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.
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.
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.
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.
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).
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.
Are the popular retirement destinations the best for your budget? Phoenix, Tampa, Fla., and North Port, Fla., are the most popular retirement destinations for older adults 65 and older. Arizona ($36,013) and Florida ($37,659) come in about midway on MagnifyMoney’s list of annual cost of retirement by state.
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.
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.”
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.”
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.”
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.”
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:
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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