Vermont Business Magazine Vermont has the 15th-largest gap between senior citizens’ incomes and 45-64 year-olds’ incomes, according to a new Bankrate.com report. Financial experts’ rule of thumb is that retirees need 70 percent of the income that they earned during their working years. Vermont fell well short: Residents who are 65 and older have a median annual income that’s just 57 percent of the median annual income earned by the state’s 45-64 year-olds. Bankrate found that retirement incomes are exceeding the 70 percent target in just 3 states: Hawaii, Alaska and South Carolina. Senior citizens in 47 states and the District of Columbia aren’t replacing enough of their pre-retirement incomes, according to the new Bankrate.com (NYSE: RATE) study. Three New England states (Massachusetts #51, Connecticut #47, New Hampshire #46, Rhode Island #43) and New York (#42) were in the bottom 10.
Nationally, the median income for those who are 65 and older is just 60 percent of the median income among 45 to 64 year-olds. The 15 states with the largest retirement income gaps are all located in the northern half of the country; Massachusetts has the largest gap. However, with the notable exception of Hawaii, Alaska and DC, there is an inverse relationship between the ranking and pre-retirement income, as states generally with the highest pre-retirement incomes are near the bottom.
“These numbers help illustrate how underprepared many Americans are for retirement,” said Greg McBride, CFA, Bankrate.com’s chief financial analyst. “It’s especially important for millennials to save aggressively because they face the biggest retirement savings burden of any generation in American history.”
Bankrate.com examined the US Census Bureau's 2014 American Community Survey (the most recent edition). For each state and Washington, DC, Bankrate divided the median annual household income for those who are 65 and older by the median annual household income for those between 45 and 64 years old.
The Census Bureau broadly defines income to include wages, salaries, tips, social security, welfare, interest, dividends, pensions, income from defined contribution retirement plans (such as 401(k)s and IRAs), rental properties, royalties and other sources.
| State | Median household income, ages 45-64 | Median household income, 65 and older | Income replaced in retirement |
|---|---|---|---|
| Nationwide | $65,018 | $39,186 | 60.27% |
| Hawaii | $80,106 | $58,150 | 72.59% |
| Alaska | $81,990 | $58,311 | 71.12% |
| South Carolina | $52,289 | $36,694 | 70.18% |
| Arkansas | $47,426 | $32,897 | 69.36% |
| New Mexico | $53,062 | $36,740 | 69.24% |
| Florida | $55,546 | $38,425 | 69.18% |
| Nevada | $59,351 | $40,482 | 68.21% |
| Arizona | $59,103 | $40,195 | 68.01% |
| District of Columbia | $71,558 | $47,906 | 66.95% |
| Mississippi | $45,347 | $30,254 | 66.72% |
| West Virginia | $48,627 | $32,219 | 66.26% |
| Tennessee | $51,784 | $34,224 | 66.09% |
| Oklahoma | $55,795 | $36,820 | 65.99% |
| North Carolina | $55,226 | $36,252 | 65.64% |
| Alabama | $51,117 | $33,375 | 65.29% |
| Montana | $54,753 | $35,710 | 65.22% |
| Kentucky | $50,838 | $33,041 | 64.99% |
| Oregon | $61,744 | $39,337 | 63.71% |
| Delaware | $71,504 | $45,510 | 63.65% |
| Michigan | $60,315 | $38,373 | 63.62% |
| Louisiana | $51,696 | $32,870 | 63.58% |
| Indiana | $59,031 | $37,521 | 63.56% |
| Missouri | $57,994 | $36,059 | 62.18% |
| Georgia | $59,349 | $36,859 | 62.11% |
| Texas | $63,465 | $39,202 | 61.77% |
| California | $74,074 | $45,732 | 61.74% |
| Maine | $57,768 | $35,498 | 61.45% |
| Utah | $74,625 | $45,738 | 61.29% |
| Ohio | $60,090 | $36,574 | 60.87% |
| Colorado | $74,234 | $45,093 | 60.74% |
| Kansas | $64,951 | $39,009 | 60.06% |
| Idaho | $60,034 | $36,048 | 60.05% |
| Washington | $73,740 | $44,104 | 59.81% |
| Wyoming | $69,107 | $40,773 | 59.00% |
| Maryland | $89,892 | $52,458 | 58.36% |
| Virginia | $79,060 | $45,966 | 58.14% |
| Vermont | $63,243 | $36,346 | 57.47% |
| South Dakota | $61,945 | $35,240 | 56.89% |
| Nebraska | $65,649 | $37,174 | 56.63% |
| Illinois | $70,473 | $39,898 | 56.61% |
| Iowa | $66,128 | $37,099 | 56.10% |
| New York | $70,076 | $39,278 | 56.05% |
| Rhode Island | $68,843 | $38,391 | 55.77% |
| Wisconsin | $65,665 | $36,606 | 55.75% |
| Pennsylvania | $65,822 | $36,415 | 55.32% |
| New Hampshire | $79,256 | $43,069 | 54.34% |
| Connecticut | $86,666 | $46,216 | 53.33% |
| Minnesota | $75,500 | $40,041 | 53.03% |
| New Jersey | $88,866 | $46,170 | 51.95% |
| North Dakota | $75,931 | $37,196 | 48.99% |
| Massachusetts | $86,036 | $41,489 | 48.22% |
Source: U.S. Census Bureau 2014 American Community Survey (the most recent)
Every state has its own peculiar factors that contribute to greater or lesser retirement readiness, says Nancy Blunck, a certified financial planner professional in Anchorage, Alaska. The state ranked second with an income replacement ratio of 71.12%.
Seniors are doing better in Alaska, Blunck points out, partly because the public pension system pays an annual 10% bonus to retired state employees who stay in-state after they retire. (This won't hold true for people who entered the service after 2006.)
Alaska's 'weird' stimulus
"We personally know people who make more in retirement than when they were working," says Maggie Banks, a personal finance blogger in Anchorage at NorthernExpenditure.com.
There's Alaska's "weird economic stimulus that doesn't happen anywhere else," she says. The Permanent Fund – which spreads around surplus revenues from the state's oil and gas reserves -- paid all residents $2,072 last year, its largest dividend ever. A retired couple would have received more than $4,000. "A lot of people count on that in retirement," says Banks.
The cost of living in Alaska is high, but the state's sparse population means jobs are plentiful. Costs are partly offset by subsistence fishing and hunting, and no small amount of DIY.
Banks and her family dip-net every year for more than 70 pounds of sockeye salmon. They clean and gut the fish themselves, and have some smoked professionally.
The Banks family does not hunt, but many of their friends do. "One moose will fill up your freezer," she says.
Say 'aloha' to a good retirement
Hawaii's host of conflicting factors makes that state tough to understand. Jack Kerr, the founder of Blue Skies Financial Planning in Kailua Kona, notes that the cost of living (the highest in the U.S.) is a challenge, although seniors do receive tax breaks, and health care costs for the elderly seem to be below the average.
The labor climate in Hawaii might affect retirement finances, says Leo Goeas, a former NFL player and now a financial adviser with Raymond James & Associates in Honolulu.
A high percentage of Hawaiian residents are government workers, and many private companies are unionized, giving workers retirement pensions. About 1 in 5 workers in Hawaii is a union member, well above the national average of 11%, according to the U.S. Bureau of Labor Statistics. And, unlike many other states, Hawaii has retained a pension benefit for government workers.
Hawaii's family factors
The high cost of living makes multi-generational living extremely common in Hawaii, Goeas says, with 3 generations sometimes living in one house to cut costs.
The state culture is unique and tends to be less focused on spending money. People tend to value experiences and activities over consumption," says Peter Kay, a Honolulu resident who writes a blog called Living in Hawaii. Instead of shopping or dining out, they prefer hiking or visiting a beautiful national park. Dining out, expensive groceries and pricier cultural events may cede to the beach or free tai chi at the mall.
"You live in a much smaller home," Kay adds. "If you have a car, maybe you'll have a smaller, more efficient car that you hold on to for longer."
The retiree's journey emphasizes the things that matter: "The joy and satisfaction in your later life are more qualitative than quantitative," he says.
Low costs and high-income transplants
As for South Carolina -- the third state with retirement income replacement above the 70% threshold -- the state had many manufacturing businesses in the 1960s and '70s that may still produce pension benefits today, says Carlson, of Questis.
Transplants might be another reason for the state's showing. "People with money are moving south," Carlson says. "They might have greater-than-average retirement income, people who have accumulated their income somewhere else and are now realizing it in South Carolina."
The state also is home to 8 military bases, which may mean a large number of relatively well-off military retirees.
Kathy Merlino, blogger at KathysRetirementBlog.com in Blue Ridge, South Carolina, is not surprised about the state's numbers. Lower expenses help to create income in retirement, and South Carolina has relatively inexpensive housing and low taxes, she says.
A rich retirement, wherever you are
Merlino and her husband pay just $2,000 a year in taxes on a home that is worth nearly $500,000. She's also a dedicated gardener, and says people in South Carolina can grow vegetables 365 days a year and fruit for 8 months out of the year to help save on food.
"A cost and health benefit of retiring in South Carolina: You can live very well for very little money and have a very rich retirement," Merlino says.
No matter what state you're in, Carlson recommends setting goals for the income you desire in retirement and making a plan.
Putting money aside automatically through a workplace or individual retirement account is one of the simplest ways to make sure you're continuously adding to your nest egg. And don't forget to increase the amount you save each year.
Even 1% or 2% more every year will boost your chances of building enough to replace your paycheck, Carlson says.
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