Cost of Living

Cost of Living is, of course, only one aspect of deciding where to live…. but a very important one for most Americans and certainly retirees. Other considerations are quality of life issues, health, and personal preferences. In this section, we are going to look at just Cost of Living.

The approach we will take is to select a US city and compare cost of living to a foreign city. Before doing that however, we will examine RELATIVE cost of living among US cities. We will show you some tools that you can use to compare the costs of where you currently live to the selected US city, and then make the final comparison to the foreign city by a simple percentage calculation.

According to PEW research, $70,000 is the median family annual income that Americans say is necessary for a family of four to live a middle-class lifestyle in their communities. Retirees often are a family of two or perhaps just one and needs / expenditure patterns are different in retirement than during work life. For puposes of simplicity, however, we will construct a typical budget using the PEW number. Again, you can make your own adjustments with some simple math.

relative costs of living - comparing two U.S. cities

Let's look at RELATIVE cost of living information for two US cities: Chicago and Houston

Definition of terms:

• Overall - The total of all the cost of living categories weighted subjectively as follows: housing (30%), food and groceries (15%), transportation (10%), utilities (6%), health care (7%), and miscellaneous expenses such as clothing, services, and entertainment (32%).
• Health - The average cost of health care calculated using the standard daily rate for a hospital room, and the costs of a doctor's office visit and a dental checkup.
• Housing - The average cost of an area's housing, which includes mortgage payments, apartment rents, and property tax.
• Utilities - The average cost of heating or cooling a typical residence for the area, including electricity and natural gas.
• Transportation - The average cost of gasoline, car insurance and maintenance expenses, and mass transit fare for the area. The cost of the vehicle and any vehicle registration and license taxes are not included.
• Miscellaneous - The cost index of those goods and services not included in the other cost of living categories, including clothing, restaurants, repairs, entertainment, and other services.
• Data last updated 10/2007.
• State and local taxes are not included in any category.

The bestplaces website provides a calculator you can use to produce a similar graphic for cities of your choice.

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If you want to look at a second source of information, there is another calculator available from the Council for Community and Economic Research -or- C2ER. The C2ER provided ACCRA Cost of Living Index, the most reliable source of city-to-city comparisons of key consumer costs available anywhere shows that Houston's living costs for professional and managerial households in the top income quintile are 13 percent below the average for 311 urban areas nationwide and 24 percent below the average for 24 metro areas with populations of more than 2 million.

+ show me additional details of how the cost of living in Houston compares to nationwide averages:

• Houston's housing costs are 28 percent below the nationwide average and 48 percent below the large-metro average.
• Houston has the lowest housing prices among these 24 large metros.
• Houston’s grocery prices are 25 percent below the major metro average, the lowest within this group.
• Utility costs in Houston are 4 percent below the major metro average.
• Transportation costs are 6 percent below the average.
• Healthcare costs are 9 percent below the average.
• Costs for miscellaneous goods and services in Houston are 13 percent below the average.

Using the ACCRA data calculator, we can determine how cost of living in Houston compares to other cities, not just Chicago.

+ show me additional details of how the cost of living in Houston in comparison to other US cities:

Los Angeles	54.7%	Above average
New York	48.0%	Above average
Boston	34.2%	Above average
Washington, D.C.	33.6%	Above average
Miami	16.0%	Above average
Denver	4.7%	Above average
Phoenix	4.0%	Above average
Atlanta	3.1%	Below average
Dallas	6.3%	Below average
Houston	13.0%	Below average

Note: C2ER is a membership organization created in 1961 to promote excellence in community and economic research by working to improve data availability, enhance data quality, and foster learning about regional economic analytic methods. Members of C2ER are professionals in the U.S. and Canada serving a variety of organizations including Chambers of Commerce, Economic Development Organizations, Government Agencies, Universities, Utility Companies, Workforce Development Boards, Consultants and data providers. C2ER is located on George Mason University's Arlington campus.

comparing costs to a city in latin america

Next, let's compare REPRESENTATIVE monthly cost of living information in Houston to one city in Latin America - Cochabamba, Bolivia - to see how costs can be eliminated or reduced:

+ show me the Retirement Budget Worksheet MONTHLY view

.	Retirement Budget Worksheet
.	.
.	The worksheet below can give you a rough idea of how much income you’ll need in retirement and a comparison of living in different cities
.	Note that your expenses in retirement will likely be different from current expenses since your habits and routines are likely to change.
.	.
.	Category or Description	Houston	Cochabamba	Percent
.	.	Monthly	Monthly	Cochabamba
.	.	Amount	Amount	vs Houston
.
.	Income	.	.	.
1	Social Security
2	Pension(s)
3	Investments
4	Other sources (rentals, etc.)
5	Total income (add lines 1 through 4)	$5,833	$5,833	100%
.	Regular expenses
6	Mortgage or rent	$800	$200	25%
7	Utilities (Water, sewer, garbage, electricity, natural gas)	$133	$0	0%
8	Phone (Fixed line and cellular)	$50	$50	100%
9	Cable TV	$40	$40	100%
10	Broadband internet	$40	$50	125%
11	Food and household supplies	$400	$100	25%
12	Dining out	$200	$100	50%
13	Entertainment (Movies, theater, etc.)	$60	$20	33%
14	Transportation (including gas and maintenance)	$300	$50	17%
15	Memberships and subscriptions	$30	$15	50%
16	Health insurance premiums	$750	$65	9%
17	Other insurance premiums	$90	$15	17%
18	Other regular expenses (e.g. lawn care, home cleaning)	$75	$20	27%
19	Minimum payment on credit card debt (largely interest)	$89	$89	100%
20	Total regular expenses (add lines 6 through 19)	$3,057	$814	27%
.	Occasional expenses
21	Out-of-pocket long term care costs (medicines, etc)	$25	$15	60%
22	Out-of-pocket medical, dental, and optical costs	$100	$30	30%
23	Travel	$75	$75	100%
24	Home repairs and projects	$40	$20	50%
25	Gifts and other occasional expenses (e.g. clothing)	$100	$100	100%
26	Total occasional expenses (add lines 21 through 25)	$340	$240	71%
.	Allocations for onetime expenses expected in a typical year
27	Major gift	$17	$17	100%
28	Major home improvement or second home	$83	$83	100%
29	Replace car (Cash down payment only)	$125	$83	67%
30	Other one-time expenses	$25	$13	50%
31	Total onetime expenses (add lines 27 through 30)	$250	$196	78%
.	Taxes
32	State income taxes	$0	$0	0%
33	State property and sales taxes	$167	$0	0%
34	Federal income taxes	$2,000	$2,000	100%
35	Other taxes (incl. currency exchange & fees)	$1	$33	3333%
36	Total taxes (add lines 32 through 36)	$2,168	$2,033	94%
.	Budget Surplus or Shortfall
31	Total expenses (add lines 20, 26, 31, & 36)	$5,815	$3,283	56%
32	Total Surplus or Shortfall (subtract line 31 from line 5)	$19	$2,550	13662%
.	.
	Total cost of living excluding US taxes	$3,648	$1,283	35%

+ show me the Retirement Budget Worksheet ANNUAL view

.	Retirement Budget Worksheet
.	.
.	The worksheet below can give you a rough idea of how much income you’ll need in retirement and a comparison of living in different cities
.	Note that your expenses in retirement will likely be different from current expenses since your habits and routines are likely to change.
.	.
.	Category or Description	Houston	Cochabamba	Percent
.	.	Annual	Annual	Cochabamba
.	.	Amount	Amount	vs Houston
.
.	Income
1	Social Security
2	Pension(s)
3	Investments
4	Other sources (rentals, etc.)
5	Total income (add lines 1 through 4)	$70,000	$70,000	100%
.	Regular expenses
6	Mortgage or rent	$9,600	$2,400	25%
7	Utilities (Water, sewer, garbage, electricity, natural gas)	$1,596	$0	0%
8	Phone (Fixed line and cellular)	$600	$600	100%
9	Cable TV	$480	$480	100%
10	Broadband internet	$480	$600	125%
11	Food and household supplies	$4,800	$1,200	25%
12	Dining out	$2,400	$1,200	50%
13	Entertainment (Movies, theater, etc.)	$720	$240	33%
14	Transportation (including gas and maintenance)	$3,600	$600	17%
15	Memberships and subscriptions	$360	$180	50%
16	Health insurance premiums	$9,000	$780	9%
17	Other insurance premiums	$1,080	$180	17%
18	Other regular expenses (e.g. lawn care, home cleaning)	$900	$240	27%
19	Minimum payment on credit card debt (largely interest)	$1,068	$1,068	100%
20	Total regular expenses (add lines 6 through 19)	$36,684	$9,768	27%
.	Occasional expenses
21	Out-of-pocket long term care costs (medicines, etc)	$300	$180	60%
22	Out-of-pocket medical, dental, and optical costs	$1,200	$360	30%
23	Travel	$900	$900	100%
24	Home repairs and projects	$480	$240	50%
25	Gifts and other occasional expenses (e.g. clothing)	$1,200	$1,200	100%
26	Total occasional expenses (add lines 21 through 25)	$4,080	$2,880	71%
.	Allocations for onetime expenses expected in a typical year
27	Major gift	$200	$200	100%
28	Major home improvement or second home	$1,000	$1,000	100%
29	Replace car (Cash down payment only)	$1,500	$1,000	67%
30	Other one-time expenses	$300	$150	50%
31	Total onetime expenses (add lines 27 through 30)	$3,000	$2,350	78%
.	Taxes
32	State income taxes	$0	$0	0%
33	State property and sales taxes	$2,000	$0	0%
34	Federal income taxes	$24,000	$24,000	100%
35	Other taxes (incl. currency exchange & fees)	$12	$400	3333%
36	Total taxes (add lines 32 through 36)	$26,012	$24,400	94%
.	Budget Surplus or Shortfall
31	Total expenses (add lines 20, 26, 31, & 36)	$69,776	$39,398	56%
32	Total Surplus or Shortfall (subtract line 31 from line 5)	$224	$30,602	13662%
.	.
.	Total cost of living excluding US taxes	$43,776	$15,398	35%

summary of results

• Living in Chicago is 1.47 times more expensive than living in Houston
• Living in Houston is 2.85 times more expensive than living in Cochabamba
• Living in Chicago is 4.2 times more expensive than living in Cochabamba

the quality dimension

Of course, only looking at costs and disregarding everything else would be a mistake. There are some important quality distinctions that need to be addressed. One area that deserves special attention is the healthcare line in the budget. This topic will be dealt with elsewhere as there are quality differences, risks and options to be considered.

Let's go line by line and compare what you get for your money in each location.

Let's begin with your energy bill. Oil prices have gone up dramatically in recent years, and in the coming years will likely continue to do so.
One of the largest impacts on your energy bill is home heating and cooling. If you live in a colder climate then you are probably spending a good bit of money on heating in the winter time. If you live in the South, then you most likely spend hundred of dollars per month on air-conditioning.
Climate and personal preferences determine how large or small these costs will be. The impact of climate on heating and cooling costs can be substantial. Therefore, depending on where you choose to live, these costs can be dramatically reduced or eliminated.
In the example shown above, because of climate, these costs are eliminated. The rent for the apartment can therefore include all utilities at little risk to the owner.

UNDER DEVELOPMENT

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