Whether you’re already in Colorado or you’re considering relocating, it’s no secret that Colorado is a nice place to retire. The mountains are an obvious attraction, and metropolitan areas offer services like healthcare and retail outlets that help you meet essential needs. Plus, you get cultural attractions and entertainment options that allow you to give your knees a break.
As with any financial question, the amount you need to retire comfortably depends on where you live and how you spend your money. The sections below detail some of the most important considerations for anybody planning for retirement.
Colorado Retiree Taxes
Retirees in Colorado can exclude some of their retirement income from Colorado state income tax calculations. Those age 55 and over as well as beneficiaries getting retirement benefits may qualify for the Pension and Annuity Subtraction. The maximum limit is $20,000 unless you’re at least 65, when the maximum becomes $24,000.
Colorado’s state income tax rate is relatively low, but every little bit counts. For more details, ask your CPA and visit the Colorado Department of Revenue’s Information for Retirees page.
How Much Money Do You Need?
There’s simply no way to capture everybody’s financial situation in one article. But we can use data from several sources and some basic calculations to help you estimate your needs.
Note that if major events arise, the numbers can change drastically. Examples include substantial healthcare expenses, poor investment results, and bad timing. It’s best to complete a detailed financial plan that addresses multiple what-if scenarios, and you’re welcome to contact me for that type of analysis.
Your Income
When you’re no longer working, you’re often on a fixed income—so it’s critical to understand what resources you have available. Typical income sources include Social Security, pensions, and withdrawals from your retirement accounts.
The national average Social Security retirement benefit is around $1,543. For retired workers in Colorado, the amount is slightly higher, at $1,569. That’s just over $18,000 annually, and if you’re married, your household might receive more than that (the reported average is $2,596). Your benefit depends on your earnings history, so you might get substantially more or less.
Here are some examples of how to calculate how much you might need for retirement in Colorado. Enter your own numbers in a calculator for more details: See how much money you need.
Single Example:
Let’s assume a single person gets $18,000 per year from Social Security. That’s $1,500 per month toward a base need of $3,433 per month. The remaining $1,933 would typically come from your retirement savings in 401(k), 403(b), IRA, taxable, and other accounts. To generate a monthly income of $1,933, you might want to have retirement assets of at least $580,000 (if the assets are in pre-tax accounts, you’d likely need substantially more). Some people do it on less, and some need more—it depends on future events that we cannot predict and many other factors.
Couple Example:
Assume a couple has Social Security retirement benefits of $31,152 per year (some will have substantially more, while others get less). That’s $2,596 toward an estimated base need of $4,644, leaving a gap of $2,048 each month. To fill that gap, you might want at least $614,400 of retirement assets set aside. Again, we’re ignoring major healthcare events, taxes, and other factors that could require more than that.
The examples above rely on the 4% rule of thumb, which attempts to provide an inflation-adjusted retirement income for at least 25 years or so. But you might want to use more conservative numbers if you’re not confident that the 4% rule will hold up, given current market and economic conditions. A 3% spending rate would be safer and would require more assets. There’s no guarantee that those approaches will be successful.
Routine Spending: Food, Transportation, & More
How much does it cost to simply live in Colorado as a retiree? It may help to start with basic expenses like food, automobile expenses, and taxes from the Economic Policy Institute.
Metro areas: Assuming a couple with no children, their numbers point to monthly expenses of $4,664 in the Denver metropolitan area. But it’s critical to refine the numbers for a more accurate estimate. For example, that figure assumes a monthly housing cost of only $1,127. For a single person in the metro area, it’s more like $3,433.
Rural areas: Whether you’re single or coupled, living in rural areas of the state could reduce your costs by about $400 per month (that’s less true—or completely opposite—in some of the most desirable areas in the state).
Housing Expenses
Housing may be one of your biggest expenses in retirement, and it’s crucial to understand what that expense might look like for as long as you live at home.
Important: With people moving to Colorado at a rapid rate, these numbers may increase, and you may need to pay more. This is based on historical data and aggregate numbers, so you could easily pay more (and you might pay less).
The U.S. Census Bureau reports some helpful tidbits about housing costs in Colorado. These numbers are the median result, or the middle of all responses:
- Owner’s housing costs (mortgage, insurance, real estate taxes, HOA dues, etc.): $1,744 per month
- Owner’s housing costs with no mortgage: $474 per month
- Rent: $1,219 per month
- Median owner-occupied home price: $343,300
I’ve spoken with clients in other areas who pay more than that total housing amount each month just for property taxes. That said, retirees may see plenty of expensive housing in Colorado.
Home Prices
Colorado home prices have increased substantially over the years, and the COVID-19 pandemic made it easier for people to work remotely and move to Colorado. That helped to boost home prices, which can be bittersweet. Even if your home gained value, selling means you need to find somewhere else to live—and your next home will also be more expensive.
Zillow tracks and reports housing data nationwide:
- Colorado middle-market home: $449,182
Naturally, the amount you pay depends on your location and other factors. Metro areas, resort areas, and remote locales may be among the most expensive properties. Rural areas can often be less costly. When I moved from Denver to Montrose, the difference was notable, and money went farther in Montrose at that time. But homes are in demand all over the state, resulting in rising costs at the time of this writing.
Long-Term Care
Long-term care is one of the most vexing issues for retirees. You don’t know if you’ll need care, and you don’t know exactly what level of care you’ll need (or for how long). It’s best to assume that you’ll need to pay for care at some point.
Genworth publishes data on the cost of care across the U.S., and care in Colorado is not cheap when compared to national averages. That’s important to know. And if you end up needing high levels of care (memory care with 24-hour monitoring, for example, due to cognitive decline or Alzheimers), it can get substantially more expensive.
Making it Work
Retirement can seem insurmountable, especially when you look closely at the numbers. But people can and do retire with less than the amounts shown above. Ultimately, it all comes down to your resources (income and assets) and your expenses. If you can make those work together, you can retire comfortably in Colorado or virtually anywhere. Make a plan, run some what-if scenarios, and choose the best course of action with the information available.