Cost Of Living Can Make Or Break Your Retirement

There’s not much we can write about within or on the periphery of The Juice’s wheelhouse that doesn’t have something to do with retirement. 

Because whether you’re aiming for traditional retirement or you know you’ll never retire, everything from discussions around ETF investing to today’s concern — cost of living — has a retirement angle. This is part of the reason why we made it our focus for 2024. Because it’s so all-encompassing, not to mention important. 

We have plans to go deeper into not only how to invest for retirement, but on what to do once you’re there. Or what to do if maybe you just want to pull back. Of course, the best strategy is to make more money and watch it grow, but most of us have limitations in this area. So, at some point, we have to look at cost of living. 

However, it’s better to do that sooner rather than later. If you can manage to live in a place that helps you right-size your budget now, you can save more for when you need it without having to scramble and go through a move later in life. 

In tomorrow’s Juice, we focus on housing with a look at the latest price trends. (Preview: we’re already looking right on our housing prediction for the year). Today, overall cost of living thanks to a very good annual study Numbeo puts out on global cost of living. 

The study is different in presentation and methodology for several key factors:

• It considers not only housing (using rent as the metric), but also groceries and restaurant prices. 
• It calculates a local purchasing power number which quantifies “the relative purchasing power in a given city based on the average net salary. A domestic purchasing power of 40 means that residents with an average salary can afford, on average, 60% less goods and services compared to residents of New York City with an average salary.”
• And, as introduced in the last bullet point, it uses New York City as the baseline. So, on the cost of living metrics, New York City is set at 100. If a city scores 120, it’s 20% more expensive than NYC. if a city scores 50, it’s 50% less expensive than NYC. 

Some fun — and some useful — takeaways. 

First, it’s more expensive to live in the following cities than New York City, based on the metrics Numbeo uses. You’ll see the baseline comparison number in parenthesis. 

• Hamilton, Bermuda (137). Largely because of the relatively high cost of groceries and restaurants. Rent actually scores at 89, so it’s 11% less expensive than in NYC. 
• Zurich, Switzerland (122.2). 
• Basel, Switzerland (121.8).
• Lausanne, Switzerland (117.9).
• Geneva, Switzerland (109.6).
• Bern, Switzerland (107.6). In all of these Swiss cities, rent is considerably lower. Again, it’s the high cost of food there that, to be honest, we didn’t know was a thing. 
• San Jose, CA (114.8). 
• San Francisco, CA (109.3). 
• Washington, DC (102.6). Here again, housing is less expensive in all of the U.S. places that rank costlier than NYC. It’s the cost of groceries and, more so, going to restaurants that gets you. Plus, these overall cost of living numbers are all adjusted with local purchasing power (discussed above) factored into the equation.  

As we noted the other day, forgoing an extra bedroom you don’t actually need can save you several hundred, if not around $1,000 in most decent size cities. So, your actual on-the-ground cost of living in a big city varies widely based on your preferences and subsequent decisions. 

That said, people who can’t afford to buy in, say, The Bay Area, DC, NYC or the U.S. cities that come in after, including Seattle (99.7), Atlanta (95.3), Honolulu (95.0), Los Angeles (92.5), probably also don’t like the prospects of $2,000-plus rent headed into retirement. 

As such, you need to find a place where you can buy now or eventually or rent for relatively less now and, hopefully not, forever. 

This brings us to a drum we haven’t beat in a while. But that doesn’t mean it still isn’t relevant. We have written a lot about the places where your money goes furthest. It can make sense to consider these places as you make the connections between your financial present and future. 

Numbeo didn’t rank all of these small cities. But that’s okay. We know you can get a lot more for your money in those places as long as you’re able to maintain an above average salary. Here again, local purchasing power — the relationship between the typical income and costs in a place — matters big time. 

This is a thing, for example, when we discuss home ownership among Generation Z. What good is it to move to a lower cost of living area if there aren’t good-paying jobs? You might lower your expenses, but if your income goes down by the same amount — or close to it — it might not be worth the hassle. Even with an eye on the future. Because higher income today can mean heftier savings down the road. So the key is making more than people make, on average, in a low cost of living area and saving as much of that surplus as possible. 

The least expensive U.S. city on Numbeo’s list is Cincinnati (63.7) with a rent score of 31.4 and relatively low grocery and restaurant numbers. Cincinnati is a good example of a place to consider, especially for younger people. The local purchasing power number there is 126, meaning residents of Cincinnati can afford 26% more goods and services on the average salary than NYC residents can on the average salary there. Not too shabby at all. 

However, make above the average and you’re looking even better. Especially when you consider that the median price of a home in Cincinnati, as of December 2023, was $260,000. However, that’s up 11.4% year over year and houses in Cincinnati receive three offers and sell within 14 days, on average. 

What does this tell The Juice? That the migration to less expensive places is on, which, over time, will make them more, if not outright expensive. You remember when everybody fled to Oakland, Brooklyn, Portland, Austin and even Las Vegas? Those cities aren’t cheap anymore. 

Cincinnati is but one example of a competitively hot housing market in a medium-size city. As implicit as it might be … as ignored by the media as it is … this illustration makes the connection between the nation’s housing and retirement crisis. Fix your own housing situation today and you might just improve your retirement situation tomorrow. 

The Bottom Line: In tomorrow’s Juice, we update the landscape on housing. Newsflash: It’s not getting any less expensive. Frankly, we’ve never seen an ongoing story bungled so badly by the major media. They act like we’re in a cooled-off market. The numbers say otherwise. 

Anyhow, housing. It really can be the pulp of your retirement. Skim a little off of the top of your budget on housing and the savings can add up to wealth you can eventually use to lighten your workload or get rid of it altogether.

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