The million-dollar nest egg had long been held up as the gold standard of retirement planning. It was the magical number that offered a one-way ticket to financial security and peace of mind during your golden years.
But as housing costs skyrocket, health care expenses are on the rise and inflation keeps eating into purchasing power, that once-impressive amount might not be enough — at least in some parts of the country.
Analysis published earlier this year found that a million dollars in retirement savings may not stretch as far as you’d expect in at least 14 pricey U.S. states.
Let’s dig into why this is happening, and which states may require you to reevaluate your retirement plan.
A New Era of Retirement Math
Financial advisers have long espoused the 4 percent rule — withdraw 4 percent of your nest egg in the first year of your retirement and then adjust that amount upward each year for inflation.
At $1 million, this would create around $40,000 in yearly income. Add in the average Social Security benefit of about $22,000 a year and a retiree might expect to live on about $62,000 a year.
Although this may sound reasonable, multiple factors now call this wisdom into question:
As health care costs rise much faster than inflation, the average 65-year-old couple is now likely to rack up $315,000 in medical expenses in retirement
Property taxes and housing costs in much of the country have surged
Nursing homes can cost over $100,000 in a single year and assisted living facilities average around $54,000 a year
People are living longer, which means retirement savings need to last more than ever before
“A nest egg that was a lot of money twenty years ago is no longer a lot of money today,” says the financial planner Teresa Ghilarducci.
“We are seeing an increase in retirees that are choosing to downsize or move specifically to stretch their savings.”
The 14 States Where a Million Dollars Is Not a Lot
According to average cost of living, housing costs, health care costs and tax burdens, these states pose the biggest problems for million-dollar retirees:
1. Hawaii
Its stunning natural beauty comes with America’s costliest cost of living. The cost of housing alone knocks the legs out from under retirement resources, with median home values running more than $730,000.
Add in paltry wages and high costs for basic necessities like groceries (about 50% higher than on the mainland), utilities and health care, and your million dollars may dwindle in just 10-12 years.
2. California
Retirement opportunities abound in the Golden State, but the price tags can be golden. Housing is still prohibitively expensive in desirable coastal areas and state income taxes for high earners climb to 13.3 percent.
A $1 million nest egg in either San Francisco or Los Angeles may buy only 13 to 15 years of comfortable retirement.
3. New York
This makes for huge retirement challenges in New York, between the stratospheric price of real estate in Manhattan and the overall high tax burden in the state.
Even outside the city, property taxes are among the highest in the country. Retirement analysts estimate that $1 million will last roughly 14-16 years.
4. Massachusetts
Housing costs in Boston ensnare retireees elsewhere in Massachusetts, while healthcare, good as it is, is one of the nation’s most expensive.
Property and income taxes are higher than average for the state, adding to the pressures on retirement budgets.
5. New Jersey
New Jersey’s mix of steep property taxes (the highest in the nation), hefty income taxes and high housing costs makes for a rough retirement environment.
A million bucks here usually equates to some 16-18 years of retirement.
6. Connecticut
And with large property taxes and significant expenses for housing and health care, Connecticut is a tough place if you’re a retiree on a fixed income. The state’s total tax burden is among the highest in America.
7. Alaska
And though it has no state income tax, Alaska’s backwoods setting elevates prices for just about everything else — groceries run about 30 percent higher than the national average and healthcare costs dwarf those in most other states.
The budget burdens are exacerbated by winter heating costs.
8. Maryland
When you factor in Maryland’s high housing costs and above-average healthcare costs, the Baltimore-Washington corridor becomes an increasingly difficult place to be a retiree. Even with certain tax breaks for seniors, the total cost is high.
9. Oregon
Portland’s housing boom and the state’s still expensive cost of living have dramatically changed retirement math. Oregon has its natural appeal, but it also has high healthcare costs and income tax rates that go as high as 9.9%.
10. Washington
Washington does not have a state income tax, but it makes up for it with high sales taxes and ever-rising housing prices, especially near Seattle.
Health care costs are about 20% higher than national averages.
11. Colorado
Denver’s housing boom has rippled across the state, and healthcare costs are among the nation’s highest. The state’s otherwise moderate tax environment does not offset these substantial costs.
12. Vermont
Vermont, despite its size, has some of the highest tax burdens on its residents, including the highest state income tax levied.
Coupled with brutal winters requiring expensive heating costs and minimal health care options that skyrocket costs, retirement dollars don’t go as far here.
13. Rhode Island
The nation’s tiniest state has big retirement expenses, especially for housing in popular coastal towns. The tax system in the state, with high property and income taxes among other levies, makes it even harder on retirees.
14. Illinois
Although housing is affordable when compared to many areas of the state, Illinois’ wobbly fiscal condition has resulted in high property taxes. Retired Chicagoans now face especially high living costs.
The state’s pension crisis and other ongoing conditions lead to uncertainty about future taxes.
Putting Your Million to Work Longer
If you’re nearing retirement with around $1 million and troubled by these results, financial advisers have a few ideas:
Look Into Geographic Arbitrage
“More retirees are doing what we call geographic arbitrage,” says retirement expert David Peterson.
“They’re selling homes in expensive states and moving to more affordable parts of the country where their savings might stretch for decades longer.”
States such as Florida, Tennessee, Texas and Wyoming pay no state income tax, while Mississippi, Oklahoma and Arkansas grant the lowest overall costs of living.
Delay Social Security
For every year you wait to claim Social Security past your full retirement age until 70, you receive about an 8% increase in your benefit.
This guaranteed and inflation-adjusted income can significantly relieve pressure on your own savings.
Explore Part-Time Work
“The traditional model of retirement is changing,” says Jennifer Walters, a career counselor based in Aiken, S.C. “Retired individuals often discover that working part-time as a consultant, or flexible work of any type, not only provides additional income but also enhances purpose and social connection.”
Some side actitives like 10,000 - 15,000 of annual earnings will expand your retirement timeline a bit.
Rethink Housing
Housing, in general, is retirees’ biggest expense. Other options — downsizing, moving to low-cost areas, or looking into continuing care retirement communities — could help contain costs while still ensuring you receive needed services as you age.
Invest Appropriately
Most retirees err on the side of being too conservative with investments. Though preserving capital is critical, it is also important to maintain some exposure to growth investments to help beat inflation and extend savings.
The New Retirement Reality
The sobering truth is that $1 million doesn’t guarantee a comfortable retirement in much of America anymore. Planning needs to incorporate regional cost differences, potential healthcare costs and longevity risk.
“We are advising clients to look at retirement planning through a highly personalized lens,” explains financial advisor Marcus Thompson.
“The old rules of thumb just do not hold anymore across the board.”
For anyone still in the accumulation phase of retirement savings, this reality check is a critical early opportunity to reset expectations and strategies.
Higher savings rates, a consideration of guaranteed income products such as annuities, and clearer spending plans may be the way forward to bridge potential holes where the tide no longer flows.
“Realizing that $1 million may fall short is not intended to instigate panic,” Thompson says. “It’s about creating realistic planning based on where and how you want to live when you retire.”
As retirement landscapes change, the million-dollar question is becoming less about whether you have achieved that milestone and more about whether your savings — regardless of the sum — suit your vision for retirement and the place you choose to spend it.
Age-based retirement planning is no longer a suitable one-size-fits-all solution. In its stead, however, rises a more sophisticated understanding of how dramatically retirement costs change from state to state — and how intentional planning can lead to thriving in whatever corner of the country you decide to embrace your golden years.
