Hawaii seems like the perfect retirement, but it’s also the most expensive state to live in.
According to an index developed by the Bureau of Economic Analysis (BEA) and as reported by Yahoo Finance, Hawaii’s cost of living is 8.6% higher than the national average. This is due to the state’s remote location, which requires goods to be imported, thereby increasing prices. The limited availability of land and high demand for houses also contribute to a higher cost of living.
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“As a word of caution to anyone considering relocating to Hawaii, do not discount the fact that Hawaii has a unique culture that inherently looks down upon uninitiated emigrants,” said J.R. Robinson, owner and founder of Financial Planning Hawaii. “It very definitely helps to have a local connection.”
Here’s what you need to know about retiring in Hawaii.
How Much You Need To Retire in Hawaii
Daniel Gleich, CEO and President of Madison Trust Company, said Hawaii’s high cost of living makes it the most expensive state to retire in comfortably.
According to a Madison Trust Company report, residents should aim to save $2,212,084 by age 65. This figure includes basic living expenses and discretionary spending. This takes into consideration expenses such as groceries, housing, transportation, health care, utilities and supplemental funds for extracurriculars.
However, there’s no one-size-fits-all answer.
“There is no specific nest egg value to answer this question. It depends upon the consumer’s income needs and standard of living,” said Robinson. But there are also some important considerations to make.
“First, in terms of the cost of living, Hawaii is akin to San Francisco, New York and Boston in terms of housing costs and general cost of living,” he explained. “Real estate prices are comparable, while grocery expenses tend to be higher in Hawaii.”
While real estate prices are comparable, Robinson noted that real estate costs are commonly underestimated. Many retirees are drawn to affordable older condominiums, only to be hit with major assessments for renovations.
“There is a common saying among Hawaii realtors that residential real estate in Hawaii has historically been a good investment, but that consumers would be better served by renting than buying when it comes to condos,” he said.
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How To Financially Prepare for Retirement in Hawaii
Retiring in a high-cost area like Hawaii requires some extra planning. It’s also important to keep in mind that Hawaii has a state income tax rate that caps out at 11% — one of the highest in the U.S.
“At the same time, Hawaii is surprisingly progressive with respect to taxing retirees’ income,” Robinson added. “The state does not tax Social Security or pensions or even distributions from rollover IRAs or 401(k)s that can be attributed to employer contributions.”
While Hawaii may offer tax advantages for retirees, especially when it comes to exempting certain retirement income, planning for a financially secure future often involves more than just understanding state tax laws. For many, it also means rethinking where and how their savings are invested.
“Many individuals consider exploring long-term retirement strategies that go beyond standard Wall Street options like stocks and bonds and explore self-directed IRAs as a way to diversify their portfolios,” Gleich said.
A self-directed IRA allows individuals to invest in alternative assets like real estate, private lending or private equity to generate passive income and help offset the higher living expenses. “A self-directed IRA can help provide an added layer of control, diversification, and possible passive income for those planning retirement in higher-cost states,” he added.
Ultimately, the decision to retire in Hawaii should be based on your interests.
“If the consumer leans toward cosmopolitan, then Honolulu is probably a good fit. If lower-cost real estate and more country living is an objective, then any of the outer islands may be appropriate,” Robinson recommended.
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This article originally appeared on GOBankingRates.com: Experts Share How Much Savings You Really Need To Retire in Hawaii
