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Massachusetts Tops the Nation in Retirement Savings: A Deep Dive into State-by-State Preparedness

When it comes to retirement savings, residents of Massachusetts are leading the charge, boasting the highest average retirement savings in the United States. According to an October 2024 study by DepositAccounts, the average Massachusetts household has saved $448,500 for retirement—an amount far higher than any other state.

The data, drawn from the U.S. Census Bureau’s 2022 Survey of Income and Program Participation, includes retirement account balances such as 401(k)s, IRAs, and other retirement plans. The state’s superior savings can be attributed to a combination of high income levels and state-level initiatives designed to help people save more for retirement.

In Massachusetts, workers earn an average salary of $80,330 per year, the highest in the nation, according to a study by Empower. This higher-than-average income makes it easier for residents to allocate a larger portion of their earnings toward retirement. But the state's proactive approach to supporting retirement savings plays a crucial role as well. In 2017, Massachusetts introduced the CORE program, which aims to help workers outside of the corporate world—such as those in small nonprofit organizations—build their retirement savings. By May 2024, over 200 organizations were enrolled in the program, helping many more people save for the future.

In contrast, residents in other states struggle to accumulate similar wealth for retirement. Louisiana and Mississippi, for example, have some of the lowest average retirement savings in the country, with balances of just $128,900 and $131,500, respectively. Florida, despite being a popular destination for retirees, ranks 19th with an average of $287,200 saved for retirement. While these figures provide a snapshot of how residents across the U.S. are preparing for retirement, it's important to note that averages can be skewed by a small number of individuals with exceptionally high or low balances.

To provide a broader view, here is a breakdown of the average retirement savings by state, based on the study's findings. While some states like Alaska, Delaware, and Wyoming did not have 2022 data available, a wide range of other states show considerable variation in retirement savings.

States with the Highest Average Retirement Savings

• Massachusetts: $448,500

• Hawaii: $433,700

• Maryland: $368,700

• Minnesota: $368,400

• New Jersey: $376,700

• Connecticut: $351,800

• Washington: $330,900

States with the Lowest Average Retirement Savings

• Louisiana: $128,900

• Mississippi: $131,500

• West Virginia: $174,200

• Alabama: $165,500

• New Mexico: $169,200

While the average savings can tell us a lot about retirement preparedness in each state, it doesn’t always reflect the full picture. A few high or low account balances can disproportionately affect the overall figures. Therefore, looking at the savings rate—how much of their income people are saving for retirement—can provide more useful insights.

The Importance of Savings Rate

Focusing on the amount of money in your retirement account is important, but just as crucial is understanding your savings rate—the percentage of your income that you are putting aside for retirement. Financial planners often recommend saving at least 15% of your income for retirement, including any employer contributions.

Although saving 15% might seem daunting, it’s not something you need to achieve all at once. One effective strategy is to increase your savings rate by 1% each year. This gradual approach can help you build momentum without feeling overwhelmed.

Ann Dowd, a vice president at Fidelity Investments, emphasizes that saving for retirement may feel like a mountain to climb, but breaking it down into smaller, manageable steps can lead to big results over time. "Small steps now can turn into big strides later," she said.

The Role of Cost of Living in Retirement

The amount of money you need to retire comfortably isn’t solely determined by how much you save. It also depends on where you live, as the cost of living varies significantly across the United States. For instance, the cost of retiring in Hawaii is the highest in the nation, with retirees needing about $129,296 annually to maintain a comfortable lifestyle. This is more than twice the amount needed in West Virginia, where retirees require just $58,190.

A recent GOBankingRates study analyzed the cost of retirement across states, factoring in expenses like food, shelter, healthcare, and utilities. A 20% comfort buffer was added to ensure retirees could live comfortably. This study found that the median annual cost of retirement in the U.S. is $66,870. However, there are 20 states where annual retirement expenses are below $65,000, typically in more rural areas where the cost of living is lower.

States with Lower Retirement Costs

In states where housing is more affordable and living costs are lower, retirees can manage on a smaller budget. Here’s a list of some of those states, along with the total cost of a comfortable retirement, including a 20% comfort buffer:

• Alabama: $61,176

• Arkansas: $61,454

• Georgia: $63,398

• Illinois: $64,787

• Indiana: $62,704

• Iowa: $62,565

• Kansas: $60,620

• Kentucky: $64,301

• Louisiana: $63,954

• Michigan: $63,745

• Mississippi: $61,315

• Missouri: $61,454

• Nebraska: $64,856

• New Mexico: $64,995

• Oklahoma: $59,995

• South Dakota: $64,856

• Tennessee: $62,704

• Texas: $64,162

The disparity in retirement costs across states highlights the importance of planning for both your savings rate and the living expenses in your area. The state you choose to live in during retirement will significantly impact how much money you need to set aside to enjoy a comfortable lifestyle.

Key Takeaways for Retirement Planning

Building a comfortable retirement nest egg requires more than just contributing to a 401(k) or IRA. It's essential to consider the following:

1. Focus on Your Savings Rate: Aim to save at least 15% of your income, including any employer contributions. If that’s not possible right away, start small and gradually increase your contributions over time.

2. Be Aware of Living Costs: The cost of retirement varies widely depending on where you live. States with lower costs of living will allow you to stretch your savings further, while states like Hawaii and California require much higher savings.

3. Plan for the Long Term: Retirement is a marathon, not a sprint. The earlier you start saving, the better off you will be. Even small, consistent contributions can add up significantly over time.

By adopting these strategies and understanding the unique factors that influence retirement savings, you can build a more secure financial future—no matter where you live.

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Nothing in this newsletter is financial advice. Always do your own research and think for yourself.