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Income, living P to P, even retirement security is relative. You can’t apply just one set of numbers, but HD folks know that. I intuitively knew it too, but I never looked closely at some variables. Relocating and downsizing are often a part of retirement and can have positive or negative financial consequences. It’s something to think about.
For example:
In New Jersey the lower limit of middle class is nearly $70.000 a year, but in Mississippi it is about $40,000. A retiree moving to MS may find themselves upper class without trying. The reverse is unlikely and probably not practical.
Median household income: Mississippi $56,000 and NJ $103,556. Living paycheck to paycheck can have a very different meaning. There is a 54% difference between MS and NJ
Such diversity makes it difficult to make comparisons or assumptions. When someone writes they are living comfortably in retirement, their location is generally a factor – Sometimes indirectly
For example, many people feel teachers are underpaid, but the reality is teacher pay reflects the community incomes in which they work. In New Jersey about 30 school districts in New Jersey now have a median teacher salary of $100,000 or more. Clearly MS or most of the South couldn’t afford to do that, nor do they have to. Mississippi pays a median teacher salary about $48,000 and New Jersey $82,780.
Differences are largely tied to cost of living. NJ teacher salaries mean funding schools equal 50-60% of property taxes thus placing an extra burden on senior retirees which, contributes to NJ having the highest property taxes in the Country and also explains why NJ has several tax relief programs to encourage seniors not to leave the state.
The average monthly Social Security benefit in New Jersey is about $2,170. Property taxes on our condo, not a house, equal $1166 per month – over 50% of average SS income. That would have been true even if we hadn’t moved from our house of 40 year less than a mile away. It would have been true even if our retirement income were a lot less. That is a problem for some retirees.
Average monthly SS benefit in MS = $1,816.00
No doubt those regional differences impact the ability to save as well, but as we say, it’s all relative. The median net worth and retirement savings in MS isn’t quite as bad as it may seem-assuming retirement stays in Mississippi. While there are many variables, NJ has a cost of living estimated 50% higher than Mississippi. Similar differences apply among many states.
Estimated median net worth – MS $87,280 NJ $312,400
Retirement savings – MS $35,000 NJ $137,179
Median Home Equity – MS $108,000 NJ $319,020
Median Bank Deposit Balance – MS $2,000 NJ $21,268
So I guess the basic question is, how do we really determine quality of financial life? Who lives better, the MS or NJ resident…or AZ or ME or TX resident?
“Where you is, is where it’s at.” – Fatboy Slim.
Yes, and I’ve written about this at HD in the recent past.
There’s a dark side to this. If you live in MS and own a home, it is very difficult to sell your $108,000 home and move to a more expensive state. We call that situation a “gravity well” which is difficult to climb out of.
The flip is also true. I live in AZ and Californians and others have been moving into the area and after selling that $1.3 million home in CA, they buy something much larger on more property and pay half of what they are accustomed to. This has contributed to rising home prices and crowding in areas that were open space only a few years ago. It also puts pressure on local aquafers.
Some communities are pushing back against developers, implementing rules that force the developer to prove that a 100 year water source is available.
Generalities aren’t very useful. For one thing, “all real estate is local” is an expression. I also want to note that there can be a significant difference between the “average” and “median” home prices in a community. Even location within a small city can make a huge difference. For example, I sold a condo in a community of 53,000. Homes on the north side had a median price of $724,000 while those near the downtown area had a median price of $445,000.
I recently quoted a study in which 46% of Gen Zers stated that “No matter how hard I work, I will never be able to afford a home I really love.” Yes, there may be a significant difference in the location, size and amenities of homes in a community. That is reflected in prices from neighborhood to neighborhood.
Numerous articles in the media point out the cost of living in various communities. Sites such as City-Data.com provide detailed statistics and demographical data. Far more than will be found at Zillow.
We didn’t find a home we really loved, but we found, albeit tight finances back then, one we could barely afford to get started. We never did find the house of Connie’s dreams.
I always treated the home or condo as a place to live, and as a cash trap. History has proved me correct. Having owned several RVs since 2013 I approached these similarly as expensive, depreciating ‘assets’.
I do see distinct advantages to owning a home, but controlling emotions and not overspending is my preferred approach. Housing entails ‘hidden” costs, including maintenance and taxes which can be considerable. Being aware of the total cost of ownership is a helpful way of improving cash flow and reducing total costs.
All true, but over 50+ years two homes we once lived in in Nj and one on the Cape were filled with family and memories.
Not a day goes by one of those memories doesn’t pop up on our Google photo screen.
At the end of the day, the only person who truly needs to nail down this ever-shifting question is the one either squirrelling away for retirement or already living it. Personal finance, as the name rather helpfully suggests, is personal, specific to you, your life, and your unique set of circumstances.
Quite true and we should not jump to the conclusion that a person earning half what we do is half as well off and happy.
I agree, Dick. Our day to day life style is very comparable to yours, even though our income and net worth are some fraction of yours. This is because of where we live.
I have touted the low cost of living in metro Toledo in many of my articles. For people with less than “price is no problem” resources, choosing the appropriate place to live is key to their ability to prepare for, and to enjoy, a happy retirement.
Ottawa Hills is a city totally surrounded by Toledo. Homes, taxes, and income are significantly higher than in Toledo. If we had chosen to live in Ottawa Hills, the additional expense would have limited our ability to save. Like owning a piece of the Empire State Building, we would have had bragging rights, but living in the Hills would have had an adverse effect on our retirement.
By staying in our lane (so to speak) we have ended up in a very happy place.
Most of us judge our financial well-being relative to the people around us rather than comparing ourselves across states.
When comparisons across regions are made, they really need to account for differences in cost of living. One simple way to think about it might be a ratio of disposable income to essential expenses or even guaranteed income to essential expenses.
Stepping back, when I think about retirement comfort and happiness, the key factors are often less about income alone and more about: