This article takes a look at the 15 best states to retire in the US financially. If you wish to skip our detailed analysis on navigating retirement in turbulent times, you may go to the 5 Best States to Retire in the US Financially.
Navigating Retirement in Turbulent Times: Insights, Challenges and the Quest for Financial Stability
Putting money away for retirement has always been kind of hard. Caught in a financial vortex, US employee retiree savings are getting reduced by as much as 37%, reports The Goldman Sachs Group, Inc. (NYSE:GS). While savers have been struggling to save the most that they can, those who were lucky enough to have $1 million or more in their 401(k) accounts at the end of 2023 witnessed a sweet jump of 20% from September to the end of December, reports Fidelity Investments.
There were a total of 422,000 retirement savers in Fidelity 401(k) plans that had a balance of seven figures and even beyond.
“We are encouraged to see retirement balances increase so dramatically this quarter, reflecting the improving market conditions and enabling retirement savers to see significant gains in their account balances and retirement preparedness,”
Michael Shamrell, Vice President of thought leadership for Fidelity Workplace Investing, told Yahoo Finance.
This is why it’s important to have a retirement account in place. Sadly, an analysis of 2021 census data by the Economic Innovation Group reveals that an estimated 69 million workers, or 56% of the workforce, do not have access to a retirement plan through their workplace. How ready an individual is for retirement is impacted by their income and profession anyway, with those with higher incomes having a higher chance of larger nest eggs.
To make things worse, a report from the Bureau of Labor Statistics has revealed that consumer prices are 3.2% higher than a year ago. Due to the higher cost of living, 7 in 10 Americans have revealed that they have cut contributions to their retirement savings, notes a 2024 first quarter study from Allianz Life Insurance Company. Even worse, rising inflation is leading Americans to dip into their savings instead.
While the market outlook may not seem favorable, the truth is that many financial institutions are reporting positive findings regarding their client’s retirement savings. For instance, The Charles Schwab Corporation (NYSE:SCHW), in its SDBA Indicators Report, an industry-leading benchmark on retirement plan participant investment activity within self-directed brokerage accounts (SDBAs), has revealed that average account balances across all participant accounts were $310,400 in Q4,2023, up 10.8% year-over-year, and 7.9% from the previous quarter.
Similarly, Bank of America Corporation (NYSE:BAC)’s full-year participant research study found out that 401(k) account balances were up 15% to $86,280 in 2023. Bank of America Corporation (NYSE:BAC)’s Retirement and Personal Wealth Solutions conducted this study along with its Bank of America Institute.
“We were encouraged to see more plan participants taking positive actions in their accounts in the fourth quarter. These insights offer signs that people are prioritizing their retirement savings, with more employees increasing their contribution rates and fewer taking hardship distributions.”
– Lorna Sabbia, Bank of America Corporation (NYSE:BAC) head of retirement and personal wealth solutions.
While this may be good news, it is also true that a large majority of Americans don’t have enough money for retirement. An AARP survey has highlighted how one in five older Americans reported having no retirement savings at all. The survey further reveals that 37% of respondents aged 50 and above were also concerned about affording basic expenses such as groceries. Consequently, 26% of older people state that they don’t think they’ll be able to retire at all.
Nevertheless, retirement is an undeniable reality. Anything from deteriorating health to layoffs can put an end to one’s career, which means older people would have Social Security checks to fall back on. While this is not the most ideal retirement scenario, for many retirees, it is a sad reality. So what is the best state to retire financially for these retirees? We at Insider Monkey have conducted a detailed analysis. Read on to find out.
Copyright: digidreamgrafix / 123RF Stock Photo
Methodology
To compile the list of best states to retire in the US financially, we have assumed a scenario where a single retiree works part-time, putting in 10 hours a week, relying primarily on their Social Security benefits. We began by sourcing the average hourly rates for each state from the Bureau of Labor Statistics. Next, we calculated the after-tax monthly income a retiree can get in each state based on the average hourly rates. Additionally, we factored in the average Social Security benefits for each state, adjusting for the Cost of Living Adjustment (COLA) to reflect 2024 figures. Given that most states do not tax Social Security, with exceptions for incomes above specific thresholds, we added the Social Security checks to the after-tax income to derive the total after-tax income that a retiree could anticipate in each state on average.
Next, we calculated the adjusted cost of living in each state based on the COL index, assuming that the average cost of living for a retiree in the US is $3,000. Finally, we calculated the IM Retiree Affordability Ratio by calculating the after-tax income by the adjusted cost of living in each state. A ratio of 0.75 denotes that the after-tax monthly income is 0.75 times the adjusted higher cost of living. A ratio of 1 indicates that the after-tax income is equal to the adjusted cost of living. Similarly, a ratio of 1.5 denotes after-tax income is 1.5 times higher than the adjusted cost of living.
The following methodology provides estimated figures to offer an approximate idea of the financial state of each state for retirees. It’s important to note that individual circumstances may vary, and retirees may be subject to additional taxes or expenses not accounted for in this analysis.
By the way, Insider Monkey is an investing website that tracks the movements of corporate insiders and hedge funds. By using a similar consensus approach, we identify the best stock picks of more than 900 hedge funds investing in US stocks. The top 10 consensus stock picks of hedge funds outperformed the S&P 500 Index by more than 140 percentage points over the last 10 years (see the details here). Whether you are a beginner investor or a professional one looking for the best stocks to buy, you can benefit from the wisdom of hedge funds and corporate insiders.
Here are the best states to retire in the US financially:
15. Georgia
IM Retiree Affordability Ratio: 1.06
Average Hourly Earnings: $30.54
Average Social Security Payout: $1,771.97
Estimated After Tax Total Income: $2,876
Cost of Living Index: 90.8
Adjusted Cost of Living: $2,724
Georgia, one of the best states to retire in for the cost of living and taxes, makes it to our list because of its obvious advantages. A part-time retiree will be able to make an estimated $2,876 if they puts in 10 hours of work each week and rely on the average Social Security check. This will be enough to cover living expenses in the state.
14. Tennessee
IM Retiree Affordability Ratio: 1.07
Average Hourly Earnings: $29.83
Average Social Security Payout: $1,803.39
Estimated After Tax Total Income: $2,886
Cost of Living Index: 90.3
Adjusted Cost of Living: $2,709
Tennessee is one of those states that won’t tax your Social Security, which is why retiring here is a no-brainer. The low cost of living is another advantage of this state, and retiring here can mean that an average retiree will have a surplus of 6% to cover living expenses.
13. West Virginia
IM Retiree Affordability Ratio: 1.07
Average Hourly Earnings: $28.05
Average Social Security Payout: 1801.77
Estimated After Tax Total Income: $2,815
Cost of Living Index: 87.7
Adjusted Cost of Living: $2,631
Next on our list of best states to retire in the US financially is West Virginia. The cost of living in this state is 12.3% lower than the national average. Based on our calculations, an average retiree in the state will have a surplus of 7% even after covering living costs in the state.
12. Alabama
IM Retiree Affordability Ratio: 1.07
Average Hourly Earnings: $29.80
Average Social Security Payout: $1,780.39
Estimated After Tax Total Income: $2,837
Cost of Living Index: 88.3
Adjusted Cost of Living: $2,649
A retiree who lives in Alabama is likely to receive and spend more or less the same that they do in states like Tennessee and West Virginia. Even after covering basic expenses, a retiree who works part-time would have some left to save in this state.
11. Texas
IM Retiree Affordability Ratio: 1.07
Average Hourly Earnings: $32.54
Average Social Security Payout: $1,791.91
Estimated After Tax Total Income: $2,979
Cost of Living Index: 92.7
Adjusted Cost of Living: $2,781
Texas doesn’t have a state income tax, but our IM Retiree Affordability Ratio states that it is similar to states like Tennessee and Alabama when it comes to affordability. A part-time working retiree would be able to come home with $2,979 on average and spend an estimated $2,781 on living expenses.
10. Wisconsin
IM Retiree Affordability Ratio: 1.07
Average Hourly Earnings: $33.45
Average Social Security Payout: $1,853.47
Estimated After Tax Total Income: $3,064
Cost of Living Index: 95.1
Adjusted Cost of Living: $2,853
Next on our list of states that are best to retire in financially is Wisconsin. The cost of living in this state is 4.9% lower than the national average. A retiree can save an estimated 7% even after covering living expenses.
9. Indiana
IM Retiree Affordability Ratio: 1.07
Average Hourly Earnings: $30.03
Average Social Security Payout: $1,880.99
Estimated After Tax Total Income: $2,934
Cost of Living Index: 91
Adjusted Cost of Living: $2,730
In Indiana, retirees experience an IM Retiree Affordability Ratio of 1.07, suggesting their after-tax income slightly surpasses the adjusted cost of living by 7%.
8. Wyoming
IM Retiree Affordability Ratio: 1.08
Average Hourly Earnings: $30.84
Average Social Security Payout: $1,850.17
Estimated After Tax Total Income: $2,981
Cost of Living Index: 92.4
Adjusted Cost of Living: $2,772
In Wyoming, retirees enjoy a favorable IM Retiree Affordability Ratio of 1.08, indicating their after-tax income exceeds the adjusted cost of living by 8%. With average hourly earnings of $30.84 and a total estimated after-tax income of $2,981, retirees benefit from a relatively comfortable financial position.
7. Nebraska
IM Retiree Affordability Ratio: 1.09
Average Hourly Earnings: $31
Average Social Security Payout: $1,836.28
Estimated After Tax Total Income: $2,962
Cost of Living Index: 90.9
Adjusted Cost of Living: $2,727
Alongside Missouri, Nebraska is another state that stopped taxing social security in 2024. The cost of living in the state is 9.1% lower than the national average, making it one of the best states to retire in the US financially.
6. Illinois
IM Retiree Affordability Ratio: 1.09
Average Hourly Earnings: $33.14
Average Social Security Payout: $1,857.10
Estimated After Tax Total Income: $3,008
Cost of Living Index: 92.1
Adjusted Cost of Living: $2,763
One of the best states to retire on a fixed income is Illinois. The cost of living in the state is 7.9% lower than the state average. The IM Retiree Affordability Ratio is 1.09, which means retirees have an estimated 9% income left after covering living expenses.
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Disclosure: none. 15 Best States to Retire in The US Financially is originally published on Insider Monkey