Cost of Living: How Far Will Your Money Go?

The cost of living in the US varies, depending largely on where you live.  A new study from the non-profit Tax Foundation (https://taxfoundation.org/real-value-100-state-2017/) shows just how big the impact in variations can be from state to state.  Main drivers include the cost of housing, groceries, insurance, transportation, healthcare, and basic services.

Using data obtained from the Bureau of Economic Analysis, the study maps the real value of $100 in each state.  The cost of the exact same goods and services can cost much less in states like Ohio and Kentucky as compared to higher priced states like Maryland and New Jersey. For example, $100 in Ohio will buy you goods and services that would cost $112.11 in states at the national average price level while the same $100 in the District of Columbia buys you only $85.47 of the national average.

Source: Tax Foundation/U.S. Bureau of Economic Analysis

See ranking of all 50 states:   https://taxfoundation.org/real-value-100-state-2017/#table1

The study also notes that regional price differences can be very large.  For example, real purchasing power is 23% greater in West Virginia than in bordering Maryland.  By this measure, $100,000 in after-tax income in West Virginia buys you the same standard of living as someone netting $123,000 in Maryland.  But often times (although not always) employers will pay a compensating differential in places with high costs of living.  Think New York City where employers pay higher salaries for the same jobs in order to make up for the lower purchasing power.

Why is cost of living important?  If you live in an expensive city, it may make sense to do so while working.  But after retiring, a smaller city with a lower cost of living will help your money go farther.  Where can you move to stretch your dollars?  If interested, this map can give you a start.

Important Note: This material is for informational purposes only and is not intended to serve as a substitute for personalized investment advice or as a recommendation or solicitation of any particular security, strategy or investment product. Madison Wealth Management does not provide tax, legal or accounting advice. © Madison Wealth Management 2017