Reprise – Where You Live Matters A Lot for Your FI


This is a reprise of something I posted over the summer.  I heard something on the WSJ podcast on the same topic last week and thought that I’d revisit the issue.

What you’ll need for a comfortable retirement is, of course, dependent on what your expenses in retirement are and what assets you have available to meet those expenses.  Volumes have been written on that subject alone (I have, and will continue to contribute my thoughts on the subject – see Five Years of Cash for example).  One of the lesser discussed aspects of Early Retirement planning is the “where” of things.  Where you decide to set down retirement roots can have a huge impact on what you’ll need to live comfortably.

In looking at this issue, I came up with a mock retirement budget to see what would be needed to live in all of the different States within the United States.  I used a cost of living index from MSN Money, and while it is probably not perfect, it does illustrate the issue nicely (it used a combination of housing, food, transportation, medical and utilities indexes).  I also made some assumptions regarding social security based on this article from the Motley Fool.

Here is what I started with:

Retirement Budget (monthly expenses)

Utilities $300
Phone/Internet $100
Mobile Phone $50
Transportation $200
Medical $800
Ins. (ex-medical) $100
Food/Sundries $600
Entertainment $200
Travel $500
Misc $385

Total $4,235/month

A few notes on the above numbers.  They are not supposed to be exact, rather approximations based on my experience.  The Transportation category is meant to be either car ownership or use of public transportation, or a combination of the two.  Medical includes Medicare premiums for two at this income range, plus additional money for outside of Medicare coverage and costs.  Miscellaneous is 10% on top of the costs (because you need some space in your budget for things you aren’t thinking of.

This mock budget comes to annual expenses of about $50,000/year.  Based on what I’ve read in the FI blogosphere that seems about right.  To be honest, it is less than what we spend, but the calculations that follow are scalable to whatever you need them to be.  If your budget is less, you’ll need less than the following chart indicates.  If it is more, you’ll need more.  We’ll talk more about that in a bit.

Retirement Portfolio Requirements

In calculating how much you would need in order to meet your retirement expenses I used the 4% rule (I have some issues with this rule, see this post).  This is a withdrawal rate rule with which most of us are familiar.  I also looked at the issue in two ways.  First, how much would someone need in their portfolio if they were also drawing social security?  This is a variable that is hard to standardize.  I’m looking at it as if there were two people drawing payments (as I did in establishing Medicare premiums), and used the average payment amount of the moment  for a retired couple (about $2600/month combined – clearly you may be more or less depending on your earnings history).  When you are looking at your particular circumstances you will have to adjust up or down depending on what you expect you will receive.  The required portfolio in that case would be $490,500.  Taking 4% of that each year and adding it to social security payments would provide the required income.

Second, I included a calculation for portfolio requirements assuming no social security.  The “RE” portion of the FIRE crowd will not have access to social security for quite a while (depending on how “E” they “R”) and it seemed instructive.  If you follow the exploits of those who post their net worth in their blogs, you’ll see that the number is reasonable.  The required portfolio in this case is $1,270,000.  Taking 4% of that each year will provide the income needed to meet expenses as assumed above.

The Methodology

What I did is gather a uniformly measured (the same method for each State) cost of living index for each of the 50 States, from the least expensive place to live (Mississippi), to the most expensive (Hawaii).  Each state is compared to the average of 100.  If you live in a state where the index is 100, then, based on my mock budget, you’ll need $4,235 per month to live.  If we multiply the index number as a percentage against the mock budget, we find what it would take in each State to live at the mock budget levels.  Meaning, you’ll need less in Mississippi than you will in Hawaii (I don’t think anyone should be surprised by this).  What this chart shows us is that the same standard of living in Hawaii that would cost you $7,085.16/mo. will only cost you $3,574.34 in Mississippi. Below is the chart showing all 50 States, least expensive to most expensive.

Portfolio Amt Needed w/SS Portfolio Amt needed wo/SS State Cost of Living Index  100=Avg. Monthly Budget by State
$490,500.00 $1,270,000.00 Avg 100 $4235.00
$413,982.00 $1,071,880.00 MS 84.4 $3574.34
$427,716.00 $1,107,440.00 IN 87.2 $3692.92
$428,697.00 $1,109,980.00 ID 87.4 $3701.39
$431,149.50 $1,116,330.00 OK 87.9 $3722.57
$432,130.50 $1,118,870.00 AR 88.1 $3731.04
$439,978.50 $1,139,190.00 KS 89.7 $3798.80
$440,959.50 $1,141,730.00 TN 89.9 $3807.27
$440,959.50 $1,141,730.00 MO 89.9 $3807.27
$440,959.50 $1,141,730.00 TX 89.9 $3807.27
$442,921.50 $1,146,810.00 KY 90.3 $3824.21
$443,412.00 $1,148,080.00 NE 90.4 $3828.44
$444,393.00 $1,150,620.00 AL 90.6 $3836.91
$444,883.50 $1,151,890.00 MI 90.7 $3841.15
$441,450.00 $1,154,430.00 WY 90.9 $3811.50
$447,336.00 $1,158,240.00 GA 91.2 $3862.32
$448,317.00 $1,160,780.00 UT 91.4 $3870.79
$448,807.50 $1,162,050.00 IA 91.5 $3875.03
$455,184.00 $1,178,560.00 OH 92.8 $3930.08
$458,617.50 $1,187,450.00 NC 93.5 $3959.73
$458,617.50 $1,187,450.00 LA 93.5 $3959.73
$464,994.00 $1,203,960.00 IL 94.8 $4014.78
$465,975.00 $1,206,500.00 WV 95 $4023.25
$466,465.50 $1,207,770.00 WI 95.1 $4027.49
$466,956.00 $1,209,040.00 NM 95.2 $4031.72
$474,313.50 $1,228,090.00 ND 96.7 $4095.25
$479,709.00 $1,242,060.00 FL 97.8 $4141.83
$481,671.00 $1,247,140.00 SD 98.2 $4158.77
$483,142.50 $1,250,950.00 AZ 98.5 $4171.48
$486,085.50 $1,258,570.00 SC 99.1 $4196.89
$488,538.00 $1,264,920.00 MT 99.6 $4218.06
$489,028.50 $1,266,190.00 CO 99.7 $4222.30
$491,481.00 $1,272,540.00 MN 100.2 $4243.47
$496,876.50 $1,286,510.00 VA 101.3 $4290.06
$499,329.00 $1,292,860.00 DE 101.8 $4311.23
$507,177.00 $1,313,180.00 NV 103.4 $4378.99
$516,987.00 $1,338,580.00 PA 105.4 $4463.69
$524,344.50 $1,357,630.00 WA 106.9 $4527.22
$550,831.50 $1,426,210.00 ME 112.3 $4755.91
$557,208.00 $1,442,720.00 OR 113.6 $4810.96
$584,185.50 $1,512,570.00 NJ 119.1 $5043.89
$594,976.50 $1,540,510.00 VT 121.3 $5137.06
$595,957.50 $1,543,050.00 RI 121.5 $5145.53
$613,125.00 $1,587,500.00 MD 125 $5293.75
$619,992.00 $1,605,280.00 MA 126.4 $5353.04
$642,555.00 $1,663,700.00 AK 131 $5547.85
$644,517.00 $1,668,780.00 CT 131.4 $5564.79
$655,798.50 $1,697,990.00 NY 133.7 $5662.20
$699,943.50 $1,812,290.00 CA 142.7 $6043.35
$820,606.50 $2,124,710.00 HI 167.3 $7085.16

NOTE:  It seems NH was left out of the above chart.  Instead of me spending an hour trying to figure out how to fix the chart let me just report that NH has an index of 120.7 and would require $5,111.65 for retirement (Thanks Karen!)

In Conclusion

What do we learn from this?  What value is this to our retirement planning? Stoicism teaches that we should apply our energy to the things we can effect, and ignore the things we cannot (more on stoicism to come in the future – but for those who can’t wait, here is something about Hedonic Adaptation and if you want more on Stoicism in general here is some reading).  While there are several things we necessarily involve ourselves in as we move toward retirement that we have little or no control over, where we live in retirement is not one of them.  That fact is completely within our control and as the above chart shows, can have a huge effect on what you need in order to achieve Financial Independence.

Until Next Time, FIRE On! – Oldster

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