How Denver’s Cost of Living Will Impact Retirement

Summary:

Denver’s cost of living is about 9% higher than the national average, largely due to elevated housing prices. Retirees in Denver must account for these higher costs when planning, especially as post-retirement income typically decreases. Strategic planning can help offset these expenses and support long-term financial stability.

• Denver housing costs are 24% above the national average
• Utility and transportation costs in Denver are slightly below average
• Downsizing, relocating, or working longer can reduce financial strain
• Personalized retirement planning is key to navigating local expenses

Denver is generally recognized as having a relatively high cost of living across the many resources that track this metric.

Denver’s high cost of living has a fundamental influence on retirement planning in Denver. The more expensive it is to live somewhere, the higher the cost will be each day, month, and year to live there. That’s true while people are in the workforce, and once they retire.

Retirees tend to spend less in retirement, but also earn less. That has a complex effect on retirement planning, savings, and spending. A qualified retirement planner can help individuals and families understand how retirement and the cost of living will impact their financial position on the individual level.

For now, let’s focus on the big picture: What the cost of living in Denver is and how it can impact retirement.

What is the Cost of Living?

The cost of living in general refers to the amount of money needed to pay for necessary expenses in a given area. These expenses normally include food, rent or mortgage payments, transportation costs, and health care, among other goods and services.

As Bankrate points out, there is no official cost-of-living index published by a U.S. government agency or similar organization. However, there are several independent groups that publish cost-of-living calculators, comparison tables, and rankings.

Additionally, there is no universal agreement on exactly what constitutes the essentials in the cost of living. However, there is a general agreement that the cost of living focuses on essentials and not luxuries or discretionary purchases.

What are Cost of Living Indexes?

Using data from sources such as the U.S. Consumer Price Index, organizations like the Council for Community and Economic Research (CCER) produce lists of urban or metropolitan areas ranked by their cost of living.

The most recent publicly available data from the CCER lists the 10 most expensive and least expensive urban areas in the US, for example. While Denver generally ranks significantly higher than average on these indexes, it may be a relief to learn that it is not among the 10 highest cost-of-living areas of the country.

What is the Denver, Colorado, Cost of Living?

Calculations from PayScale, which uses CCER data among other sources, find that the overall cost of living in Denver, Colorado, is 9% higher than the national average overall. More specifically:

• Housing costs in and around Denver are 24% higher than the national average.
• Grocery costs in the Denver area are just slightly higher than the national average, at 2%.
• Utility costs in greater Denver are noticeably lower than the national average, about 11% less.
• Transportation costs for the Denver metro are 4% lower than the national average.

This more specific insight can help us build a better understanding of what makes Denver an expensive place to live compared to the national average. While most categories of essential spending are close to the average or below it, housing costs are substantially higher. That factor is mostly responsible for pushing Denver’s cost of living up.

Denver Retirement and the Cost of Living

Compared to areas with a lower cost of living, spending your retirement in Denver can lead to higher costs. It’s not a complex calculation, but it’s important to keep in mind. Higher cost of living means money won’t go as far in Denver compared to areas where basic necessities are less expensive.

Everyone’s financial situation in retirement is different. However, one rule of thumb used in general discussions of retirement planning is that retirees should expect to spend about 80% of their pre-retirement income each year. It’s fair to say that a significant number of, although certainly not all, retirees spend less after retiring.

Lower spending in retirement can mitigate the higher cost of living in Denver to an extent, although expenses will still be more than in certain other areas.

There are several options to consider that can address the cost of living in Denver for retirees.

We do not recommend or disavow any of these on a personal level without first establishing a fiduciary financial advisor relationship and learning about your personal finances, goals, and needs. However, they are worth thinking about generally in the early stages of retirement planning:

• Downsizing your home. With housing costs being especially high in Denver, moving to a smaller home can reduce the expenses associated with ownership. For some retirees, a smaller home can also be easier to navigate. This kind of move can also right-size a living environment after children grow up and move into their own homes.
• Moving to an area with a lower cost of living. Moving to a new area is an easy decision for some people and a much more difficult one for others. That said, moving to an area with a lower cost of living is one way to reduce expenses. It can make money saved and invested in retirement last longer or allow for a higher standard of living.
• Staying in the workforce for a longer period of time. Working longer allows people to both increase their maximum Social Security benefits (waiting to file until age 70 provides the highest monthly payout) and contribute more to retirement savings and investments.

Finding a Retirement Strategy that Works for You

Although general guidance is worth considering and can help to start conversations about what comes after your working years are over, your retirement isn’t an average or a median. It’s specific to you and your assets, goals, obligations, and plans for the future after leaving the workforce.

An experienced and knowledgeable retirement planner can help you develop a personalized plan for retirement that takes your specific circumstances into account. When your retirement planner is also a fiduciary, it means they are obligated by oath and by law to put your interests first.

Dechtman Wealth Management is proud to support people in Denver and across the country with fiduciary financial planning and retirement planning services. Let’s build a plan together.