A few days ago, an article came out discussing the amount you would need to retire based on the state that you plan to retire in.

We all know that many states are not particularly friendly states for retirees due to higher cost of living, higher state income taxes, and more. People can often reduce their monthly expenditure by a thousand dollars or more a month just by not living in an expensive area like California and moving to less expensive areas such as South Dakota, Wyoming, or Tennessee (all which have a lower cost-of-living index and no state income taxes).

The article in this discussion – which can be found here – Amount to-retire-in-all-50-states does not really take taxes into account, but instead looks at average social security payouts nationally, in conjunction with the cost-of-living index per state. They are then figuring out how much you need in assets (based on the 4% rule) to create enough income for yourself to cover the difference of social security income received and the remaining average expenses left over.

In essence, how they are calculating the end number, is taking the average annual state wide cost-of-living costs, minus the average national social security income, and then dividing that remaining annual cost-of-living by .04 (for the 4% withdrawal rate rule of thumb). This provides an estimated amount of investment assets you would need (if you invested solely in bond and stock market investment options).

If you need a quick refresh on the 4% rule, check out the post below:

This study, like all, has flaws. Different parts of each state have different costs depending on urban or rural areas, land desirability (for instance homes in mountainous areas are usually more desirable than homes on flat, barren, wind swept land), logistical/transportation costs, and more. So, state wide averages will not provide accurate examples for your specific retirement living location. On top of that, we already discussed that other costs, such as tax costs or health care availability will change the numbers around quite a bit by state, as well.

Regardless of the study not being perfect, and being pretty simplistic, I believe it points out two very strong conversation points that people often overlook when thinking about what they need for retirement.

First, it helps us think about where we want to live and can live during retirement. In the Financial Independence community, this is called “Geoarbitrage“, or retiring in areas that have low cost-of-living and extra advantages for retirees. For most people, you can very simply cut costs by living in a different part of town, downsizing your residence to one that is more elderly friendly, and so on. Of course, these small changes can have a very large impact on your ability to make your retirement funds last your remaining years (or provide yourself the opportunity to save up less funds for your retirement purpose). But, if you wish to go even more bold, you could choose to move to a different state that is much less expensive to live in, OR you can even move to a different country that is much less expensive to live in. Many countries all over the world have become home to many US citizens and Europeans due to the low cost lifestyle and simpler living. You should not put such an option out of your mind. I could also be the adventure of your life.

Second, with assistance such as social security, this study hopefully helps you realize you may not have to save up as much money as most people think. After the social security incomes are added in, many states in this article “show” that you would only need $650,000 to $750,000 to cover the FULL cost-of-living average for those areas. These numbers are still large to most, but I’m sure many of you reading this were accounting for the likelihood of you needing a million or more to retire, and that is just not the case (currently).

This article also does not take into account those American’s who still have a pension, which will be a decent percentage of the population (think teachers, firefighters, military personnel, government workers, etc.). If those people who have pensions even received $1000 a month in retirement, that with the social security average, would add up to over $34,437.24 a year covered.

Or, if you desire to work part-time, which many people do prefer to do in their early retirement years, adding in that same $1000 a month of income (equivalent of 20 hours a week at $11.54 an hour for gross income of $1000, or probably around 20 hours a week at $15 an hour to net $1000 a month after taxes, etc.) would put you in the same boat.

In little old South Dakota or Nebraska, the average cost-of-living shows on this article at $54,002.01. If we subtract out $34,437.24 (social security plus $1000 extra net income) and divide the remainder by .04, you would then show only needing $489,119.25 in assets. And of course, focusing on lower cost-of-living areas still could drop that down to $350,000 needed, or $250,000 needed.

All-in-all, make sure you are being smart with your understanding of costs you really need to have, where you really need to live, and ways to create more income outside of your investments. And for information on retiring early and the amounts you need, see our Little F.I.R.E series.

And for ending the post, here is a random picture that has nothing to do with this post. It comes from the Ocean Art Contest winners –