It used to sound like a lot of money, but a new report says even with $1 million in retirement savings, where you live could make the difference between a comfortable retirement and running out of money.
Depending on what state you live in and how long you live, having a million dollars may or may not be enough to fully enjoy your retirement. A new report from GOBankingRates reveals the state-by-state costs of living and other factors to determine how long a million dollars would last for retirees 65 and older.
Research by the Missouri Economic Research and Information Center multiplied the Bureau of Labor Statistics’ mean annual expenditures for that age group by a cost-of-living measure for each state. They then separated out annual spending on health care, housing, groceries, transportation, and utilities.
Think Advisor’s recent article asks “How Far Does $1 Million Go in Retirement?”
It appears that the takeaway from the number crunching is this: if you want to stretch your dollars as far as possible, retire in the South.
The calculations are conservative and don’t factor in any entertainment or travel. Without those, it would be a pretty grim retirement. It also doesn’t consider inflation’s impact on purchasing power as we get older. Inflation can be more dramatic for seniors due to medical costs. Those expenses can account for a bigger percentage of expenses and have increases at a higher rate than the economy overall.
Estimates indicate that health-care costs for retirees will rise at an average annual rate of 5.5% in the next ten years, according to HealthView Services, a developer of retirement health-care cost projection software. As an illustration, from 2012 to 2016, the average annual broad inflation rate in the U.S. was 1.9%.
The calculations for the annual expenditure numbers also don’t take into account any return on the money seniors are presumably holding while they’re in retirement. Those gains could offset purchasing power that’s lost to inflation.
Despite these caveats, the information is useful in starting to show the relative power of a fixed sum of savings from one state to another.
For many, the notion of a million-dollar savings fund for retirement is a dream. There are many who make do on much less. For others, a million won’t be nearly enough to fund the kind of lifestyle they want in retirement. Health issues make planning very difficult.
If you are planning on retiring in the next few years, now is the time to begin getting a handle on your costs of living. Start tracking the amount of money that you spend now and create a budget so you can see where your money is going. You will then know how much you’ll need for retirement.
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