Where You Need to Be a Millionaire to Retire
by Nick Wallace, Smart Asset, June 10, 2015
Do you have a cool million dollars sitting in your retirement account? If not, you probably need to keep saving if you’re planning on retiring in one of America’s largest cities. Thanks to the rising cost of living in urban areas across the country, retiring in a big city is more expensive than ever.
In places like New York and Los Angeles, many retirees are forced to either work during retirement, find a new home or live frugally. None of those may appeal to you, but unless you’re a millionaire they may be your only options.
Try SmartAsset’s super-smart retirement calculator to find out how much you should be saving.
Data & Methodology
To calculate the average savings needed to retire in U.S. cities, SmartAsset first looked at data from the Bureau of Labor Statistics (BLS) on the average annual expenditures of seniors throughout the country.
So, according to the BLS seniors spend an average of $10,907 annually on housing, $5,314 on food, $5,439 on healthcare and $15,589 on everything else (including entertainment, transportation and utilities). That adds up to total annual expenditures of $42,557.
SmartAsset applied cost of living data from the Council for Community and Economic Research to adjust those national average spending levels based on the cost level for each expense in each city.
For example, in a city where housing is twice as expensive as the national average and food is half as expensive, a senior would need $21,814 for housing and $2,657 for food. Combining each category, we generated the spending required in every city to maintain the average standard of living for seniors.
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We then ran those spending numbers through SmartAsset’s income tax calculator to calculate the pre-tax income required to afford that life style. We assumed seniors would receive $17,189 in Social Security income(the national average) and that the rest would come from savings—either a 401(k) or an IRA.
Lastly, we calculated the total savings needed at retirement in order to generate that level of income for 30 years. We assumed a real interest rate (interest minus inflation) of 2%, reflecting the typical return on a conservative investment portfolio.
The map below shows the savings you would need at retirement in America’s least affordable major cities for retirees.
2. Honolulu, Hawaii
Endless summer, beautiful sandy beaches and delicious food: Honolulu is the ideal place to retire – if you can afford to do so. SmartAsset found that retirement in Hawaii would require $65,822 annually in disposable income, and (given Hawaii’s relatively high income taxes) pre-tax income of $91,451. Over $70,000 of which would need to come out of your retirement savings every year, meaning you would need $1,663,195 at retirement for your savings to last for 30 years.
Why is Hawaii so expensive? Housing is one major reason. SmartAsset found that a senior living in Honolulu would need to spend about $28,000 annually to keep a roof over her head. Food is also a big cost, taking an $8,200 bite out of a Honolulu retiree’s budget each year....
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