Cost of living in retirement: how to build a real comparison

Most retirement relocation comparisons start with taxes and stop there. The result is a decision made on an incomplete picture.

Taxes matter — sometimes significantly. But a state with no income tax can have high property taxes, high homeowners insurance, and high everyday costs. A state with a moderate income tax but low housing costs and low insurance premiums can end up being less expensive overall. The only way to know is to build a comparison that reflects what you’d actually spend.

This guide is about doing that.

Why cost-of-living indices are a starting point, not an answer

Aggregate cost-of-living indices — the kind that say City A costs 12% more than City B — are useful for a rough orientation. They’re built from weighted averages of housing, food, healthcare, transportation, and other categories.

The problem is that those weights may not reflect your retirement spending pattern. If you’ve paid off your mortgage and plan to rent, the housing weight is wrong. If you have a chronic condition that generates significant healthcare spending, that category deserves more weight. If you drive infrequently, transportation matters less.

The more useful exercise is building your own comparison from your actual anticipated budget.

The categories that vary most by location

Housing. The largest variable in most cost-of-living comparisons. Median home prices range from under $200,000 in parts of the Midwest and South to over $700,000 in coastal metros. Property taxes add to the ongoing cost — and vary significantly even within states. Rent for comparable apartments can differ by 3-4x between markets.

Homeowners and renters insurance. This has become a significant variable in recent years, particularly in states with elevated natural disaster risk. Homeowners insurance premiums in Florida, California, Louisiana, and parts of Texas have risen dramatically due to hurricane, wildfire, and flood exposure. In some coastal Florida counties, annual homeowners insurance premiums now exceed $10,000-$15,000 on a mid-priced home. This cost is rarely included in standard cost-of-living comparisons and can be a significant surprise.

Healthcare out-of-pocket costs. Medicare provides a baseline, but premiums, copays, and out-of-pocket costs vary somewhat by location (particularly for Medicare Advantage plans, whose networks and cost-sharing structures vary by market). More significantly, the cost of healthcare services outside Medicare — dental, vision, hearing — varies by local market.

Groceries and everyday goods. Less variable than housing, but not negligible. Grocery costs in Hawaii or New York City are meaningfully higher than in the Midwest. Sales tax on everyday purchases adds to the picture in high-tax states.

Utilities. Driven partly by climate (heating and cooling costs), partly by local energy prices. Extreme climates — very hot summers, very cold winters — add utility costs that moderate climates don’t. Desert locations with high summer air conditioning loads can have surprisingly high electricity bills.

Services. Lawn care, house cleaning, home maintenance, and local services vary by labor costs in a given market. Urban markets with high labor costs run higher than rural markets. States with high minimum wages see this more acutely.

Transportation. If you’re moving from a car-dependent suburb to a walkable urban area, transportation costs may drop. The reverse is also true. Gas prices vary regionally.

Building a budget-based comparison

The most reliable approach is to take your current household budget — broken into actual categories — and research what each category would cost in the comparison location.

A rough framework for the categories worth modeling:

What the comparison tends to reveal

A few patterns show up consistently when people build honest comparisons:

No-income-tax states often make up the difference elsewhere. Texas has no income tax but among the highest property tax rates in the country, plus high homeowners insurance in many areas. The net financial benefit for a retiree with modest investment income but a valuable home may be much smaller than the headline suggests.

Low-cost-of-living regions require healthcare proximity tradeoffs. Some of the most affordable retirement markets are in smaller cities or rural areas with lower housing costs. The tradeoff is often healthcare — fewer specialists, longer travel to major medical centers, Medicare Advantage networks with fewer options.

The comparison looks different depending on income level. A retiree drawing heavily from traditional IRAs benefits more from income tax savings than one living primarily on Social Security and a small pension. The tax picture is highly income-structure-dependent; the comparison needs to use your actual income mix.

Insurance is increasingly the variable that changes comparisons. In states facing elevated natural disaster risk, the cost and availability of homeowners insurance has become a genuine financial planning issue — not just a line item. Some insurers have exited certain markets entirely. Before finalizing a location decision in a high-risk area, getting actual insurance quotes from multiple carriers is essential.

Tools worth using

• Numbeo (numbeo.com) — crowdsourced cost-of-living data by city, useful for comparing everyday costs
• NerdWallet’s cost-of-living calculator (nerdwallet.com) — adjusts a current budget to estimated costs in a comparison city
• BLS Consumer Expenditure Survey (bls.gov/cex) — national and regional data on actual household spending patterns
• Local Reddit and Facebook groups — real residents answering questions about what utilities, insurance, and everyday costs actually run in a specific area. Imprecise but grounded in lived experience

Also useful: State taxes in retirement: the full picture beyond “no income tax” and The real cost of relocating in retirement.