Why Where You Live Matters More Than How Much You Have Saved
On average, Americans have a tough time reaching their retirement savings targets. While many bandy about the need to save $1 million or more for retirement, the truth is that the average retirement account comes up short.
According to the most recent Survey of Consumer Finances by the Federal Reserve in 2022, the median retirement account balance for those 55 to 64 years old was just $185,000. By that age, there's limited time left to materially increase retirement savings, particularly beyond the $500,000 mark.
But while savings targets often dominate retirement planning conversations, where you live can have a far greater impact on your retirement security than how much you've saved.
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Geographic differences in housing costs, taxes, healthcare access and everyday living expenses can dramatically change how long your money lasts and how comfortable your retirement feels.
Here's why location may be the most underrated financial decision you'll ever make.
Housing Costs Can Double or Cut Your Budget in Half
Housing remains the largest expense for most retirees, even after a mortgage is paid off. Property taxes, insurance, maintenance and utilities don't disappear when paychecks stop and they increase over time as well.
But there's one way you can use housing costs to your advantage and stretch your retirement budget further.
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According to the Bureau of Economic Analysis Regional Price Parities, housing costs in high-cost states like California, Hawaii and New York run far above the national average, while many Southern and Midwestern states remain significantly cheaper. The BEA data show that overall price levels in states such as Mississippi, Arkansas and Oklahoma are often more than 10% below the U.S. average, while coastal states can exceed the average by 15% to 20% or more.
That gap offers an opportunity.
If you're willing to live in a more affordable state, you can effectively boost your retirement savings by 15%, 20% or even more just by living in a cheaper area. This can be a much more feasible option than trying to boost your retirement savings by 20%. And remember, the money you save isn't a one-time deal. You reap the rewards of your cheaper housing every single year.
Taxes Quietly Drain Retirement Income
Taxes don't stop in retirement and state tax policy varies widely. Some states tax Social Security benefits, pensions and retirement withdrawals aggressively, while others offer far more favorable treatment.
The Tax Foundation tracks state tax burdens and highlights that states like California, New York and Illinois impose some of the highest combined tax loads, while states such as Florida, Texas and Tennessee have no state income tax at all.
In addition, several states fully or partially exempt Social Security benefits from taxation, which can materially improve net retirement income. The Social Security Administration provides a breakdown of how each state treats Social Security taxation and it's worth investigating if you're looking to maximize the longevity of your retirement account.
Even modest differences in effective tax burden can materially change cash flow and portfolio sustainability over a long retirement.
Healthcare Access and Costs Vary by Region
Healthcare is often the fastest-rising expense in retirement. Fidelity estimates that the average 65-year-old couple retiring today may need approximately $330,000 saved for healthcare expenses throughout retirement, excluding long-term care.
However, that national estimate masks wide geographic variation. Medicare Advantage plan availability, provider networks and out-of-pocket exposure differ substantially by region, according to the Kaiser Family Foundation. Rural areas may offer lower housing costs but limited specialist access. High-cost metros may provide broader provider access but significantly higher out-of-pocket expenses.
Everyday Living Expenses Shape Lifestyle Quality
Food prices, utilities, transportation costs and insurance premiums vary substantially by location. Data drawn from the Council for Community and Economic Research's Cost of Living Index shows that overall living costs in Manhattan exceed twice the national average, while costs in Decatur, Illinois run more than 20% below the national average.
Even small recurring expenses compound over time. Higher gasoline prices, auto insurance premiums and utility costs quietly erode discretionary spending power year after year. This translates to the need for much higher retirement account balances in some cities and states versus others.
The Bottom Line
A $750,000 retirement portfolio might comfortably support a modest lifestyle in parts of the Midwest or Southeast, but in coastal metros with elevated housing and tax costs, it might feel restrictive. Withdrawal rates that appear safe on paper can become strained when fixed expenses absorb a larger share of income.
Vanguard research consistently shows that spending flexibility and cost control are among the strongest predictors of retirement success, sometimes even more than portfolio size.
For future retirees, this means that retirement planning shouldn't focus solely on account balances and withdrawal rates. Evaluating potential retirement locations, tax exposure and cost structures can often deliver more financial security than chasing an ever-higher savings target.
In many cases, the smartest retirement move isn't saving more. It's choosing where your money will stretch the farthest.
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
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