How Does Local Cost-of-Living Affect Retirement?

Dec 29, 2022 / By Elaine Floyd, CFP®

Across the country, workers with similar skills earn different compensation to reflect the cost of housing in their local labor market. Yet, Social Security benefits are determined by a national formula that does not take local price levels into account. To the extent that living in an area with a high cost-of-living translates to higher wages, workers in these areas could end up with lower replacement rates than otherwise similar workers in less-expensive areas. If the difference is substantial, workers might respond by saving more, working longer, or retiring to a lower-cost location.

An analysis by the Center for Retirement Research at Boston College shows that Social Security replacement rates are lower in more-expensive areas, but the gap is somewhat smaller than anticipated because earnings have only partially kept up with the cost of financing a house. In response to the gap that does exist, households—especially the more educated—save more; and some homeowners move when they retire.

Read the full brief here.

As director of retirement and life planning for Horsesmouth, Elaine Floyd helps advisors better serve their clients by understanding the practical and technical aspects of retirement income planning. A former wirehouse broker, she earned her CFP designation in 1986.


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