3 things that retirees should keep in mind amid higher inflation

Silvur CEO Rhian Horgan joins Yahoo Finance Live to discuss how inflation impacts retirement planning and savings, how state taxes implicate social security & 401k distributions, and the importance of making the right decisions when retirement ready.

Video transcript

ALEXIS CHRISTOFOROUS: Want to pivot to retirement now and inflation. Because even though inflation is high, there are some things retirees can do to combat those higher prices. As part of our retirement segment brought to you by Fidelity Investments, I'm joined now by Rhian Horgan, Founder and CEO of Kinder Silver.

Rhian, thanks so much for being with us. You say the number one thing retirees can do is understand the cost of living where they live. Talk to us about that.

RHIAN HORGAN: Well, Alexis, I think for the last week or two, all eyes have been on inflation. And I think if you're a retiree on a fixed budget, you're certainly concerned about what inflation means for you. I think one of the most surprising things for retirees is the realization that where they live in retirement can actually be the biggest driver of their financial security.

I think there's three things that retirees need to know. The first is that Medicare isn't free. Parts of Medicare, are so parts a and b, are priced federally. But parts d, supplemental plans and Medicare Advantage, are actually priced based on where you live. So let's take a look at Florida and Tennessee, which are the two top states that our customers want to retire in.

The average annual cost of a fully loaded Medicare plan in Florida is about $8,400 a year. In Tennessee, instead, it's about $6,200 a year-- so a little bit over a $2,000 difference per year. If you're married and you think about living 25 years in retirement, that actually adds up to $100,000 difference of savings of your health care costs in Tennessee.

Second thing that retirees needs to know is it's all about taxes. And again, I think there's common knowledge about zero state tax states and a lot of retirees living there. And the reason for that, really, is that most retirees today have their assets held in 401(k)s. And so when they start taking money out of their 401(k)s, whether that savings is taxed the state level can have a big difference.

The third thing to know for retirees, just really understanding the general cost of living. So when we think about price of gas, food, home, your location really matters. So on average, a Tennessee resident spends $700 less per month than a resident of Florida. So that's a 10% difference. That's $700 a month when you add it up over the year.

And you think about it over a 25-year time period, adds up to more than $200,000 in savings over the course of retirement. So if we take the fact that, for example, health care is much more expensive in Florida, even though both Florida and Tennessee have no state tax, when you factor in higher cost of living in Florida, it may not actually be the most cost efficient retirement destination. In fact, your money could last up to 15 or 16 years longer if you retired in Tennessee rather than retiring in Florida.

ALEXIS CHRISTOFOROUS: All right, so I think what you're proving here is that you do a little homework, it can really literally pay off in the end. So for people who are soon to be retired, thinking about which state to do that in, what's the best way they can gather some of this very important information so they can make a really informed decision?

RHIAN HORGAN: Yeah, so the first thing is to really start with, you know, personally, where are you thinking about living? And I think a lot of soon to be retirees have very strong views on where they want to live. It might be around family, might be around weather. And so it's really kind of setting out your lifestyle goals around where you want to live.

The second thing you want to do is now actually put the numbers against that. And that's where companies like mine, like Silver, really are taking kind of where you want to live in retirement and we're helping you understand what these costs are-- so really important to understand what that Medicare cost is going to look like on a zip code basis, to understand whether or not you're going to be taxed on your retirement savings, and, again, to really understand cost of living.

These are things that you can control. I think the hard thing with this discussion around kind of broad market inflation today is that it really is out of the control of the consumer. But where you choose to live is your decision. And I think that's probably the most important thing I would say is take charge. Where you choose to live in retirement could actually be that biggest financial decision you make.

ALEXIS CHRISTOFOROUS: All right. We understand that's number one. Give me the number two thing people can do right now in retirement to preserve their nest egg, especially in this environment where interest rates are going to be going up and we have high inflation.

RHIAN HORGAN: Second thing I'd say is really be thoughtful about your Social Security election. So Social Security is most Americans' largest retirement asset. It's not a throw away government benefit, it's likely your largest retirement income. And Social Security actually has an annual cost of living adjustment built into it.

So you can elect your Social Security between the age of 62 and 70. So in an environment where we're seeing higher inflation, really thinking about delaying that election could actually result in pretty significant windfalls for you later on in life.