Welcome to Financial Advisor IQ

How Long a $1M Retirement Fund Lasts in Each State

August 25, 2017

Financial advisors whose clients are approaching retirement may want to take a more proactive approach to helping them determine where exactly to spend their twilight years. A $1 million retirement fund doesn’t go nearly as far as it used to, but it would last more than 26 years in Mississippi while less than 12 years in Hawaii, according to a recent report cited by Bloomberg.

The median annual cost of living for Americans 65 and over is $44,664, according to Bureau of Labor Statistics data cited by the news service. But that goes up to $83,834 in Hawaii, according to a GOBankingRates report cited by Bloomberg. That’s a whopping 37% more than California, the next most expensive state for retirees, the news service writes.

The report used the Bureau of Labor Statistics’ mean annual expenditures data for retirees 65 and older and multiplied it by living costs in each state, including housing, healthcare, utilities, groceries and transportation, as provided by the Missouri Economic Research and Information Center, the news service writes. In addition to Mississippi, the least expensive states for retirees are Arkansas, Oklahoma, Michigan, Tennessee and Georgia, according to the report. Alaska came in as the third most expensive state, followed by New York, Massachusetts, Connecticut and Maryland.

But the report doesn’t take into account any travel or entertainment expenditures, according to Bloomberg. What’s more worrying is that it doesn’t account for inflation – particularly since growth in medical costs outpaces inflation.

Retirees’ healthcare costs will grow at a 5.5% average annual rate in the next 10 years, according to HealthView Services data cited by Bloomberg. By comparison, U.S. inflation from 2012 to 2016 averaged 1.9% annually, the news service writes.

The silver lining is that the report doesn’t take into account potential gains in the retirement fund used for withdrawals, according to Bloomberg. Nonetheless, advisors can help clients understand their retirement needs by paying closer attention to current spending while getting them on track to save what they’ll need by budgeting and appropriate investing, the news service writes.

By Alex Padalka
  • To read the Bloomberg article cited in this story, click here.