What’s the Magic Retirement Number? Check Your Clients’ ZIP Code

It’s not just real estate that’s all about location, location, location.

Many clients worry they won’t have enough money saved to retire comfortably, assuming they’ll need more than $1 million by the time they leave the workforce. But where they spend their golden years can make a huge difference. Required nest eggs vary by hundreds of thousands of dollars depending on the state, according to an Investopedia analysis of federal data. Assuming the traditional 4% withdrawal rule, the typical American couple needs about $1.16 million saved for retirement, below the $1.46 million that Northwestern Mutual estimated earlier this year. But maybe there is no magic number.

“Chasing one is how good savers end up anxious,” said Jim Crider, founder of Intentional Living FP. Having a target early on is helpful, he said, but eventually advisors should shift the conversation toward taxes, withdrawal sequencing and spending habits. “The number also becomes a treadmill. Someone hits it and immediately moves the goalposts because the number was never connected to a life they actually wanted.”

Cross-Country Tour

If clients prefer big cities and beach life, the most expensive places to retire are New Jersey, Hawaii, California and Washington, D.C., each requiring couples to save more than $1.3 million. But if they’re fond of mountains and prairies, North Dakota, Arkansas and Iowa require just over $800,000. The analysis takes into account the spread between annual living expenses in each state and how much a couple gets in Social Security, which is roughly $38,000 a year right now:

• Housing is one of the biggest slices of annual living expenses, accounting for about 30%.
• The prices of goods and services don’t vary too heavily across the contiguous US, but in Alaska, where nest egg requirements surpass $1 million, food and utility costs are significantly higher. Plus, clients who need specialized medical care might have to travel out of state.

Florida may be the classic retirement destination, but it’s hardly a bargain, with annual expenses topping $80,000. Some advisors say clients should consider overlooked alternatives. John Bovard, owner of Ohio-based Incline Wealth Advisors, recommends Tennessee. “There’s no income tax, and it has some great attractions like the Smoky Mountains,” he said. “It has a relatively cheap cost of living, and the winters are not as severe.”

Better Safe than Sorry. Not every client earns as little as the average American, though (the US does account for nearly half the world’s millionaires). Catherine Valega, a CFP with Green Bee Advisors, works with high-net-worth clients on the coasts and recommends they have $3 million to $4 million saved by retirement. “Gone are the days where $1 million is enough,” she told Retirement Upside.