The State of Retirement Planning

D.C. residents will have cushier retirements than those in Montana, a study predicts.

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People who live in U.S. News's hometown of Washington have the best shot at retirement security, according to a new study. Yes, the cost of living is among the highest in the country. But workers in the District of Columbia are much more likely to have federal government pension plans and retiree health insurance that make retirement planning much easier.

The study by Ernst & Young and Americans for Secure Retirement is the latest in a series of studies predicting that Americans will be woefully unprepared for retirement. While almost 60 percent of new middle-class retirees can expect to outlive their financial assets if they attempt to maintain their preretirement standard of living, Ernst & Young calculated, the probability of outliving one's assets ranges from 39 percent in the District of Columbia to 72 percent in Montana.

Other places where retirees are relatively unlikely to outlive their assets are Rhode Island, Utah, and New York. Wyoming and South Dakota are among the locales where more citizens are likely to run out of money. Ernst & Young attributes the geographic differences to variation in employer pension plan coverage, income distribution, and demographics.

Of course, you can always reduce your retirement consumption in fairly pain-free ways by downsizing your house or car, moving to an area with a lower cost of living, and curbing nonessential expenses. Ernst and Young calculated that the standard of living reduction necessary for new retirees to slim the likelihood of outliving their financial assets ranges from 7 percent in the District of Columbia to 35 percent in Montana (when calculated with a 5 percent failure rate).

The take-home message from Tom Neubig, Ernst & Young's national director of quantitative economics and statistics: "Having a guaranteed source of income other than Social Security does make retirees better prepared for retirement." That advice holds even if you spend larger amounts during your working years on housing and transportation in an expensive state.

You can check out Ernst & Young's dire retirement preparedness statistics about your state here.