If you’re looking for places to retire the number one thing you need to consider is the cost of living. While it’s nice to consider moving to states without income taxes for instance, but chances are good you won’t make the same income as you used to, but you might still be buying necessities. There is a cost of living index, but we decided to look at how much a $100 is worth in each state. Cost of living takes into account a variety of factors but it’s hard to figure out if it’ll apply to you in your retirement, whereas $100 is a $100. If it goes further in a particular state then it stands to reason the cost of living will be less overall anyway.
What’s $100 Worth?
For instance, Arkansas is considered a “low-price” state compared to the national mean. When an average American spends money on goods, Arkansans pay less to purchase that same amount. Put another way, let’s say you travel to Arkansas and spend $100 on a cart-full of groceries. For the other 49 states (on-average), those same groceries would actually cost $115.07. If you were to go to the popular state to retire to Texas, instead, $100 worth of groceries would cost other Americans (on-average) $103.20. Likewise in Maryland, residents pay $100 at the supermarket for what the average American pays $91.32.
Prices for the same goods fluctuate widely depending which state you happen to be in. For instance, a dollar in Arkansas is able to purchase more goods than a dollar (on average) elsewhere in the country. In-fact, Arkansas’ $115.07 mark makes it the state with the 3rd highest buying power in the country. Of course this trend goes both ways; while Arkansas, Mississippi, and Alabama pay $100 for what average Americans pay $115, states on the other end of the spectrum (New York, California, New Jersey) pay $100 for what average Americans pay $87. Below are the states with the highest and lowers buying power; do you notice a trend?
State Relative Value of $100 Rank
|State||Relative Value of $100||Rank|
|District of Columbia||$86.13|||
|Source: U.S. Bureau of Economic Analysis, Regional Price Parities.
Note: Washington, D.C.’s rank does not affect states’ ranks, but the figure in parentheses indicates where it would rank if included.
Cost of Living and the Value of a Dollar
This statistic can be misleading. As we discussed earlier, it’s not necessarily that the “value” of money changes as you cross state borderlines (or perhaps more appropriately, cross regional boarders). What does change are the local prices. Things like gasoline, housing, transportation, groceries, utilities, and alcohol certainly fluctuate depending on which state you’re in, and to some degree which area of the state you’re in.
This is more commonly called the “price of living”, and it dramatically influences how average American households conduct their day-to-day lives. Looking at the table above, the state with the highest relative value of $100 is Mississippi (at $115.74) and the lowest is Hawaii (at $84.46). Hawaii is actually somewhat of an anomaly. Because of the remote location of the state, transporting goods to the island costs quite a bit of money. Those prices largely get pushed onto consumers, which is why the cost of gasoline or groceries in Hawaii is far beyond anything else seen in the contiguous 48 states.
Let’s move down to California, the state with the fourth lowest relative value of $100. Real purchasing power in Mississippi is 34% greater than it would be in California. Put another way, you’re dollar goes 34% farther in Mississippi. So why is California more popular of an area?
Here are a few more statistics that may be worth considering:
- California’s economy contributes over 14.13% of the country’s total GDP (and when compared to other countries, actually has the 5th largest economy in the world), whereas Mississippi’s economy contributes only 0.59%
- In California, the median household income is around $70,000/year, whereas Mississippi’s is a mere $43,000
- In California, 4.1% of residents are unemployed, whereas the number increases to 4.7% in Mississippi
While California and Mississippi are more extreme examples, they’re a microcosm of a lager national trend. If we expand the scope from the state-level to the regional-level, we see that the southern and Appalachian states comprise 8 of the top 9 “buying power” states. Likewise, these states (Mississippi, Alabama, Arkansas, West Virginia, Kentucky, South Dakota, Oklahoma, Ohio, and Missouri) have notoriously low household incomes every-year. Conversely, aside from Hawaii and Washington D.C., east coast states—consistently among the wealthiest in the country—comprise 7 of the 8 “least buying powers” states.
The “Power” in Buying Power
Considering cost of living and other uncontrollable factors, which states give you the most buying power? According to the table above, southern and Appalachian states consistently give residents the most buying power. Does this make them the best place to save money? Not necessarily.
The truth is that while more buying power (per $100) might be great, it’s not the full story. In-fact, just taking into account the median household income really turns this table on its head. Let’s revisit Mississippi and California. According to our table, when a Mississippian spends $100 on goods, they’re actually getting $115.74 worth compared to the national average. Conversely, $100 of Californian goods is actually only worth $87.41 compared to the national average. Let’s take one additional factor into account here: median household income.
State Relative Value of $100 Median Household Income
- Mississippi – $115.74 – $43,000
- California – $87.41 – $70,000
While Mississippi exhibits 34% more “buying power”, they also earn 38.5% less (based on median household income). Is the buying power really better in Mississippi? Importantly, these numbers don’t take into account other important variables, such as state taxes, job availability, or perhaps property values. Additionally, these figures can vary tremendously within states—this is especially true for California, known for some of the most economically flourishing cities in the world.
Thus, the states with the most buying power likely won’t be found at the top (or perhaps bottom) of this table. In simple terms, states with relatively low cost of living and high incomes would be likely candidates for the state with the most buying power. For example, North Dakotans enjoy low cost of living prices, while exhibiting some of the higher incomes in the nation (residents of Massachusetts and North Dakota earn approximately the same amount in dollars per person, but gasoline, grocery, and housing prices are dramatically lower in North Dakota). Midwestern states such as Minnesota or Wisconsin are also potential “high-buying power” states, with relatively high incomes, and relatively low price of living costs.
Ultimately, cost of living, price parities, and income taxes are not going to help you 100% figure out what state is best. What will help is getting a customized plan from a retirement planner or retirement coach. We recommend only fee only retirement coaches or perhaps “wealth managers” that only get paid on overall assets vs transactions. Which state would you like us to cover in-depth?