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Fritz over at The Retirement Manifesto decided to rouse the collective energies of the FI community and see what if any drawdown strategies people have devised for their nest eggs. I made the Groovy contribution to this worthwhile endeavor earlier this week.
Obviously, a good drawdown strategy is one that produces a strong likelihood of a nest egg’s survival. You don’t want to hit 75 with nothing left to your name but a Social Security check.
One way to increase your nest egg’s survivability is to minimize your overall cost-of-living expenses, especially your taxes. With this is mind, then, I decided to run a little experiment. What states should one consider moving to if one wanted to give one’s nest egg some real staying power?
To arrive at this answer, I based my experiment on three factors: pensions, education, and cost-of-living. Here we go.
Look for States with Adequately Funded Pension Systems
Illinois made the news again this week. Things are so bad fiscally, Springfield may have to shutdown the lottery. And although the state has the lowest credit rating in the country, and has over $13 billion in unpaid bills, the real fiscal nightmare is the state’s flagging pension system. Illinois currently has a $130 billion shortfall in its pension system. Ouch!
At some point in the future, Illinois’s pension crisis is going to blow up. And when that happens, the taxpayers are going to get slammed.
Sadly, it’s not just Illinois that has pension problems. New Jersey, Kentucky, Connecticut, Pennsylvania, and South Carolina all have grossly underfunded pension systems.
So here’s the moral of the story: Get out of Illinois. And if you want to make sure your nest egg outlives you, seriously consider moving to a state with a sound pension system. Here, then, are the 10 states with the best funded pension systems.
Note: In this experiment, states with the best results get the highest Groovy score. States that finish first, for instance, get a Groovy score of 10. States that finish tenth get a Groovy score of 1. When we’re done, we’ll add up all the Groovy scores and the state with the highest total wins.
| State | Percentage of Pension Obligations Funded | Groovy Score |
|---|---|---|
| South Dakota | 100% | 10 |
| Wisconsin | 99.9% | 9 |
| Washington | 98.7% | 8 |
| North Carolina | 96.0% | 7 |
| Oregon | 95.9% | 6 |
| Tennessee | 93.6% | 5 |
| Idaho | 92.7% | 4 |
| Delaware | 92.3% | 3 |
| New York | 88.3% | 2 |
| Florida | 86.6% | 1 |
Look for States that Don’t Overspend on Education
New York spends a lot on public education. According to the New York Post, its per-pupil spending is now at $21,206 annually.
Whew! With that amount of money being invested in New York’s children, you would assume that New York’s children are doing some pretty amazing things academically. After all, the national per-pupil average is a paltry $11,392.
Well, if you assumed New York is pumping out a lot of future Nobel Laureates, you’d be quite wrong. New York’s children aren’t doing anything special when it comes to academics. In fact, New York’s children score slightly below North Carolina’s children on the SAT test, and North Carolina only spends 42% of what New York spends on public education.
| State | Per-Pupil Spending | Average SAT Score |
|---|---|---|
| New York | $21,206 | 1070 |
| North Carolina | $8,917 | 1090 |
When it comes to education, try to remember Bill Murray’s great line from his motivational speech in the movie Meatballs: “It just doesn’t matter.” You can spend $50K per pupil—if the children are dullards or unmotivated, they’re not going to ace the SAT. And on the other extreme, you can give bright and motivated children nothing but home internet connections and library cards and they’ll rock the SAT. In an age of Khan Academy and edX, culture is far more pivotal to learning than money.
Since habits and discipline trump small class sizes, fancy classrooms, and well-paid teachers, look for states that spend below the national per-pupil average. States that spend above the average have little choice but to sock it to the homeowners. My aunt’s property taxes on Long Island were over $15K per year. She moved to a similar-sized home in North Carolina and now her property taxes are less than $3K per year. Over a ten year period, she’ll save more than $120K in property taxes.
Here are the ten states with the lowest per-pupil spending.
| State | Per-Pupil Spending | Groovy Score |
|---|---|---|
| Arizona | $7,461 | 10 |
| Utah | $7,711 | 9 |
| Indiana | $8,034 | 8 |
| Oklahoma | $8,043 | 7 |
| North Dakota | $8,518 | 6 |
| Mississippi | $8,779 | 5 |
| Tennessee | $8,809 | 4 |
| Texas | $8,826 | 3 |
| North Carolina | $8,917 | 2 |
| Idaho | $8,928 | 1 |
Look for States with a Low Cost-of-Living
Finally, we need to consider cost-of-living. One’s nest egg will go a lot further when one lives in a state with low food, housing, and transportation costs. Here, then, are the 10 states with the lowest cost-of-living.
| State | Cost-of-Living Index (100 = US Average) | Groovy Score |
|---|---|---|
| Mississippi | 84.4 | 10 |
| Indiana | 87.2 | 9 |
| Idaho | 87.4 | 8 |
| Oklahoma | 87.9 | 7 |
| Arkansas | 88.1 | 6 |
| Kansas | 89,7 | 5 |
| Tennessee | 89.9 | 4 |
| Missouri | 89.9 | 3 |
| Texas | 89.9 | 2 |
| Kentucky | 90.3 | 1 |
The Results
Based on the Groovy criteria, here are the states that would be kindest to your nest egg.
| State | Final Groovy Score (Sum of All Criterion Scores Plus One Point for Each Top 10 Appearance) |
|---|---|
| Indiana | 19 |
| Mississippi | 17 |
| Tennessee | 16 |
| Idaho | 16 |
| Oklahoma | 16 |
Talking Trash with Mr. Groovy
Okay, groovy freedomists, that’s all I got. If the thought of moving to Mississippi gets you down, don’t be so glum. I got a perfect way to cheer you up. Another episode of Talking Trash with Mr. Groovy. Have a wonderful weekend. Peace.
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