What Does It Cost to Retire in Alaska?
For many Americans, the thought of retirement is synonymous with sunny locales, golf courses, beaches and tennis courts. While hordes of retirees flock to places such as Florida, Arizona and Las Vegas, a growing contingency is heading in the opposite direction. These trailblazers are living out their golden years in America's final frontier, Alaska. Not many rounds of golf get played up there, and while Alaska offers more miles of shoreline than any other state, the water is way too cold for a swim, even with a wetsuit. However, retirees seeking breathtaking scenery, skiing, snowmobiling, and world-class hiking and biking cannot find a better destination than Alaska.
Another benefit of Alaska is that, unlike Florida, the state is not a one-trick pony. While Florida's weather is pretty homogeneous, and most of the state's retirement communities look strikingly similar, Alaska is a model of diversity, both in lifestyle and climate. For example, places such as Fairbanks freeze for months on end during the winter, but in a traditional summer, the city gets very warm, with lots of sunshine. Coastal communities such as Kenai offer stunning shorelines, while the state's largest city, Anchorage, and capital, Juneau, provide the normal amenities of mid-sized metropolitan areas.
Retirees considering Alaska have many things to think about before taking the plunge, but one of the biggest is cost. Before making a move this large, it is prudent to ensure finances are squared away and that an Alaskan retirement is financially feasible. The following analysis details how much money a retiree should expect to need if retiring to Alaska.Housing Costs
As one might expect in such a vast, heterogeneous state, housing costs in Alaska occupy a broad gamut. Small apartments in certain towns rent for as little as $500 per month, while houses on the coast in resort communities cost several thousand. As of 2015, the average rent in Anchorage is $1,410, with one-bedroom apartments renting for an average of $1,050. Smaller towns, such as Kenai, are more affordable. The beach community offers an average rent of $837. If they are willing to settle for a small, one-bedroom apartment, retirees can find suitable housing in most parts of Alaska for $1,000 per month.Utility Costs
Particularly if coming from mild weather states, Alaskan retirees need to be prepared for exorbitant utility bills. The state gets very cold and stays that way for many months; as a result, heating a home to a comfortable level is not cheap. The average monthly utility bill in Alaska is $200, but utility costs are cyclical rather than constant. Winter heating bills can be $350 or more, while many parts of the state get some relief during the summer.Food Costs
Everything from milk and bread to beef and poultry costs more in Alaska than just about anywhere else in the United States. This is a function of cost of goods sold (COGS). Alaska is a long way from most distribution centers. It costs a lot to transport food there, and this cost gets passed to consumers. A monthly food expense of $500 is reasonable for those who mostly cook at home, but regular dining out can increase this cost quickly.Transportation Costs
Like food, gas is expensive in Alaska, mostly due to high transportation costs. The price per gallon runs 30 to 40% higher than the national average. On the bright side, auto insurance is inexpensive for Alaska residents, with full coverage premiums often coming in at under $100 per month. For someone driving average miles, a monthly transportation budget of $300 pays for auto insurance and gas; this leaves room for scheduled car maintenance and unexpected events.Health Care Costs
As of 2015, the monthly premium for Medicare Part B is $104.90. However, Medicare does not cover everything, which makes it smart to build extra money into a monthly budget to cover medical expenses. A total of $300 is pretty reasonable, though it is basically impossible to overprepare where medical events are concerned, particularly during retirement age when health problems are, unfortunately, more common.Total Costs
Adding the totals from above, and then adding another $300 per month for incidentals and sundries, as everyone needs toilet paper, yields a monthly income of $2,300 to sustain a comfortable, yet basic, retirement lifestyle in Alaska. Every retiree is unique, however, and this number could be lower or much higher based on an individual or couple's location, health and mode of living. For example, a person who enjoys fine dining and ski trips every weekend will need much more than $2,300 per month to live such a lifestyle in Alaska.How to Save
Most people fund their retirement years with a combination of Social Security and returns from private retirement accounts. As of 2015, the average monthly Social Security benefit is around $1,200 per month. For a couple, this amounts to $2,400 per month and is conceivably enough on which to retire in Alaska. A single person, by contrast, likely needs to supplement his Social Security income, either with an additional retirement fund or by taking a part-time job.
Though somewhat controversial, annuities provide retirees with a way to receive a guaranteed check each month for a fixed amount. Individuals may contribute principal to an annuity during their working years, and this money accumulates interest that is tax-deferred until they begin taking distributions.
Upon retirement, a person's annuity balance, principal and interest is amortized over the expected remainder of his life in a series of fixed, regular payments. For example, a person with a $1 million annuity balance who retires at 60 and has a life expectancy of 80 receives $50,000 per year, or $1 million divided by 20. This comes out to a little over $4,000 per month. The best part of this is, even if the person lives past 80, the checks keep coming for life. In this sense, annuities protect people who live too long the same way that life insurance protects the families of people who die too soon.
Annuities have some downfalls that are worth researching before making a decision. Their tax treatment is unfavorable compared to other long-term investment accounts, as they are taxed at ordinary income rates rather than long-term capital gains rates. Life insurance companies that sell annuities make huge commissions for doing so; these commissions eat into the investor's potential gains.