How Long Will $1,000,000 Last in Retirement in Various States vs. a $1,000,000 Income Annuity?
Planning for retirement can be one of the most challenging aspects of financial life. One million dollars may seem like a significant sum, but its longevity depends largely on where you live and how you structure your retirement income. In this article, we’ll explore how long $1,000,000 in cash will last in various states compared to a $1,000,000 income annuity for a 65-year-old retiree.
Understanding the Cost of Living Across States
The cost of living varies drastically across the U.S., affecting how long your savings can stretch. High-cost states like Hawaii and California have significantly higher annual expenses compared to more affordable states like Mississippi and West Virginia. Housing, groceries, utilities, healthcare, and transportation all factor into these differences, making some states more expensive for retirees than others.
Here’s a look at the annual cost of living in some key states:
| State | Annual Expenditures | How Long $1,000,000 Lasts |
|---|---|---|
| Hawaii | $103,610 | 9 years, 7 months, 25 days |
| Massachusetts | $85,571 | 11 years, 8 months, 9 days |
| California | $78,864 | 12 years, 8 months, 5 days |
| Mississippi | $50,128 | 19 years, 11 months, 12 days |
| West Virginia | $49,261 | 20 years, 3 months, 19 days |
Source: GoBankingRates
Now, let’s compare how long your savings would last in these states with how much you could receive from a $1,000,000 income annuity.
What Is a $1,000,000 Income Annuity?
An income annuity is a financial product that provides guaranteed monthly payments in exchange for a lump sum of money, like $1,000,000. The payments can be structured in various ways, such as lifetime payments (which last until death) or period certain payments (which last for a fixed number of years).
For a 65-year-old retiree, here’s what $1,000,000 can provide in terms of monthly income:
- Lifetime annuity (single): $6,529.02 per month
- Lifetime annuity (joint): $5,491.75 per month
- 10-year period certain: $10,401.63 per month
- 15-year period certain: $7,839.78 per month
- 20-year period certain: $6,503.96 per month
Comparing Cash Savings vs. Annuity Payouts
1. Hawaii: High Cost of Living
- Annual Expenses: $103,610
- How Long $1,000,000 in Cash Lasts: 9 years, 7 months, 25 days
A retiree in Hawaii with $1,000,000 in savings would exhaust their funds in less than 10 years. By contrast, a lifetime annuity for a 65-year-old single retiree would provide $6,529.02 monthly, or $78,348.24 annually. This falls short of covering Hawaii’s high annual expenses but offers the peace of mind of guaranteed income for life.
However, if you opt for a 10-year period certain annuity, you would receive $10,401.63 monthly, which totals $124,819.56 per year—enough to comfortably cover your living expenses in Hawaii. The trade-off is that these payments would stop after 10 years.
2. Massachusetts: Moderate to High Costs
- Annual Expenses: $85,571
- How Long $1,000,000 in Cash Lasts: 11 years, 8 months, 9 days
In Massachusetts, $1,000,000 in savings would last about 11.5 years. A single lifetime annuity would pay $6,529.02 monthly ($78,348.24 annually), leaving a gap of just over $7,200 per year. However, a 15-year period certain annuity paying $7,839.78 monthly would generate $94,077.36 per year, comfortably covering living expenses for 15 years.
3. California: High Cost of Living
- Annual Expenses: $78,864
- How Long $1,000,000 in Cash Lasts: 12 years, 8 months, 5 days
In California, a retiree could stretch their $1,000,000 savings for over 12 years. With a single lifetime annuity of $6,529.02 per month, you’d receive $78,348.24 annually—just shy of California’s cost of living. While the lifetime annuity almost covers the cost, a 20-year period certain annuity at $6,503.96 monthly ($78,047.52 annually) would match the expenses more closely for 20 years.
4. Mississippi: Low Cost of Living
- Annual Expenses: $50,128
- How Long $1,000,000 in Cash Lasts: 19 years, 11 months, 12 days
In Mississippi, $1,000,000 stretches nearly 20 years due to the low cost of living. A single lifetime annuity of $6,529.02 monthly would provide $78,348.24 per year—significantly exceeding the state’s annual expenses, allowing for substantial leftover income. Even a 15-year period certain annuity would comfortably cover expenses, providing $94,077.36 annually for 15 years.
5. West Virginia: Low Cost of Living
- Annual Expenses: $49,261
- How Long $1,000,000 in Cash Lasts: 20 years, 3 months, 19 days
In West Virginia, $1,000,000 in cash savings would last just over 20 years. A single lifetime annuity of $6,529.02 monthly would provide $78,348.24 annually, comfortably exceeding the state’s average annual expenses by almost $30,000 per year.
Which Is Better: Cash or Annuity?
The choice between cash savings and an income annuity depends on personal circumstances and the cost of living in your retirement location. While cash savings can offer flexibility, they are finite and can be depleted, especially in states with high living expenses like Hawaii or California. In contrast, a lifetime annuity provides guaranteed income for life, though it may not always cover every expense in high-cost states.
For retirees in lower-cost states like Mississippi or West Virginia, annuities often generate more income than necessary, providing a financial cushion. In higher-cost states, retirees may need to consider period certain annuities, which offer higher payouts over a fixed period, or a combination of savings and annuities.
Conclusion
When planning for retirement, it’s important to consider both the cost of living in your state and the potential benefits of an income annuity. A $1,000,000 savings will last a different amount of time depending on where you live, while a $1,000,000 annuity provides a stable, predictable income that can help you plan more effectively for the long term.
Consult with a financial advisor to determine which option is best for your retirement goals and lifestyle.