In 2012, at age 34, I quit my job in investment banking and took early retirement with a net worth of $3 million. Currently, I live in San Francisco with my wife and two young children.
But since 1977, I regularly go back and forth to Hawaii, where my parents have been retired for 15 years. They lead a simple life on a modest budget, living off their retirement savings and a government pension – thanks to the three decades they spent working in the US Foreign Service.
Seeing my parents live their dream, we want to follow in their footsteps. Our plan is to move to Hawaii by 2025. Between my parents’ experience and mine, I’ve learned a lot about the ins and outs of a Hawaii retreat.
Our consensus is that it’s a wonderful place to spend your after-work years and live the beachside dream life – although there are still a few downsides to keep in mind.
How much money do you need to retire in Hawaii?
Many financial experts suggest maintaining a 4% withdrawal rate to ensure the sustainability of your investments throughout retirement.
The median household income in Honolulu County, for example, is $88,000. If someone wanted to withdraw that $88,000 from their assets each year, they would need about $2,200,000 of investments to withdraw at a rate of 4%.
But this is just one example. The amount of money you need depends on where you would like to live, your standard of living and your expected income.
If you can live comfortably on $42,500 a year, have a pension, or file for Social Security, you may have a lower net worth and less income-generating investments at the start of your retirement journey.
The Disadvantages of Retiring to Hawaii
Before you start your beach retirement plan, beware of these three main drawbacks first:
1. High cost of housing
In June 2022, the median price of single-family homes in Honolulu was $1,050,000. Meanwhile, the median price for a condo on Oahu, which is considered a great place to retire on a budget, is currently $535,000, up 16% from June 2021.
If you want to retire in Hawaii, consider buying a small condo or renting, rather than buying a single family home. The average rent for a 594 square foot apartment is around $2,042, according to RentCafe.
2. Expensive groceries and gas
According to a 2021 report from the Missouri Economic Research and Information Center, food prices in Hawaii are the highest in the country.
For example, I paid $8.99 for a gallon of whole milk in Oahu, while in San Francisco it’s about $6. And while Hawaiian mangoes are delicious, they can cost around $6 each!
Plus, if you like to drive, Hawaii has unusually high gas prices. The average price per gallon in the state today is $5.41 and continues to rise, according to AAA, while the national average is $4.03.
3. You may feel claustrophobic
It only takes about four hours to circumnavigate Oahu’s 597 square miles. Although the island is home to approximately one million people, in my experience it may still seem small.
And with the pandemic continuing to make air and sea travel unappealing, you may feel a little stuck at times, without these options available to you.
The Benefits of Retiring to Hawaii
Yes, it is expensive. But if you’re curious about what it might be like to retire in Hawaii, here are some surprising benefits:
1. Less stress and quality health care
Hawaii was ranked second in happiness and well-being in a Healthcare company Sharecare 2021 study.
My parents worked in Washington DC, Paris, Guangzhou, Kobe, Taipei and other major cities before retiring to Honolulu. They found their Hawaiian lifestyle incredibly relaxing compared to all the other cities they lived in.
2. Top notch healthcare
The United Health Foundation also ranks Hawaii as the third healthiest state in the country. And according to US News’ list of best states for health care, Hawaii takes the top spot.
I’m not surprised. Hawaii has great weather most of the year, public beaches and parks, a variety of locally grown and raised foods, and excellent access to preventative medical and dental care.
If you are looking for a healthier and more active lifestyle, you can definitely find it in Hawaii.
3. ‘Ohana’ means family
An important part of Hawaiian culture is the care and nurturing of family and friends, or “ohana”. I have observed that almost everywhere you go, be it a restaurant or a mall, things are designed to be a family experience.
Also, it’s not uncommon to have multiple generations under one roof in Hawaii.. Although my wife, children and I will probably not live in my parents’ house, we hope to rent or buy nearby.
4. Huge diversity
Hawaii tops the list of states with the most diverse population in the country, ahead of California and Nevada, according to data from the US Census Bureau.
5. Decent tax benefits
Hawaii ranks as having one of the lowest property tax rates in the country, averaging just 0.28%. If you have a federal pension, it is exempt from state income tax. And the sales tax rate is a reasonable 4% to 4.5%, compared to 7.25% to 8.25% in California.
However, Hawaii also has one of the highest income tax rates in the state, reaching 11% if you earn over $200,000. If you earn between $48,001 and $150,000, you pay an income tax rate of 8.25%.
Why I want to retire in Honolulu
For my family, moving to Honolulu will actually save us money. The The median home price in San Francisco is around $1,633,650, much higher than in Honolulu.
If we move, we’ll sell our house here and pay cash for a property in Honolulu that costs about 40% less. We would then reinvest the home savings in real estate crowdfunding, dividend stocks and REITs to increase our passive income for retirement.
Instead of needing $300,000 a year in passive investment income to fund the lifestyle we desire, $150,000 to $200,000 is probably enough in Honolulu.
But more than that, with my parents in their sixties, I would like to spend as much time as possible with them. Hawaii feels like home.
Sam Dogen worked in investment banking for 13 years before starting financial samurai, his personal finance site. His new book “Buy This, Not That: How to Spend Your Way to Wealth and Financial Freedom” is out now. Follow him on Twitter @financialsamura.