As advisors and many retirees know, there are significant geographic considerations in retirement. For many folks that are out of the workforce, there’s a balancing act between maximizing finances and remaining near family – a scenario that’s amplified in high cost of living areas.
But let’s be honest. Moving is a pain and if it’s of the state-to-state variety, it’s expensive, meaning a move for financial reasons can take awhile to bear fruit. Those are among the reasons why so many retirees opt against, choosing to reenter the workforce or downsize to smaller homes. Viable alternatives to be sure, but those solutions aren’t applicable to everyone.
Not all retirees are sitting on residential real estate that’s appreciated in significant fashion. Some simply want to remain in their current residence and have the financial resources to do so. There’s nothing wrong with not wanting to move.
However, there are scenarios when a change of scenery is advisable, perhaps even necessary, for a retiree. For many folks that are working less or out of the workforce altogether, reaching that decision can boil down to how dependent on Social Security they are. Due to the retirement crisis and private sector defined benefit pensions being relics of bygone eras, a lot of workers out there are or will be somewhat dependent on Social Security, implying geographic considerations cannot be ignored.
Location, Location, Location
Realtors are always talking about location and it’s a lesson worth remembering as it relates to Social Security because the reality is those benefits stretch further in some places than in others.
“Across the 100 largest U. S. metros, the implied pretax need for retirees (or average estimated annual expenditures before taxes) is $71,407. Meanwhile, the average Social Security income in these metros is $21,500, meaning Social Security covers 30. 11% of retirees’ spending,” according to LendingTree.
Translation: Social Security recipients in those metro areas are collecting an average of $1,791 per month. That’s fine if they’re in low cost regions, have other retirement savings, or both, but that’s not a large amount in many of the most populated parts of the U. S. LendingTree points out that Social Security stretches the furthest in McAllen, Texas, followed by Buffalo, N. Y. (33. 12%), and El Paso, Texas (32. 85%). Not surprisingly, retirees in high cost of living areas need much than Social Security to survive and thrive when they’re done working.
“Retirees in San Francisco require the biggest nest egg, needing $1. 62 million to retire,” notes LendingTree. “After accounting for average Social Security income, retirees here need $64,638 annually from additional retirement funds to cover their spending. The five metros requiring the biggest nest eggs across the 100 largest are in California, with Los Angeles ($1. 57 million) and Oxnard ($1. 53 million) behind San Fran. ”
California’s most desirable regions are some of the priciest in the U. S. and that’s a driving force behind the decision of many Golden State retirees, even some that can afford to remain there, moving to Arizona, Nevada and other lower-cost Western states.
To be fair to California, it doesn’t have a monopoly on putting an emphasis on diligent retirement planning/savings. Of the 10 metro areas where the biggest nest eggs are needed, five are in the Golden State and the other five are Miami, Seattle, Washington, DC, New York and Boston.
Tips for Maximizing Retirement Benefits, Savings
Not everyone wants to move when they retire and, ideally, they shouldn’t be forced into it because of finances. Moving should be a source of excitement for those involved, not a source of dread. Advisors can help clients avoid an unwanted, financially motivated move in retirement.
It boils to fundamental concepts, including erring on the side of caution when to saving more (not less) for retirement and ensuring spending is monitored and not excessive. That doesn’t mean excessively skimping on dining out or never taking vacations, but it does mean enjoying those activities when finances permit and taking on debt to do so.
“Living on a fixed income isn’t easy, especially for those who earned a lot in their careers but didn’t put enough savings away,” says Matt Schulz, LendingTree chief consumer finance analyst. “It can be a seriously rude awakening. One of the most important things to do is be laser-focused on controlling spending. Every cent you spend on things that don’t matter can’t be spent on the things that do, so take the time to assess your budget and make sure your spending lines up with your values. ”
