Capital Investment Advisors

Where You Live In Retirement Can Either Make Or Break Your Post-Career Plans

The Extreme Cost Of Living Disparities In American Cities

It pays to be careful about where you live during your retired years. The cost of real estate can make or break your post-career plans.

Think about what it really costs to live in America. I’ve identified five big pillars of a livable budget: food, health care, transportation, education, and, of course, housing. Once you have retired, you can scratch education off your list, so you’re left with four important line items for your budget.

The first three will carry consistent costs no matter where you settle down for retirement. Your food budget should be similar across the nation, unless you live in very isolated or hard-to-reach areas, like the mountains of Montana or the islands of Hawaii. For health care, your Medicare costs will typically run the same whether you live in Florida, California or Georgia. And transportation, unless you live in Manhattan, is usually comparable – a GMC is a GMC, no matter if you’re in Detroit, Atlanta, Palo Alto, Santa Barbara, or super expensive Suffolk County, Massachusetts.

Housing, or real estate, is the great equalizer here. Where you choose to live has the potential to tremendously swing your monthly budget from healthy to anemic, or vice versa.

For most families in America, $500,000 is a solid amount to have saved for retirement. What’s important when it comes to the cost of real estate is that you don’t let reports of multi-million-dollar bungalows in Palo Alto scare you away from planning for your comfortable retirement.

Practice prudence in choosing your retirement locale and financial independence can be yours.

If you’re concerned about reports that every single retiree should have around $2 million socked away, don’t be. Let’s talk through why these boilerplate financial reports can be misleading, to say the least.

Take the 2015 Legg Mason Global Asset Management Study, which states that retirees in America need $2.5 million in savings. That’s quite a stash. And for most of us, it’s unreasonable. You and I both know that folks with $2.5M in savings make up a very small percentage of Americans. We’ve all heard the reports that confirm this fact – nearly half of American families have no retirement account savings at all.

If we delve deeper, we see why the Legg Mason projection seems so out of touch. While it appears to have been a national study, there’s no data that I’ve seen on who participated in the survey. Was this truly a cross-section of our nation’s families, or were only wealthy individuals included?

Look at a companion survey, the Economic Policy Institute (EPI) report, and it would certainly seem that only higher income people were polled by Legg Mason. The EPI report seems to provide more accuracy and equilibrium. This report used data extracted from the Federal Reserve Board’s Survey of Consumer Finances and was prepared in conjunction with the National Opinion and Research Center of the University of Chicago.

What did the EPI report show? That nearly 50% of working families have no retirement account savings. The median have only $5,000 saved. Higher earners or those in the 90th percentile of income have an average of $275,000 saved. And the top 1%? They have about $1.1 million set aside for retirement.

Put this information side-by-side with the Legg Mason results, and there’s a glaring incongruence. Based on the vetted EPI numbers, it appears that the Legg Mason Study only looks at a small slice of the American pie – those between the 90th and 99th percentile of earnings, whose average retirement account balance is around $385,000.

If Legg Mason is looking at the wealthiest families in America, no doubt their projections about how much you need to retire is based on living in some of the wealthiest (and most expensive) parts of the country. And these zip codes can put a tremendous skew on the real cost of living for most Americans.

Check Out: How Long $1 Million Will Last You In All 50 States 

Let’s look at some of the numbers. Here’s a short list from my own personal research of 46 states that illustrates the exorbitant cost of living in some of our nation’s places:

  • In California, the average list price for a home is $700,000. Some of the most affluent neighborhoods are no doubt responsible for this soaring number. In San Mateo, Palo Alto, the current average home listing is for $2.2 million. In both Marin County and Santa Barbara, that number is $1.9 million. And nearby San Francisco comes in at $1.7 million.
  • In Massachusetts, the average home costs around $600,000. Neighborhoods in Suffolk County, home to Boston proper and the upscale Bay Village, for example, have an average home price range of between $2.3 million and $2.9 million.
  • And let’s not forget the Big Apple. In New York, NY, the average home list price is almost $4.0 Million.

But then you take a look at the rest of the country, and you see that these numbers are the exception to the generally affordable rule of American housing. Take for instance Ohio, Michigan, Pennsylvania and Georgia. Average costs of housing in these states are $190,000 (Ohio), $212,000 (Michigan), $224,000 (Pennsylvania), and $297,000 (Georgia). To break it down further, Fulton County is the most expensive large county in Georgia, and the average housing price is $573,000. For Cobb County, that number is $390,000. DeKalb comes in at $322,000 and Gwinnett is close behind at $318,000.

To reiterate my point from above, real estate is a great equalizer. The Legg Mason Study takes into account only a small, wealthy group of families, and the result is that the data is skewed. If you believed their numbers, you’d think “no way is $500,000 enough to retire on.” But if you live in an affordable place, then $500,000 is a great target for your retirement savings. And most places in the US, probably close to 99% of the zip codes, are affordable to live in.

A comfortable retirement home in America is right under your nose. You don’t have to go live in a $2.0 million shack in Palo Alto during retirement. Nor do you have to cozy up next to your neighbors in a tiny New York apartment. Your life during retirement can be lived anywhere that’s comfortable to you. I grew up an hour or so outside Philadelphia in Lancaster County, where the average list price for a house is $257,000. Now I live in Atlanta, north of the city, and houses go for between $250,000 and $450,000. And it’s a darn nice place to live.

Don’t Buy Into The Fear Headlines.

When planning for your retirement, it’s critical you don’t let the fear mongering get to you. If you listened to all the “expert” advice on what a solid, happy retirement looks like, you’d likely be convinced yours is simply out of reach. It’s not. The data is skewed to scare you.

When retirement savings polls account for only the top 5% or so of Americans, they’re not helpful for the rest of us. When real estate polls account for only the top 0.1% of zip codes, they’re not helpful for the rest of us. And when Suze Orman says everyone – everyone – should work until age 70, it’s not helpful for the rest of us.

Be careful not to buy into these fear headlines hook, line and sinker. I know there is a different, accessible way to secure a happy retirement, perhaps at age 65 and perhaps earlier, with less.

According to my own professional research and experience, with just a half-million-dollar nest egg, you can live a joyful and financially secure retirement. Sure, everyone’s financial income needs will vary to some extent, but for retirees with little debt who don’t need to live an extravagant lifestyle, the $500,000 mark is a sweet spot.

I know that $500,000 still sounds like a lot of money to most people. And it is. But, it is a much more attainable goal than $2.5 million, and, no matter your income level, you have a better chance of reaching it.

Today, having $500,000 of retirement savings puts you in the top 5% to 10% of Americans, but by talking to this group I’m talking to millions of American families, not just the few Legg Mason Study ones. The upper 5% of American family earners consists of about 6.2 million households, while the upper 1% consists of 1.25 million households, and the upper 0.1% consists of 125,000 families. This is to illustrate that our $500,000 benchmark will bring between 5 and 10 million more families into the place of knowing they’ve set themselves up for happiness and comfort in retirement.

No matter your income and no matter your geography set your sights on living in a place during retirement where the real estate market is on your side. For me, living in Atlanta gives me both affordable living costs and access to all the city has to offer. You may be surprised at what you find, or you might just decide to stay right where you are.

Check Out: Getting To One Million

Previous ArticleNext Article