Places That Don’t Tax Retirement Income

Best Places to Retire

Living Cheap in Retirement

Americans weaned on post-war affluence have come to expect an extended period of leisure at the end of their work life. And, indeed, the majority of today’s retirees are able to afford a decent retirement. However, this group is living in a “golden age” that will fade as Baby Boomers and Generation Xers reach traditional retirement ages in the coming decades. This gloomy forecast is due to the changing retirement income landscape. Baby Boomers and Generation Xers will be retiring in a substantially different environment than their parents did.

1. The length of retirement is increasing as the average retirement age hovers at 63 and life expectancy continues to rise.
2. At any given retirement age, Social Security benefits will replace a smaller fraction of pre-retirement earnings as the Full Retirement Age rises from 65 to 67.
3. (W)hile the share of the workforce covered by a pension has not changed over the last quarter of a century, the type of coverage has shifted from defined benefit plans, where workers receive a life annuity based on years of service and final salary, to 401(k) plans, where individuals are responsible for their own saving.
4. (M)ost of the working-age population saves virtually nothing outside of their employer-sponsored pension plan.
5. (A)sset returns in general – and bond yields in particular – have declined over the past two decades so a given accumulation of retirement assets will yield less income.

This assessment of American’s retirement prospects comes from the Center for Retirement Research at Boston College (CRR). If the assessment is on spot (and there’s good reason to believe it is) Living Cheap in Retirement will become the lifestyle goal for retirees.

CRR periodically publishes its National Retirement Risk Index (NRRI). The NRRI “measures the share of American households who are ‘at risk’ of being unable to maintain their pre-retirement standard of living in retirement. The Index results from comparing households’ projected replacement rates – retirement income as a percent of pre-retirement income – with target rates that would allow them to maintain their living standard.”

The most recent (October 2009) release of the NRRI finds that more than half (51%) of all household are ‘at risk’ of having insufficient income to maintain their pre-retirement standard of living. This means that these households will fall more than 10 percent short of the target resources needed to maintain their standard of living in retirement.

Obviously. most households need to do a better job of saving for retirement. But factors like the demise of guaranteed pensions, falling home values, and risky investment markets will challenge even the most serious retirement savers. A complementary strategy for many will need to be plan a less expensive lifestyle. Living cheap in retirement without sacrificing quality of life will be the ultimate goal.

Locales like Muskegon offer just this kind of opportunity. We invite you to check out the many tax advantages, quality lifestyle features and incredibly low living costs that Muskegon can offer.