Retirement Relocation and the Adjusted Cost of Living
October 26, 2017
For many new retirees, their retirement is often accompanied by a relocation. The majority of retirees tend to stay in the same place they lived while working, but for others moving to a different location can be quite attractive. With each move comes a variety of different expenses. In some cases, you can save money in the long run by moving, but in other cases it could set you back a bit. There is always going to be that initial cost of moving that is accompanied by home selling expenses and other moving fees, but the main expenses that build up are going to be in the day to day living expenses of where you move to. For example, if you are a Mississippi resident that relocates to Hawaii for retirement, your living expenses will almost double due to Hawaii’s Cost of Living Index being close to double that of Mississippi’s. Different living costs change dramatically depending on where in the country you live. Let’s examine all of the main living costs to see how your location impacts that cost.
The first main expense that is accompanied with the cost of living is housing. The cost of housing is the expense that varies the most based on location. Hawaii and California both have average housing costs that are dramatically higher than the rest of the country. Mississippi has the lowest average housing cost. Compared to Mississippi, California’s average housing cost is a little over three times the average cost of housing in Mississippi. In the US, the region with the lowest housing cost is the South closely followed by the Midwest. The West Coast and the Northeast have the highest housing costs along with Alaska and Hawaii.1 The difference between the low cost housing regions and the high cost housing regions is a dramatic enough difference in housing expense that a retiree in one of the higher cost areas that is at risk of running out of money could move somewhere with low housing costs like Mississippi and effectively eliminate that risk.
The next main expense that someone would have to pay for would be food. The cost of food does not vary as much as some other expenses, but there is a notable cost differential between certain regions. A lot of the cost of food is due to the transportation required to get that food to the grocery store. With that in mind, it’s no surprise that both Alaska and Hawaii have the highest cost when it comes to groceries. Excluding Alaska and Hawaii, the differences in food pricing is similar to the housing cost trend; however, it is to a much lesser extent. The places that have the lowest food expenses are the Midwest and the South, which makes sense since that is where the majority of the country’s food supply comes from. The West Coast and East Coast are above average for the cost of food in comparison, but not to an outlandish degree.1
Another main living expense is the cost of utilities. You would think that the cost of utilities would not vary too much, but the cost is notably higher in the Northeast in comparison to the rest of the country. Not surprisingly, the cost of utilities is also very high in Alaska and Hawaii. Hawaii actually has the most expensive utilities in the country, with the cost being double the national average. Excluding those regions, the rest of the country has very similar utilities expenses.1
The cost of transportation is another key living expense. Transportation is a unique category. Depending on where you live, the cost of transportation can be almost completely mitigated. Choosing to live in an urban area can allow you to use public transportation rather than relying on your own vehicle. That will save money in a lot of ways. You will not have to pay for a car and its maintenance, you will not have to pay for gas, and you will not have to pay for insurance. This may give you slightly less freedom, but if this allows you to cut down from two or more cars to just one car or no cars, that is a big savings. For those that choose to live in areas that do not have public transportation, which is the majority of the US, you are subject to the varying gas prices and insurance rates across the country. For these costs, Alaska has the highest transportation costs. The west coast and Hawaii are second behind Alaska. The remainder of the country has relatively similar transportation costs.1 An interesting fact I found for those that are local: Olympia, WA has the 5th highest gas prices in the country as of the 2017 second quarter.
For a lot of people, there is not much they can do about their cost of living because much of their life is anchored in their hometown, but for people that are willing to move there are some strategies they can take to extend their retirement years and mitigate the risk of running out of money. Moving from somewhere like California to somewhere like Mississippi, Arkansas, or Tennessee can almost double your lifetime withdrawal income. Moving somewhere where you will be using public transportation can also be a money saver. The opposite is also true. If you want to move somewhere that has a higher cost of living, for example Hawaii, you will have to account for the increase in expenses if you are moving there from somewhere that has a lower cost index.
1. “Cost of Living Second Quarter 2017.” Cost of Living Data Series Second Quarter 2017, Missouri Economic Research and Information Center, www.missourieconomy.org/indicators/cost_of_living/.
About the author:
Thomas Stapp joined the firm in May of 2017 after graduating from Baylor University with his B.B.A. in Financial Services & Planning. He is currently working toward acquiring the CFP® certification. In his free time he enjoys participating in sports, exercising, going to local events, and for the winter he is looking forward to skiing.