security benefit in each state from the estimated median earnings for full-time workers between the ages of 55 and 65 and then applied the 4% rule.

To estimate retirees’ average annual spending in the 384 U.S. metros, analysts multiplied retirees’ average yearly expenditures — via the U.S. Bureau of Labor Statistics (BLS) 2020 Consumer Expenditure Survey — by the U.S. Bureau of Economic Analysis (BEA) 2019 Regional Price Parity for each MSA. Both were the latest available data.

Median annual earnings of full-time workers between the ages of 55 and 65 were estimated using the median earnings of all full-time workers in each metro from the U.S. Census Bureau 2019 American Community Survey — the latest available. This was multiplied by the ratio of median weekly wages (annualized) of full-time workers between the ages of 55 and 65 in the second quarter of 2021 to the median weekly wages (annualized) of all full-time workers in the fourth quarter of 2019 from the BLS.

Analysts were conservative in their tax assessment by assuming the retirees were single filers who took the standard federal deduction and their standard state deductions and exemptions but were otherwise taxed as regular income. Researchers note that not all retirement income is taxed under income rules, and that individuals and families may be eligible for additional credits and deductions. For state taxes, analysts used — via the Tax Foundation — the top-line marginal rate for that income amount after standard deductions and exemptions. For metros that cross state lines, analysts applied the rate of the first state listed within the metro.

To project 2022 Social Security benefits for retirees, researchers took the average monthly benefit for retirees in each state in 2020, as reported by the U.S. Social Security Administration. Analysts applied the 2021 cost-of-living adjustment (COLA) of 1.3%, then further applied the 2022 COLA of 5.9%. Lastly, analysts multiplied the resulting figure by 12 months.

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