Mapped: How Much Money Do You Need To Retire Comfortably In Each State
Having enough savings to afford a comfortable retirement has been an issue for a long time now. In fact, some economists have recently estimated that millennials will face even a harder challenge and should save almost half of their income if they wish to retire at 65. However, the good news is that some parts of the country are friendlier on the wallet than others when it comes to retirement. Our newest visualization shows the average amount that a person will need to retire comfortably in each state, as well as the average retirement age by state.
- The average retirement age in the U.S. is 64 years old. At the state level, the average retirement age varies from 61 years old in Alaska and West Virginia to 67 years old in Washington, D.C.
- The average life expectancy nationwide is 78.6. Among the states, Mississippi has the lowest life expectancy at 74.5, and Hawaii has the highest life expectancy at 81.5.
- Nationwide, the average yearly expenses for someone over the age of 65 is $51,624. Mississippi has the lowest annual expenses at $44,758, while Hawaii has the highest annual expenses at $99,170.
- Taking into account life expectancy as well as yearly expenses, the average savings required for retirement in the U.S. is $904,452. States in the Northeast and the West require the highest savings for retirement, at over $1 million, while states in the South and the Midwest require the lowest savings.
What Are My Retirement Income Options
You need to understand your options well in advance of your retirement. There isn’t a one-size-fits-all solution, and it’s important you chat your plan through with an accountant or independent financial advisor before taking any action that could put your money at risk. Here are some of the most common options worth discussing with a professional:
Pension drawdown Drawdown allows you to regularly withdraw income from your pension while allowing the rest of your fund to grow through investment. It’s a comparatively low-risk investment strategy, but there will always be a level of risk, meaning you could lose everything if the stock market turns against you.
Annuities This is an insurance product that guarantees you a certain income every year for the rest of your life. The price will vary depending on your current health, how old you are when you take it out and how much income you’d like to receive. It’s a safe, reliable option but won’t give your money the chance to continue earning interest or growing through investment.
Withdrawing a lump sum Some pensioners prefer to take a lump sum, which you can do from 55. They might choose to pay off their mortgage, reduce their outgoings, or gift their children for a house deposit. You can take up to 25% of your pension tax-free, leaving the rest to continue growing or to go towards an annuity at a later date.
Consider Other Sources Of Income While Retired
There are multiple savings vehicles and income streams to consider for retirement. These can affect how much you need to save today, depending on which sources of income are available to you.
Social Security benefits are offered to retirees aged 62 or older , who have earned enough credits throughout their career in order to qualify for the program. This can provide a steady income stream in retirement. For example, someone born in 1970 who earns $60,000 per year can retire at age 67 with $1,999.00 in monthly Social Security benefits. Thats nearly $24,000 per year that your retirement savings will not need to cover.
A pension plan can also provide you with a steady, monthly income stream. If your employer has one, youll need to ask if you qualify, how much income this will offer, and what the pension requirements are.
Annuities are another retirement income source to consider. Theyre offered by insurance companies and act as a long-term investment vehicle. After purchasing an annuity either with a lump sum or periodic purchase payments you will receive regular payments over the course of your retirement.
There are other plans and investment options available, but these five are the most common among retirees.
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Where Do You Plan To Retire
Will you remain in your current home or downsize? You may be able to stretch your retirement dollar by moving to a smaller home. Remember that smaller homes typically come with lower utility costs and less expensive home repairs.
If you plan to move to a different location, make sure you have a realistic understanding of what a home in that area will cost you and what the cost of living will be. The average cost of retirement in different US states can vary by $1 million or more. Coastal beach towns, while appealing to retirees, typically have a high cost of living and a competitive real estate market. If youre considering moving to an age-restricted community during retirement, look up communities with your desired location and amenities to get a good idea of the monthly fees.
Some retirees leave the United States entirely, drawn by lower cost of living, beautiful weather, and/or affordable healthcare. However, there are disadvantages to leaving the US for retirement, including distance from family, issues with long-stay visas, and double taxation. If you are interested in expat retirement, careful research and planning can make the transition to your new home smoother.
May Not Be Too Early To Retire But It Is Too Early For Social Security
The good news is that retiring at 60 is much easier than retiring at 55, as penalty-free withdrawals from IRAs begin at age 59 1/2. But thats not to say its always easy.
As you work to figure out if you can retire at 60, cross Social Security benefits off your list of potential income sources. Eligibility for Social Security benefits starts at 62 for retirees. Also, youll want to weigh whether you should file for benefits as soon as possible or hold off for larger checks. This might mean taping retirement accounts to delay Social Security longer.
Another consideration is spousal benefits. Claiming benefits before full retirement age not only reduces your retirement benefits, but itll also reduce spousal benefits. If your benefits from your own working record are likely to be roughly equal, this wont matter much.
Social Security benefits include 35 years of average earnings, which might not be an issue for individuals who started working before 25 without interruption. But if you took a break to raise a family, go to law school, etc., the Social Security Administration might have to use $0 salary for a few years when calculating benefits.
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Bottom 5 Least Expensive States For Retirement
1. Mississippi: $617,661, average retirement at 63 years old2. Tennessee: $660,870, average retirement at 64 years old3. Alabama: $712,832, average retirement at 62 years old4. Oklahoma: $723,859, average retirement at 62 years old5. Arkansas: $728,010, average retirement at 62 years old
Not surprisingly, states with higher life expectancies and higher costs of living require the highest retirement savings. However, regardless of where they live, most Americans are not saving enough in order to fund their retirement. Some think that the solution could be making saving mandatory, with the government stepping in to divert a certain percentage of an individuals earnings to a savings or retirement account. Others believe taxing the rich more is the way to go in order to strengthen Social Security, which provides the primary source of retirement income for many Americans. In addition, focusing new policies on developing affordable housing for the elderly could alleviate financial pressures for retirees.
What steps are you taking to save for your retirement, and what policies do you think should be put in place to help Americans retire comfortably? Please let us know in the comments.
About the article
How To Retire On $500k
By Justin Pritchard, CFPÂ® in Montrose, CO
Sometimes retirement advice relies on round numbers and rules of thumb. For example, you might hear that you need $2 million to retire. But the amount you need depends on things like your monthly spending and any sources of retirement income.
Most people never reach $1 million in savings. In fact, many of my clients have somewhere between a few hundred thousand to a few million in assets. So, if youre anything like them, it may be helpful to see how it looks to retire on $500k.
Ultimately, anybody approaching retirement faces a choice: Do you work longer so you can continue saving, or can you retire comfortably with less?
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How To Retire Comfortably At 62
The key to retiring at 62 is to assess your current assets, estimate future income and preferred lifestyle, including whether youre willing to work part-time, and how youll pay for healthcare until Medicare kicks in. While 65 is the traditional age to retire and start getting Social Security payments, many Americans want retire earlier, if possible. A financial advisor can help you put a financial plan together for retirement, regardless of what age you want to do it by.
How Much Money Do I Need For Retirement
It’s tricky to know how much money you need stashed away to retire and live a lifestyle you’re happy with.
While the amount will vary from person to person, we’ve put together some rough estimates of how much you need to retire, as well as the question you should be asking to help achieve a good income in retirement.
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Factor No : How Much Can You Withdraw From Savings Each Year
A landmark 1998 study from Trinity College in Texas tried to find the most sustainable withdrawal rate from retirement savings accounts over various time periods. The study found that an investor with a portfolio of 50 percent stocks and 50 percent bonds could withdraw 4 percent of the portfolio in the first year and adjust the withdrawal amount by the rate of inflation each subsequent year with little danger of running out of money before dying.
For example, if you have $250,000 in savings, you could withdraw $10,000 in the first year and adjust that amount upward for inflation each year for the next 30 years. Higher withdrawal rates starting above 7 percent annually greatly increased the odds that the portfolio would run out of money within 30 years.
More recent analyses of the 4 percent rule have suggested that you can improve on the Trinity results with a few simple adjustments not withdrawing money from your stock fund in a bear-market year, for example, or foregoing inflation raises for several years at a time. At least at first, however, it’s best to be conservative in withdrawals from your savings, if you can.
Also of Interest
What A Comfortable Retirement Will Cost You In Each State
See how much a year of retirement will cost in your state. Plan Your Retirement
How much do you need to retire comfortably? Its a question in the mind of every American saving for retirement. Unfortunately, theres not a one-size-fits-all answer. There are several rules of thumb to help you figure out how much to save to retire. But the exact dollar amount you need will depend on a variety of factors especially where you plan to live in retirement.
Thats because the cost of living varies from state to state. In some places, you can get by on even a small nest egg, while in others, even $2 million wont be enough. Your age at retirement also plays a factor.
To pinpoint the average retirement income you would need to live comfortably throughout the U.S., GOBankingRates looked at five factors in all 50 states and the District of Columbia: an individuals spending on groceries, healthcare, housing, utilities and transportation. Then, the annual retirement income needed to cover these living expenses was calculated, with an additional 20% to account for the comfortable aspect of retirement. The states are ranked from least to most expensive.
- Cost of a comfortable retirement annually: $52,991
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Will You Have Debt Or Dependents In Your Golden Years
More than half of baby boomers in a Boston College Center for Retirement Research survey intend to enter retirement debt free. However, only one-quarter of retired Boomers are actually debt free. The primary sources of debt in retirement are mortgage debt, student loans, and medical bills. Making debt payments on a fixed income can severely limit your retirement lifestyle.
Many independent- and assisted-living facilities run credit checks as part of the application process. Retirees carrying large debt loads may have lower credit scores or have trouble making payments.
If you are carrying a large debt load and are contemplating retirement, consider making an appointment with a financial advisor to help you plan to pay down debt and bolster savings before leaving the workforce. If you are already retired, part-time employment may provide some financial relief.
Carrying a low-interest rate fixed mortgage into retirement may make sense in some cases where your nest egg is earning a higher interest than you are paying on the loan.
If you will be carrying any debt into retirement, your fixed expenses will be higher and you may need to adjust your lifestyle or continue working until the debt is paid off.
How Long Do You Expect To Live
No one likes to contemplate their own demise. However, a clear-eyed understanding of your realistic life expectancy is essential for retirement planning. A myriad number of factors influence your life expectancy, including gender, genetics, lifestyle choices, economic status, education, environment, and marital status. While some factors, like your gender and genetics are beyond your control, personal choices like eating healthy foods, exercising, maintaining social connections, and quitting smoking can expand your lifespan.
If you may well live 30 or more years into retirement, youll need a much larger nest egg than someone who expects a shorter lifespan.
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How Much Money Do You Need To Retire Comfortably
There is no right answer when it comes to this question. Everyone needs to figure out their own retirement plan. The key to getting the most value for your money is by saving as much as possible.
You should also consider the type of lifestyle that you want after youre retired. For example, do you prefer to travel, or would you rather stay home?
If you dont have a specific idea in mind, you might be able to use an online calculator to help you decide. There are several calculators available on the Internet that can give you a rough estimate of what youll need to save in order to retire comfortably.
But, if you really want to get a better idea, then you could try to calculate your personal financial situation. This will allow you to figure out exactly what you need to save every month so that you can reach your goal.
% Retirement Savings Rate
Lets assume that Beth, a 30-year-old, makes $40,000 a year and expects 3.8% raises until retirement at age 67. Further, with a diversified portfolio of stock and bond mutual funds, Beth expects a return of 6% annually on her retirement contributions.
With a 5% savings rate throughout her working life, Beth will have saved $423,754 by age 67. If she needs 85% of her pre-retirement income to live on and also receives Social Security, then her 5% retirement savings are significantly short of the mark.
To match 85% of her pre-retirement income in retirement, Beth needs $1.3 million at age 67. A 5% savings rate doesn’t place her savings at even 50% of the funds she’ll need. Clearly, a 5% retirement savings rate isnt enough.
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How Much Money Do You Need To Retire
A common guideline is that you should aim to replace 70% of your annual pre-retirement income. This is what the calculator uses as a default. You can replace your pre-retirement income using a combination of savings, investments, Social Security and any other income sources . The Social Security Administration website has a number of calculators to help you estimate your benefits.
It’s important to consider how your expenses will change in retirement. Some, like health care and travel, are likely to increase. But many recurring expenditures could go down: You no longer need to dedicate a portion of your income to saving for retirement. You may have paid off your mortgage and other loans. And your taxes are likely to be lower payroll taxes, which are taken out of each paycheck, will be eliminated completely.
Be sure to adjust based on your retirement plans. If you know you wont have a mortgage, for instance, maybe you plan to replace only 60%. If you want to travel every year, you might aim to replace 100% or even 110% of pre-retirement income.
Social Security Benefits And Retiring At Age 62
If youre considering retiring at 62, its likely that Social Security is one of your primary concerns. Thats because 62 is the first year youre eligible to receive Social Security benefits, but your benefit will be lower than if youd waited longer to start receiving those benefits.
Normally, youd need to reach your full retirement age, which for most people is 66 or 67, to qualify for the full monthly benefit amount. And to get the largest possible benefit youd need to wait until age 70. Taking benefits at age 62, or at any time between 62 and your full retirement age would reduce your benefit amount.
The amount of the reduction depends on the year you were born. For example, if you were born in 1960 or later, taking Social Security benefits at age 62 would reduce your monthly benefit by 30%. If youre married and spousal benefits are also being paid, those benefits would be reduced by 35%. So for example, if youre anticipating a $1,000 monthly Social Security payment and your spouse is expecting $500, your benefits would be reduced to $700 and $325, respectively. This Social Security calculator can tell you what you can expect to receive, based on your age and when you begin taking benefits.
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