6 Steps To Take If You Plan To Retire in Hawaii or Another Expensive Place
Retirement can be expensive, and planning for it can be difficult. If you’re planning to retire in an expensive location like Hawaii, retirement planning becomes even more important — especially if your budget is going to change significantly. Luckily there are things you can do to ensure you’re well prepared.
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Keep reading as we explore ways to ensure you have enough money to last throughout your golden years if you’re planning to spend it in a high-cost-of-living location like Hawaii.
Also see places like Hawaii that are way cheaper.
Contribute as Much as You Can to Your Retirement Accounts
To prepare for an expensive retirement, you should contribute as much as you can to your retirement accounts. This can be done with automatic contributions. Automating your savings can help you meet your retirement savings goals without having to think about it.
Start with a contribution amount that you’re comfortable with each month and gradually increase it to what your budget allows.
Another idea is to contribute your yearly tax refund to your retirement account. Since this is money you were living without, it can easily be deposited into your retirement account.
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Set a Realistic Budget for Retirement
Setting a realistic retirement budget is essential so you know how much you need to save. It can be easy to enter retirement with unrealistic expectations about your future spending habits. This is especially true if you are retiring to an expensive location because your budget must account for increased costs.
To maintain financial stability in retirement, try to establish a realistic budget that accounts for essential and discretionary expenses as well as unexpected expenses.
“Research and understand the cost of living in Hawaii, including housing, groceries, utilities and healthcare,” said Doug Carey, CFA at WealthTrace. “These expenses can be much higher compared to mainland states. Make a budget that accounts for these higher costs and plan accordingly. It can also be a good idea to downsize your housing to adjust to a potentially smaller living space.”
Cut Back on Spending Now
Because you’ll be living in an expensive location after retirement, there’s a chance your expenses might be higher than they are today. To better prepare yourself, start cutting back on your spending today. You could try cutting down on how much you eat out at restaurants, get takeout, or spend on entertainment. Look for unused subscriptions that you could cancel or mistake charges for which you could get refunded. You can then use the savings to fund your retirement account or put that money in other investments.
Cutting back on your spending will also help you get used to spending and buying less. This will be easier to carry over into retirement.
Earn a Higher Return on Your Investments
While it’s not always possible, look for opportunities to earn a higher return on your investments.
“Too many retirees believe the gospel that they have to have a 60/40 portfolio (60% stocks, 40% bonds) in retirement or that they can only take out 3-4% of their principal each year,” said Kevin Ross, CLU, chartered financial consultant, financial advisor at Cape Securities. “If your investments are earning a sufficient amount, then this advice makes sense. But who says you have to settle for low-yielding investments?”
Ross said the potential for higher returns usually always means an increase in risk. However, if you accept this higher risk, it could put you in a better financial position because of greater returns.
“Not earning enough on your investments can cause retirees to cannibalize their principal which is worse than stocks losing value,” Ross said. “Depressed stocks at least have the potential to recover. Whereas cannibalized principal can never be recovered.”
Understand the Local Tax Code
If you’re planning to retire in a new location, it’s important to understand how taxes might affect your finances. This could impact how much things cost and how much you’ll need for retirement.
“Make sure you know the tax implications of retiring in a more expensive state such as Hawaii,” Carey said. “While Hawaii doesn’t tax Social Security benefits, other sources of retirement income are subject to taxation. Understanding the state’s tax laws can help you plan your retirement finances more effectively.”
Build an Emergency Fund
An emergency fund is critical to cover emergency costs if they come up without going into debt. This can be especially important if you plan to retire in an expensive location like Hawaii because emergencies can cost even more. Things like repair parts for your car, medical supplies and the cost of labor can all be more expensive in high-cost locations. You can use your emergency fund instead of putting these bills on a credit card or taking out a loan.
You should work toward having at least three to six months of living expenses in your emergency fund. A great place to keep this money is in a high-yield online savings account which offers interest rates that are often higher than what you’ll find at a traditional bank. With a high-yield savings account, you can access your money any time you need it, but the money will still earn interest while it is in the account.
The Bottom Line
Retiring in an expensive location like Hawaii is manageable for anyone as long as you’re prepared. Make sure you’re contributing as much as possible to your retirement account, start cutting back on your spending, begin to create a realistic budget, and make sure you plan for unexpected emergencies. If you do each of these things, you’ll be able to live comfortably no matter what the cost of living might be.
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