No, You Won't Retire To A Van Down By The River

Debunking and dissecting some absurd assumptions.

Marketwatch posted a state by state breakdown of how much it costs annually to retire. Toward the cheap end were southeastern states that were in the mid to low $50,000's with usual suspects New York and Hawaii being at the upper end. The study was conducted by GoBankngRates.com (GBR). My state of Arizona came in at $60,503, well below the dollar midpoint. GBR says you would need $1,210,000 saved to retire in Arizona for 20 years. By their work, you need $1,108,000 to retire in Alabama.

Contrast those numbers with the reality of retirement account balances from Vanguard (via Yahoo Finance) which says the median 401k balance for workers aged 55-64 is $61,739. Included in the Yahoo article was a link to a retirement calculator that told me I need a gajillion dollars to retire.

The first flaw is the top down number that your state costs $X. The costs where I live in a small town are different (in this case less) than they are in the big cities (Phoenix and to a lesser extent Tucson). Even if $60,000 is correct (it could be?) the assumption that retirees need to fund their expenses entirely out of accumulated savings and investments are incorrect. What is your projected Social Security payout and that of your spouse? At 67 (yikes, that's only 14 years away!) I am due to receive $2900/mo. That works out to $34,800, obviously more than half the $60,000 that Arizona supposedly costs. Six years later when my wife turns 67 she would get $1450/mo so our combined would be $52,200--at this point we're $7800 short of that $60,000.

A year or two before I turn 67 our Airbnb (the cabin next door) will be paid off. That we were able to buy an investment property came from our conscious decision to live below our means right out of the blocks of our marriage. Living in the most house we could qualify for with two perpetually new expensive cars in the driveway would have made it impossible. Right now our rental generates about $1600/mo so after expenses that might be $1400/mo and we're knocking on the door of $70,000 without needing to worry about tapping our savings. If we actually have to endure a 23% haircut on out Social Security, we're still close to $60,000.

The reason for the detail there is the preference of not wanting to be overly reliant on a narrow outcome like strong stock market returns or a strong vacation rental market. We've always lived below our means and plan to continue doing so. As I have said many times, living below your means makes everything easier including retirement.

More important than the above inputs are your monthly expenses. What are they now and what will they be when you plan to retire? If those numbers don't look great, what changes can you think about making? Can you work it out that you are mortgage and car payment free when you retire? If so then your fixed cost essentials would be utilities, food and various insurances (health insurance would be pretty volatile). You then need some sort of budget for one-off expenses like car repairs, home repairs, vet bills and so on. For what it's worth, our fixed expenses are nowhere near $5000/mo.

This seems like a good point in the post to pound the table on doing everything you can to avoid needing the Humalog KwikPen or any other treatment for Type 2 Diabetes. The money not spent on chronic maladies (those related to metabolic syndrome for example) would be life altering in a good way on several levels. You've always known too much sugar is unhealthy, the only difference is that now the definition of sugar is broader than you might have previously realized.

According to Health Policy Institute, 75% of Americans aged 50-64 take prescriptions and in that cohort, the average number of prescriptions filled annually is 13. Every other aspect of your life will be better if you can be in that 25% and in many instances it is a matter of modifying our own behaviors (to avoid diabetes) and doing research (cholesterol is not the problem, therefore statins and their side-effects are not the answer but you should do your own research and draw your own conclusions).

I cite Joe Moglia all the time for saying no one will care more about your retirement or your financial plan or your health or your anything else more than you. All aspects of life get better results when you're proactive enough to get out in front of any foreseeable problems and are resilient enough to manage through any unforeseeable problems.

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