With nearly 10,000 baby boomers reaching age 65 every day, there is an increasing need in America to talk about how to prepare for a secure and comfortable retirement. While retirement-related issues have the attention of people from all walks of life – employers, workers, policymakers, community leaders and, of course, financial advisors – there is a tendency to reduce the issues associated with retirement to narrow silos, such as household savings, personal health and quality of life.
Instead, we should be thinking about retirement more holistically, and bring each consideration into the discussion around how to reach the best retirement outcome. As people near retirement age, they are not thinking about just one facet of their retirement, they are thinking about the overall life experience that they want to build for themselves, which includes finances as well as their health, community connections, access to leisure and recreation and numerous other factors. Each factor determines how much they should save, when they should start and how they can be best positioned to enjoy that stage of their life.
Understanding that different things matter to different people in their retirement, and that each state has its own set of unique retirement conditions, LPL Financial’s Research group evaluated each state for how it is doing in creating the conditions often considered to contribute to a successful retirement. The recently published first-annual Retirement Index provides a holistic look at each of the 50 states and the District of Columbia to assess how they fare across a range of metrics pertaining to the pre-retirement age group, those 45-64, the age group that is most likely thinking about, if not actively planning for retirement. The index evaluates personal finances, health care, employment and education, wellness and housing.
The index is a broad tool that can be applied to anyone, at any stage, thinking about retirement. It opens the dialogue between Americans and financial advisors to consider what the environment looks like based on the things that are most important to them – be it positioning themselves early on with a job that will let them maximize savings or understanding that their healthcare costs may be higher than average based on their residence. The index can jumpstart an individual’s thinking about expectations for his or her version of an ideal retirement, and then helps them approach their work with an advisor as a collaborative process that allows them to create a plan that will help them to work toward that ideal retirement outcome.
The Complexity of the Retirement Landscape
The findings from this year’s study reinforce the complexity of the retirement landscape, as it reveals that every state has its strengths and weaknesses. For example, Virginia ranked No. 1 driven by strong metrics for its residents’ financial wellbeing, as measured by key indicators including cost of living, median household income and private sector retirement assets. Virginia also performs well on certain quality of life measures including relatively low crime rates, manageable commutes and mild weather. Yet, even this top-ranked state has its challenges, with relatively high housing and health care costs.
At the same time, even some of the lowest ranking states in the survey, such as New York and New Jersey, which were weighed down by very high housing costs and cost of living, had certain clear strengths, such as strong health care systems and good employment opportunities.
Moreover, states that are often synonymous in the public’s mind with comfortable retirement, including Florida and Arizona, actually ranked relatively low in the index due to these state’s economic challenges, which may be a lingering effect of the housing downturn.
These findings have important implications for individuals, retirement planning professionals and the states alike. For the individual looking ahead to retirement, it is critical that he or she take a step back and look at the full range of issues that will impact a post-retirement life and lifestyle. This means more than just having a strong financial plan in place – although that is certainly crucial. It means identifying individual goals and needs for the long-term and making choices about work, housing and even the community in which he or she chooses to live in. Today’s financial advisors are increasingly dedicated to that kind of goal-oriented planning and people may benefit greatly from that kind of professional guidance.
At the state level, this survey should be seen as a call to action. Every state in the country has areas that could be improved to create a truly robust retirement environment for the tens of millions of Americans who will retire in the coming years. Doing so requires taking a comprehensive view of the issues ranging from tax policy to health care to housing.
Retirement is going to be an even more important issue as Americans are assuming more of the responsibility in preparing for that stage of their life. And while this index helps highlight key aspects that affect retirement in each state, it is one of many tools available to those who are planning their retirement. Working with a trusted financial advisor can provide valuable insights and provide a more objective view of the landscape ahead. Understanding the big picture – from where to live to how you save and invest – and then planning for a specific goal can contribute to better outcomes for the millions of Americans who will are planning for the golden years of their lives.
David Reich is executive vice president at LPL Financial and head of Retirement Partners.