There is some debate about the appropriate percentage of income you should be saving for retirement. Many financial advisors and personal finance books recommend saving 15%. This is well above the average personal savings rate, which hovers around 5% in the U.S. That number includes contributions to retirement plans (401ks and IRAs) in case you were wondering. Most people do not save enough because they are unwilling to make the sacrifices necessary (older car, smaller house, less eating out, fewer vacations, etc.) or don’t know where to start. However, the question I want to explore today is:
How does where you live affect your ability to save?
A website called Gobankingrates.com researched this question and came up with a list of the 15 easiest and most difficult cities in which to save money. Take a look at the list below, especially if you are thinking of relocating when you retire. Naturally, the best case scenario is a city with high paying jobs and a low cost of living. That may be a little bit like finding a unicorn, but some cities are definitely better than others. The study looked at factors that affect people’s finances the most: median income, median home listing price, median rent, unemployment rate, average gas price, sales tax rate, and average cost of a basket of 15 common grocery items.
I was not surprised that New York City and Miami were on the list of the 15 most difficult places for saving 15% of your income. I was surprised that all of the rest of the most difficult cities in which to save (13 out of 15) were in California. One major factor that was not considered was state income tax rates, probably because this was a study of cities, not states. Although, incorporating state income tax rates would only have made cities in California look worse. San Francisco was the #1 worst city in terms of ability of its residents to save (let’s hope they have some stock options). One statistic really jumped out to me from the #2 worst city for saving, Los Angeles: The annual income in Los Angeles is only $49,682 and the median monthly rent was $3,950 per month. Hmm? I can see where that would be tight.
P.S. If you are already retired, you can stop worrying about saving more and instead focus on enjoying what you have saved 🙂