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Updated on Tuesday, April 27, 2021
Many Americans work their entire lives with an eye on the retirement finish line, but what happens when it’s crossed? Deciding on a dream destination for the golden years should factor in that locale’s price tag, which can vary drastically.
MagnifyMoney researchers looked at the price to retire in every U.S. state, including costs for housing, food, transportation, Medicare Part B and Part C, entertainment and personal care. Researchers found Hawaii is the most expensive state in which to spend your retirement years, while Arkansas is the least expensive state.
- Key findings
- How older Americans spend their money
- Most expensive states for your retirement years
- Least expensive states for your retirement years
- Data: Monthly retirement costs by state
- 5 retirement strategies to know
- Americans spend less as they get older. Consumers 65 and older spend 20% less annually, on average, than all Americans. For consumers 75 and older, that figure jumps to 31% less. That may or may not be by choice, as the average annual income for those 65 and older declines significantly — $55,656 for those 65 and older, versus $99,606 for those 55 to 64 years old.
- Older Americans prioritize spending differently. Consumers 65 and older spend 32% more annually, on average, on health care than all Americans. They’re also cutting back on food and transportation — retirement spending in these areas equates to spending that is 19% and 30% less, respectively, than typical.
- Hawaii is the most expensive state in which to spend your retirement years. While the Aloha State tops the list as the most expensive state in which to retire, California and New Jersey aren’t far behind. The annual costs for housing, food, transportation, Medicare Part B and Part C, entertainment and personal care in these states exceeds $50,000 on average.
- The least expensive states in which to spend your retirement years are in the South. Arkansas, West Virginia and Mississippi wrap up the list as the least expensive states in which to spend your retirement years. In these states, annual costs by older adults in key spending categories average below $30,500.
- Two of the more popular retirement destinations have similar annual costs. When mentioning retirement, two states often come to mind — Florida and Arizona — and both have similar annual costs for retirement living when considering these key spending areas. Annual costs in these retirement hot spots average between $36,000 and $38,000 a year.
How older Americans spend their money
In general, people tend to spend less money as they get older. Peak spending years generally occur between ages 45 and 54 and decrease by 35% when people reach the 65-and-older range. Those 75 and older spend even less, with average spending that’s 44% lower than during those peak years.
As for what older Americans spend their money on, health care is a priority. In fact, those 65 and older spend 32% more annually, on average, on health care than all Americans.
Most expensive states for your retirement years
Those dreaming of the sandy beaches of Hawaii can get ready to say “Aloha!” to high prices, as it’s the most expensive state in which to retire when considering key spending areas. Other hot spots with pricey prospects include California, New Jersey, Massachusetts and New York.
|Most expensive states in which to spend your retirement years|
From the gorgeous beaches to the warm weather year-round, it’s no wonder people would want to spend their retirement years in the Aloha State. But all that beauty comes at a cost. In fact, the annual cost of retirement living in Hawaii is nearly $23,000 more than that of retirement living in Arkansas (the least expensive state on the list).
Housing is particularly pricey in Hawaii, where median housing costs are $2,472 a month for those with a mortgage — highest in the nation. Food also costs more in Hawaii than anywhere else in the country, averaging $656 a month, as does transportation ($745 a month), entertainment ($237 a month) and personal care ($71 a month). Note that when calculating these costs, researchers accounted for regional price parities across each state, so some areas may be more or less expensive than others.
The one area in which Hawaii doesn’t rank the worst is the cost of health care (specifically, Medicare Part B and C). The average cost for Medicare Part B and C in Hawaii is $195 a month, compared to North Dakota ($225 a month) with the highest.
Least expensive states for your retirement years
Looking for a less expensive place to retire? You might want to head south to Arkansas or West Virginia. Or, you can practice the spelling of Mississippi (“M, I, crooked letter, crooked letter…”), which is the third-least expensive state, followed by Alabama and Indiana (the latter repping the Midwest).
|Least expensive states in which to spend your retirement years|
Median monthly housing costs in Arkansas are $1,094 — $1,378 a month less than in Hawaii. Food costs in Arkansas average $466 a month, which is about $200 less a month than the average in Hawaii.
Data: Monthly retirement costs by state
5 retirement strategies to know
To help ensure your retirement dreams match up with your retirement reality, planning is vital. Whether you hire a financial advisor to help you map out a course or do the work on your own, it’s important to evaluate and use the tools that can help you plan for your best financial future.
1. Start saving early
One of the biggest mistakes people make is not starting saving and investing for retirement early enough. Ideally, people should start as soon as they enter the working world, even if the amount they start investing is small. That’s because they have the power of compound interest on their side and can take advantage of that.
“The best time to start saving for retirement is now,” says Ismat Mangla, senior director of content for MagnifyMoney. “If you haven’t started yet, don’t wait to start putting money away — even if it’s a small amount. It’s important to get into the habit, and you want time on your side. You’re not just saving for retirement, you are investing for retirement. Simply socking money away is not enough. You need to invest that money strategically for it to grow.”
2. Take advantage of employer-sponsored plans
Mangla urges people to take advantage of employer-sponsored plans, such as 401(k) accounts, which are tax-advantaged retirement accounts that allow employees to make contributions.
“Many 401(k) plans offer employer matching, which is a big part of your compensation,” she says. “Too many people don’t contribute enough money to their 401(k) accounts to at least earn the employer match, which means they are forfeiting a part of their income.”
3. Consider an individual retirement account (IRA)
If your employer doesn’t offer a retirement plan or you’ve maxed out your contributions to one, you may want to consider opening an IRA. While there are several types with various limits and rules, they offer a way to save for retirement with tax benefits.
“I especially like Roth IRAs because they offer a way to diversify your income in retirement,” Mangla says. “You’re putting after-tax money in a Roth IRA, but when you eventually withdraw the money in retirement, you won’t have to pay any taxes on it.”
4. Keep it simple
It may make sense to get help from a certified financial planner or financial advisor who can help you figure out the asset allocation you need to reach your goals. But there’s no need to over-complicate investing.
“I encourage investors to focus on low-fee index funds for their investments,” Mangla says. “There is a ton of research that shows these funds fare better in the long run than actively managed funds.
“I like a set-it-and-forget mentality. You don’t need to tinker too much with your retirement investments once you’ve allocated them properly. And don’t pay attention to the short-term ups and downs of the market. Keep your eye on the long game.”
5. Automate investments
Whether directly from your paycheck into an employer-sponsored plan or from your bank account into an online brokerage account, making automatic contributions to retirement savings can be a good way to ensure they get made. Instead of forgetting to make them or using those funds for something else (“Just this once!”), it’s a great way to keep you on track to meet your goals.
MagnifyMoney researchers used data from the U.S. Bureau of Labor Statistics (BLS), U.S. Bureau of Economic Analysis (BEA), U.S. Census Bureau and MedicareAdvantage.com to estimate various costs of retirement in every state.
We first used the 2019 Consumer Expenditure Survey from BLS to find out how much households aged 65 and older spend yearly, on average, on:
- Transportation (vehicle purchases, maintenance and repairs, vehicle insurance, etc.)
- Personal care
We then multiplied those figures by BEA regional price parities from 2019, which calculate the difference in price levels for goods and services across each state. Next, we added each total to the 2019 U.S. Census Bureau one-year statewide estimates on housing costs for those with a mortgage, from mortgage payments to real estate taxes to utilities.
Finally, we added the average cost in 2021 of Medicare Part B and Part C (also known as a Medicare Advantage plan) across each state where available (Alaska doesn’t offer Medicare Part C). We used the standard Part B premium for 2021, while Part C data was compiled by MedicareAdvantage.com.
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