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.
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. And 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 increased 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 with 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 so difficult.
Those who are looking at retirement in the next few years should concentrate on tracking the smaller amounts they’re spending now. Getting a handle on your budget and on the basic tenets of investing now, is an important first step in figuring out how much you’ll need when you retire.
Reference: Think Advisor (August 22, 2017) “How Far Does $1 Million Go in Retirement?”