Most Affordable Cities for an Early Retirement - 2020 Edition

The COVID-19 pandemic has forced many Americans into an early retirement: In fact, the majority of the seven-percentage-point drop in the labor participation this past spring can be attributed to unemployed people who have prematurely decided to exit the workforce for good, according to a paper from the Becker Friedman Institute for Economics at the University of Chicago. And though less than 1% of workers in the U.S. ordinarily retire before 50, according to data from the LIMRA Secure Retirement Institute, the rise of the “Financial Independence Retire Early” (FIRE) movement has Americans searching for ways to leave the labor force in advance of what may be the typical age range. That’s contingent upon such factors as lowering your tax burden and living expenses while also enjoying low housing costs as a percentage of income while working to have the wherewithal to grow your nest egg. With all that in mind, SmartAsset crunched the numbers to uncover the most affordable cities for an early retirement.

To do so, we analyzed 100 of the largest U.S. cities across the following metrics: effective income tax, health insurance costs, cost of living, housing costs as a percentage of income, various other taxes, crime rates, medical facilities and unemployment rate. For details on our data sources and how we put the information together to create our final rankings, check out the Data and Methodology section below.

Key Findings

• Arizona shines. There are four cities in the Grand Canyon State in the top 10 of this list, including the top three: Gilbert, Chandler and Scottsdale. Safety plays a big part of this ranking, as the top three Arizona locales all finish in the top quartile for low property and violent crime rates. Mesa, at No. 10, and the other three Arizona cities benefit from their relatively affordable housing costs and health insurance expenses as well as the state’s low income tax rates.
• Home is where the retirement savings are. Of the cities near the top of our list, all but one finish in the top quartile for affordable housing costs relative to income. The only exception, Colorado Springs, Colorado is close behind at 28^th. In fact, five cities at the top of the study also finish in the top 10 for this metric: Gilbert, Arizona (first); Fort Wayne, Indiana (third); Chandler, Arizona (seventh); Plano, Texas (eighth) and Boise, Idaho (ninth).

1. Gilbert, AZ

Gilbert, Arizona finishes first in three separate metrics included in this study:

• Low housing costs as a percentage of income (18.75%).
• Low violent crime rate (just 97 incidents per 100,000 residents).
• Low property crime rate (just 1,203 per 100,000 residents).

Gilbert also finishes strong for its September 2020 unemployment rate of 6.3%, ranking 20^th overall for this metric.

2. Chandler, AZ

Housing costs represent 19.87% of income in Chandler, Arizona, the seventh-lowest percentage for this metric in the study. The average effective property tax rate is 0.55%, the 10^th-lowest overall. In addition, the violent crime rate in Chandler is low, with just 228 incidents per 100,000 residents, the eighth-lowest rate for this metric across all 100 cities we analyzed.

3. Scottsdale, AZ

Scottsdale, Arizona has an average effective property tax rate of 0.51%, the sixth-lowest of the 100 cities in this study. It also finishes 13^th for housing costs as a percentage of income, at just 20.54%. Scottsdale has a slightly higher sales tax than the other two Arizona cities in the top three, finishing in the center of the study for this metric, at 8.05%. This indicates that making everyday purchases may prove a bit pricier, even if you’re saving on housing.

4. Boise, ID

Boise, Idaho has a sales tax rate of 6.00%, tied for the seventh-lowest rate for this metric in the study. Though Boise ranks in the bottom 10 for its fairly high income tax - with an estimated burden of 21.04% for a retiree with a $50,000 income - the city finishes fifth for its low property crime rate (just 1,579 incidents per 100,000 residents) and 12^th its low unemployment, at 5.9% in September 2020.

5. Lexington, KY

Lexington, Kentucky has a fairly high income tax. The effective rate for a retiree with $50,000 in income is 23.86%, ranking third-highest for this metric in the study. It fares better in some of our other metrics, though, including tying for seventh for sales tax, at 6.00%. Lexington also has housing costs that represent 20.38% of income, the 11^th-lowest rate across all 100 cities we studied.

6. Plano, TX

Plano, a suburb of Dallas, is tied for the study’s lowest effective tax rate for a retiree with an income of $50,000, at just 16.33%. It also has affordable housing. It ranks eighth for housing costs as a percentage of income, at 20.02%. In addition, Plano is a relatively safe city, finishing in the top 10 for both violent crime incidents (148) and property crime incidents (1,683) per 100,000 residents. That said, Plano doesn’t fare as well in terms of property tax, where the average effective rate is 1.71%, a bottom-quartile ranking for this metric. 

7. Colorado Springs, CO

Colorado Springs has the second-lowest average effective property tax rate in this study, at 0.43%. Colorado Springs’ unemployment rate for September 2020 was 5.9%, tied for the 12^th-lowest rate in the study. The city has a sales tax of 8.25%, putting it near the middle of the pack for this study (tied for 51^st). It also ranks within the top 30 of the study for relatively low housing costs as a percentage of income and average annual cost of a silver health insurance plan for a 60-year-old in the city.

8. Henderson, NV

Henderson, Nevada is tied for the lowest effective income tax rate for a retiree with income of $50,000, at 16.33%. The city is also affordable when it comes to housing. Housing costs represent 20.36% of income, the 10^th-lowest rate in the study, and the average effective property tax rate is 0.57%, the 15^th-lowest rate in the study. 

9. Fort Wayne, IN

Fort Wayne, Indiana’s cost of living comes to $18,904, the third-lowest amount in our study. That number will cover a single person’s basic needs. Housing is also relatively affordable in Fort Wayne, as housing costs there on average make up just 18.92% of income, also a third-place ranking in our study. That said, the taxes in Fort Wayne are fairly high. The effective rate for a retiree making $50,000 is 20.82%, in the bottom quartile of our study.

10. Mesa, AZ

Mesa, Arizona has an average effective property tax rate of 0.52%, the seventh-lowest rate for this metric in the study. The city also finishes in the top quartile for both of its relatively low crime rankings - it places 13^th for property crime incidents (1,869 per 100,000 residents) and 23^rd for violent crime incidents (377 per 100,000 residents). The downside is that sales tax in the city is fairly high at 8.30%, ranking in the bottom third of the study for this metric. 

Data and Methodology 

To rank the most affordable cities for an early retirement, we looked at data for 100 cities. Specifically, we compared them over the following 10 metrics.

• Effective income tax rate. This is the estimated income tax rate for a retiree with 50,000 in annual income. That income is split between $15,000 from Social Security, $10,000 from a private pension, $15,000 from retirement savings like a 401(k) or an IRA and $10,000 in wages.
• Average annual cost of a silver health insurance plan. To find this number, we used the Kaiser Family Foundation health insurance calculator. We estimated the cost of a silver plan for a 60-year-old in each city, not including any subsidies.
• Cost of living. This is the cost of living for one person. Data comes from the MIT living wage study.
• Median housing costs as a percentage of median household income. This is median housing costs divided by median household income. Data comes from the Census Bureau’s 2019 1-year American Community Survey.
• Average effective property tax rate. This is annual property taxes divided by median home value. Data comes from the Census Bureau’s 2019 1-year American Community Survey.
• Sales tax. This is the combined state and local sales tax rate.
• Property and violent crime rates. This is the number of violent property crimes and violent crime rates per 100,000 residents. Data comes from the FBI UCR report and is for 2019.
• Medical facilities per 1,000 residents. Data comes from the Census Bureau’s County Business Patterns Survey and is for 2018.
• Unemployment rate. Data comes from the Bureau of Labor Statistics and is for September 2020.

In order to create our final ranking, we first ranked each city in each metric. We then found each city’s average ranking, giving a half weight to both crime metrics and a full weight to every other metric. Using this average ranking, we created our final score. The city with the best average ranking received a 100 and the city with the worst average score received a 0.

Tips for Retirement

• Saving is key for funding your retirement, and a financial advisor can help you get there. Finding the right financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with financial advisors in your area in five minutes. If you’re ready to be matched with local advisors that will help you achieve your financial goals, get started now.
• Take advantage of workplace savings when you can. One of the best ways to save for retirement is with a workplace savings program like a 401(k), so if your firm offers one make sure you take advantage, including getting any employer match.

Questions about our study? Contact press@smartasset.com.