Housing & Mortgage
Where Your Retirement Dollars Will Go Furthest
Current surge in inflation shows why minding costs is so crucial
The cost of retirement is going to cost plenty more in 2022. The lowest monthly premium for Medicare Part B coverage will rise more than 14% to $170.10 per month, per person. Medicare deductibles will also rise sharply.
That’s on top of the general inflation rise we’re experiencing lately: Consumer prices have increased more than 6% for the past 12 months.
Where living costs less
While the expectation/hope is that inflation calms down a bit within the next year, it’s an important reminder to future retirees of the nasty bite inflation can take from a fixed-income budget. For the record, Medicare expects the base Part B premium will be around $250 per month in 2030.
If you’re up for considering a retirement relocation, living in Memphis (average price per square foot: less than $90), or Indianapolis (average price per square foot: around $125), or Jacksonville, Florida (average price per square foot: about $175) could stretch your retirement dollars plenty.
How long will $1 million last?
An analysis by GoBankingRates.com looked at the typical cost of living for people at least 65 years old in major cities, adjusted for average Social Security benefits and then calculated how many years a $1 million retirement portfolio would support a retiree.
It’s more than 30 years in Memphis, Indianapolis and Jacksonville. No surprise, retirement dollars won’t go too far along popular coastal cities. A $1 million retirement portfolio was projected to last less than 20 years in San Francisco (price per square foot: $850), Boston (price per square foot: $670) and Washington, D.C., (price per square foot: $380).
For the record, given increasing longevity, anyone who hits retirement in decent health (not even great health) has a high probability of still being alive at age 90.
Granted, it’s the rare U.S. household that has managed to save $1 million, but regardless of how large your retirement portfolio is, where you live can play a big role in your retirement security.
Moreover, now is a great time to consider a retirement-friendly move. If you’re now working remotely, swapping a home in Washington, D.C., (average sale price of $725,000 recently) for a home in say Tucson, Arizona, (average sale price of $340,000) would more than double how long your retirement portfolio could last. According to the GoBankingRates analysis, a $1 million portfolio would last 16.4 years in Washington D.C., compared to 33.3 years in Tucson. And assuming you pocket a nice capital gain on the sale, you can plow that into your retirement savings.
Retirement peace of mind: Create an inflation cushion
Even if the Federal Reserve is right that inflation will calm down in the next year or so, a lower inflation rate is still a big problem over the course of a retirement.
At a moderate rate of 3% a year, inflation effectively doubles the price of basic needs (groceries, utilities, etc.) in less than 25 years. That’s a huge argument for making sure your retirement plan at 65 is built to keep up with rising costs you will be paying at 85 and beyond.
One of your best inflation-aware moves is to consider delaying when you start Social Security. You can start at 62, but you get a much bigger benefit if you wait. The biggest payoff comes from waiting until age 70 to start Social Security. A bigger benefit in itself is going to help cover rising costs in retirement. Even better: Your Social Security benefit increases each year, to account for inflation. For 2022, Social Security benefits will be 5.9% higher. That’s an invaluable income boost that will help cover the steeply rising cost of Medicare next year.
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