How Much Does It Cost to Retire in America? Probably More Than You Think…

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Posted by The Savvy Retiree on February 8, 2021 in Live Better

How much will your retirement cost? Do you have any idea?

It’s one of those evergreen questions the financial media regularly ask in headlines that pop up seemingly every other Tuesday. Easy to understand why: Every study that reports on Americans’ biggest financial worries inevitably lands on “cost of retirement” as one of the top concerns. Again, easy to understand why: Life in the U.S. is very expensive, even in places we assume are not so expensive, which we will come back to in a moment.

But first…

I have come to learn so much about America, my home country, by living outside of America. Things we Yanks assume are normal are really not so normal after all. The list is long; I won’t bore you. I will only say that America’s economic and legal systems are not built for Americans—they’re built for corporations. And because of that, the cost of living in the U.S. is wildly out of whack. Like, so far out of whack you can’t begin to truly fathom it until you’re removed from the insanity for a period of time and you’re looking back on it from a perch of rationality. You start to think to yourself, “Well, that just makes no sense at all!”

Now, let me jump back to the idea that Life in America is expensive, even in places we assume are not so expensive. GOBankingRates.com surveyed the country in 2019 to gauge typical retirement living costs across the nation. Then, using various government data, the site set about determining how large a nest egg the average person needs to retire in each state, assuming that person will pull out 4% of their nest egg yearly to supplement Social Security income.

The high end is irrelevant. It’s the low end that intrigues me.

You see, you need a nest egg approaching $700,000 to retire in the least expensive state in the nation—Mississippi. Head to more popular states such as North Carolina and you’re closing in on $800,000. Florida and Arizona, popular retirement havens, and you’re in the $850,000 range. Montana—quiet, peaceful, beautiful, damn-near-empty Montana—is approaching $1 million.

By way of comparison, the average household aged 55 to 64 has about $408,000 in retirement savings. But that’s the “average.” The median 55-to-64 household has $134,000. That basically says that a huge number of households exist in this cohort that have very little saved for retirement (the median), but that a relatively small number of households have a ton of money, and they’re skewing the numbers higher (the average).

In practical terms: Most Gen Xers and boomers don’t have enough money to maintain their current standard of living, even if they move to Mississippi. (Not a knock against the Magnolia State; just a factual assertion).

Which brings me to Medellín, Colombia. And, please, don’t stop reading. Memories of Miami Vice have given Colombia a bad rap. Moreover, this is just an example; I’m not necessarily pushing Medellín.

First, a bit about Medellín, just for context. Population: 2.5 million, so it’s a big city with all the big-city amenities. It’s considered the City of Eternal Spring because the weather is perfectly springlike year-round. It has a sizable expat population, so you’re not alone. It offers highly regarded healthcare services that are affordable out-of-pocket. It’s modern, with a metro system that can get you pretty much anywhere you’d need to go. It’s a pretty, leafy city, set in a green, Andean valley.

And more to the point of this story: It’s magnificently affordable.

Cost-of-living comparison website Numbeo reports that a resident of Medellín would need just under $1,700 a month to live a lifestyle equivalent to someone in Jackson, Mississippi, who’s having to pay nearly $4,300 a month.

Again, let’s add some context…

For 2021, the average Social Security check is $1,543 for a retired worker.

Basically, then, a single Social Security check nearly covers one’s entire monthly nut in Medellín. Imagine living in a city where two average Social Security checks would pretty much mean living a royal’s lifestyle.

And, yet, in Jackson, two average Social Security checks mean you still have to pull roughly $1,300 a month from your nest egg, just to make ends meet. Forget about living like royalty. With that average, $134,000 nest egg, you run out of egg in about eight and a half years in Jackson. In Medellín, drawing down about $160 per month from that average nest egg implies a financial cushion of nearly 70 years. That buys you a lot of lifestyle.

Yes, all those numbers are averages and no one lives at the average. But the point remains: Retiring to Medellín allows the typical American that opportunity to stretch the average nest egg way beyond a normal retirement lifespan. Meaning, you can live exceedingly richer at the stage of life where that means something.

I’ll reiterate that I am not explicitly pushing Medellín. I can make similar arguments about various cities in Portugal, Spain, France, Greece, Italy. All over Central Europe. A great many places in Central and South America. And too many very cool cities in Asia to name.

So, as you ponder all those tomorrows, don’t forget that you have an entire world of places you might live. Even if you have but a quail egg in your retirement nest, there are very lovely and highly livable cities all over the planet where you can chase the retirement you dream about.

By Jeff D. Opdyke