Most Affordable Cities for an Early Retirement – 2019 Edition

 

How much do you need to retire comfortably? How much more do you need if you want to retire comfortably and early? For people retiring in their mid-60s, AARP suggests that your savings should amount to 10 to 12 times your current income. However, retiring early means that your savings may need to be even higher.

One important way to maximize your savings is to live in a city that is more affordable. In this study, we consider which cities are the best for an early retirement across 10 metrics that measure a variety of economic and livability factors. For details on our data sources and how we put all the information together to create our final rankings, check out the Data and Methodology section below.

Key Findings

• Tax-friendly states - Seven of the cities in our top 10 are located in states with favorable tax environments for early retirees. In particular, Florida and Nevada have no state income tax and offer additional deductions on some or all other forms of retirement income. In addition, they have relatively palatable sales and property tax rates. Kentucky, Pennsylvania and Texas also offer relatively tax-friendly environments.
• Temperate climates - Though climate was not included as a factor in our study, many of the cities in our top 10 are in places with temperate climates. This is an added bonus for retirees who are looking for relatively mild winters and bearable summers.

 

1. Henderson, NV

Henderson, Nevada is a very affordable option for Americans looking to retire early. For the two cost of living metrics we considered, Henderson ranks well. The first metric uses data from the MIT Living Wage Calculator to estimate the annual cost of living, encompassing food, medical, housing and transportation expenses. According to MIT estimates, the annual cost of living in Henderson is just $20,672, a top-30 rate of all 80 cities in our study. The second primary cost-of-living metric in our study compares median housing cost to median household income. Henderson ranks 13th for this metric overall, with median housing costs consisting of less than 22% of median household incomes.

Nevada is also very tax-friendly toward retirees. Social Security income, along with public and private pension income, is not taxed. Though sales tax is 8.25% in Henderson, property taxes are low. Using data from the Census Bureau’s 1-year American Community Survey, we found that the effective property tax in Henderson was 0.60% in 2017. In comparison, the average effective property tax across all cities is 1.18%, almost double Henderson’s rate.

1. Chandler, AZ
   
   Chandler, Arizona is a prominent southeastern suburb of Phoenix and scores well across our livability factors. Property and violent crime rates are low - both top-15 rates in the study overall - and unemployment in 2017 was just above 4%. Chandler also scores well on factors particularly relevant to seniors, notably health-related metrics. Of the cities in our top 10, Chandler has the most medical facilities given population density. According to data from the Census Bureau’s Business Patterns Survey, there were more than 46 medical facilities per 1,000 residents in 2016. On average for all 80 cities in our study, there were only nine medical facilities per 1,000 residents.
2. Plano, TX
   
   Like Henderson, Nevada, Plano, Texas is highly affordable and, as a result, conducive to an early retirement. It ranks in the top half of all 80 cities in our study for cost of living, according to MIT data, and ranks first for median housing cost as a percentage of median household income. Specifically, the annual cost of living in Plano is $21,375, and median housing cost as a percentage of median household income is approximately 18%. Texas is also tax-friendly toward retirees, as the state does not have an income tax. Our estimated effective income tax for a retiree with $50,000 in annual income is only 9.42%. While retirees will not have to pay any tax on income, property taxes in Plano are relatively high for retirees looking to buy a home. According to Census Bureau data, the effective property tax in 2017 was 1.62%, which ranks 59th out of 80 overall.
3. Las Vegas, NV
   
   The most populous city in our top 10, Las Vegas, Nevada ranks in the top half of all cities across all metrics. Perhaps an unexpected place to retire, Las Vegas offers the tax benefits of living in Nevada along with competitive healthcare costs. It ranks in the top half of cities for income, property and sales taxes and ranks in the top 20 for health insurance costs. We measured health insurance costs by using the Kaiser Family Foundation health insurance calculator and comparing the average annual cost of a silver health insurance plan for a 60-year-old in each city, not including any subsidies. In Las Vegas, the average cost of a silver health plan for a 60-year-old is $9,396 annually.
4. Pittsburgh, PA
   
   Pittsburgh, Pennsylvania does well in our study in terms of the health-related metrics. The average annual cost of a silver health insurance plan is less than $8,500 (the eighth-lowest cost for this metric overall), and in 2016, there were almost 16 medical facilities for every 1,000 residents, (the 11th-highest rate overall). Pittsburgh also offers a high quality of healthcare, as it is home to some of the best hospitals in the country according to the U.S. News & World Report Best Hospitals 2018-2019 ranking.
5. Mesa, AZ
   
   Mesa, Arizona ranks in the top 25 for median housing costs as a percentage of median household income and in the top 10 for medical facilities per 1,000 residents. Specifically, in 2017, median housing costs made up about 22% of median household income. In terms of access to care, the Census Bureau’s County Business Patterns Survey reports that there were almost 24 medical facilities per 1,000 residents in Mesa in 2016.
6. Lexington, KY
   
   Lexington, Kentucky ranks third out of all 80 cities in our study for median housing costs as a percentage of median household income, at a little less than 20%. According to MIT estimates, the annual cost of living in Lexington is $19,526. That’s the second-lowest cost of living in our top 10, and the seventh-lowest overall. While its property tax rate, 0.97%, ranks 41st out of all 80 cities, its sales tax rate, a relatively low 6%, ties as the 6th overall. The violent crime rate and the unemployment rate in this city also rank in the top half of our study and are top-15 and top-30 rates, respectively.
7. Louisville, KY
   
   Less than 100 miles west of Lexington is Louisville, Kentucky, which sits on the Ohio River and is the state’s largest city. Louisville ranks in the top 10 for the metrics of cost of living, median housing costs as a percentage of median household income and sales tax. Its annual cost of living is $19,646 and housing costs comprise 20% of income while sales tax is 6%. Louisville ranks 19th out of all 80 cities in our study for health insurance. The average cost of a silver health plan for a 60-year-old here is $786 per month, or $9,432 annually. Additionally, the effective income tax rate for a retiree, property tax rate, violent crime rate and unemployment rate in Louisville all rank within the top 50% of our study.
8. Fort Wayne, IN
   
   Of any city in our top 10, Fort Wayne, Indiana is the most affordable. According to MIT data, the annual cost of living is just a little more than $19,000. In comparison, the average annual cost of living across all cities is $22,864. This means that an average resident in Fort Wayne saves almost $4,000 annually on food, medical, housing and transportation expenses compared to an average resident in any of the other cities we studied. While Fort Wayne is affordable, the effective income tax rate there for a retiree with $50,000 in annual income is higher than in all other cities in our top 10. This means that retirees may need a higher pre-tax retirement income to cover their annual cost of living.
9. St. Petersburg, FL

In St. Petersburg, Florida, housing costs make up roughly 22% of income and the sales tax rate is 7% - both top-20 rates. Like Nevada, the state of Florida is very tax-friendly toward retirees. Florida has no state income tax, meaning that retirees do not pay tax on Social Security income, pension income or income from an IRA or 401(k). As a result, residents of St. Petersburg, Florida may be able to extend income received in retirement - such as money from an IRAs or 401(k) - over longer periods of time. This is particularly important for people looking to retire early.

Unfortunately, St. Petersburg has higher crime rates than other cities in our top 10. According to data from the FBI UCR Report, there were more than 4,300 property crimes and almost 700 violent crimes per 100,000 residents in 2017.

To rank the most affordable cities for an early retirement we looked at data for the 80 largest cities in the U.S. Specifically, we compared cities over the following 10 metrics:

• Effective income tax rate for a retiree - 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 a 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’s 2018 health insurance calculator. We estimated the cost of a silver plan for a 60-year-old in each city with an income of $50,000, not including any subsidies.
• Cost of living - This is the cost of living for one person. Data comes from the MIT Living Wage Calculator.
• Median housing costs as a percentage of median household income - This is the median housing cost divided by median household income. Data comes from the Census Bureau’s 2017 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 2017 1-year American Community Survey.
• Sales tax - This is the local sales tax rate.
• Property and violent crime rates - This is the number of property crimes and violent crimes per 100,000 residents. Data comes from the FBI UCR report and is for 2017.
• Medical facilities per 1,000 residents -  Data comes from the Census Bureau’s County Business Patterns Survey and the Census Bureau’s American Community Survey. Data for both metrics is from 2016.
• Unemployment rate - Data comes from the Census Bureau’s 2017 1-year American Community Survey.

First, we ranked each city in every metric, giving half a weight to property and violent crime rates and a full weight to the other factors. Then we found each city’s average ranking and used the average to determine a final score. The city with the highest average ranking received a score of 100. The city with the lowest average ranking received a score of 0.

Tips for Saving for Retirement

• Invest early - An early retirement requires early planning. By planning and saving early, you can take advantage of compound interest. Use an investment calculator to see how your investment can grow over time.
• Trusted personal finance advice - A financial advisor can help you make smarter financial decisions such as moving or being in better control of your money after you land a new job. Finding the right financial advisor that fits your needs doesn’t have to be hard. SmartAsset’s free tool matches you with financial advisors in your area in 5 minutes. If you’re ready to be matched with local advisors that will help you achieve your financial goals, get started now.

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