February 12, 2024

By Daniel Masuda Lehrman, CFP®, CSLP®

Can you retire in the Aloha State?

Hawaii is known for its stunning natural beauty, laid-back lifestyle, and vibrant culture. It is a dream destination for many, but can it also be a feasible option for retirement? With its high cost of living, many people may wonder if retiring in Hawaii is a realistic possibility. Planning for retirement in Hawaii poses unique financial challenges. From soaring housing expenses to elevated taxes and healthcare costs, navigating retirement on a fixed income in the Aloha State requires careful financial planning.  The cost of housing, groceries, and healthcare in Hawaii can be significantly higher than in other states, making it a challenging place to retire comfortably. In this article, we will explore the factors to consider when deciding whether you can retire in Hawaii and provide insights into tax advantages, property taxes, income taxes, healthcare, and essential considerations for future retirees.

Pros of Living in Hawaii

Hawaii is a happy place

In 2020, Wallethub also named Hawaii the happiest state in the country as reported by CNBC.  NBC news reported Hawaii was the second healthiest state during the 2020 pandemic.

How Expensive is it to Retire in Hawaii?

If you're retired and managing a fixed income, it's important to understand that Hawaii is quite pricey to live in.  Hawaii’s cost of living is 84% higher than the national average. Housing costs make up most of that increase, at 202% higher than the mainland. As of April 2024, the median single-family home price in Honolulu is about $1,050,000 and the median price for a condo on Oahu is currently $535,000. Utilities, transportation, and groceries also cost more in Hawaii. Before planning to move to Hawaii, it's crucial to create a practical budget to ensure it aligns with your financial situation.  

Retiring comfortably in Hawaii requires a hefty six-figure income each year, estimated at around $121,228. It's the one of the only places in the U.S. where retirees generally need this level of spending, though it's relatively cheaper than retiring in San Francisco or New York City.. The state's high cost of living, driven by pricier transportation and limited land leading to expensive housing, makes it challenging for all residents, including retirees. Compared to more affordable areas, your retirement funds won't go as far here. To sustain retirement in Hawaii following the typical 4% rule (living off 4% of your savings), you'd need at least $3.1 million invested.

What Tax Advantages Does Hawaii Have?

Overall, Hawaii residents pay a lot in taxes.  WalletHub placed Hawaii as the second highest taxed state after New York due to Hawaii's high sales and excise taxes.  Residents pay about 6.97% of their income in these taxes, the highest in the country. And while Hawaii's living costs are also high, there are a few tax perks for residents eyeing retirement. Sales tax rate is a reasonably low at 4% – 4.5% compared to 7.25% – 8.25% in California.

Unfortunately, Hawaii has one of the highest state income tax rates, topping out at 11% if you make over $200,001. If you make between $48,001 and $150,000, you must pay a state income tax rate of 8.25%.

Low Property Taxes

Hawaii boasts one of the lowest property tax rates in the country with an average of only 0.28%. Buying a home in Hawaii can mean relatively lower property taxes compared to other places in the U.S. But because Hawaii's real estate costs are high, your property taxes might still be more than those on cheaper mainland properties.

Living in the home you own might qualify you for tax relief programs that lower your home's taxable value. Some areas like Kauai County, the County of Hawaii, and the City and County of Honolulu even offer special exemptions for seniors, reducing property taxes more.

Income Taxes

While withdrawals from retirement accounts are fully taxed, Social Security income isn't subject to state taxes.  Also, pensions from military, government, or private sources, along with certain employer-sponsored plans, enjoy 100% tax exemption if no contributions were made by the employee. But if the employee contributed—like in a 401(k) with employer matches—only the employer's contributions are tax-exempt.  If you have a Federal pension, it is exempt from state income tax.

How Is Healthcare and Longevity in Hawaii?

Hawaii holds the highest life expectancy in the country at 86.5 years.  US News ranks Hawaii #1 for Health Care Access, #1 for Health Care Quality, and #6 for Public Health. World Population Review ranks Hawaii as the third healthiest state in the country. NBC news reported Hawaii was the second healthiest state during the 2020 pandemic. Retirees aiming for a long and healthy life might find it in Hawaii, surrounded by healthy peers with great healthcare access.

While quality of healthcare in Hawaii is considered excellent, healthcare costs in Honolulu exceed the national average due to a few reasons: the high cost of living, limited healthcare competition, geographical challenges of being on an island, and unique health concerns specific to Hawaii’s population. These factors can hike up expenses for medical services, insurance, and prescription drugs.

Best places to retire in Hawaii?

The best places to retire in Hawaii depends on your needs

The main Hawaiian islands include Oahu, Maui, Kauai, and the Big Island. If you’re considering retiring in Hawaii on a budget, you’ll find that the cost of living index and home prices vary depending on the location.  While the North Shore of Oahu may offer more affordable options compared to the luxury retirement communities on Maui, these areas may be limited in quality healthcare providers.

Do you want to retire in Hawaii?

Retiring in Hawaii may be a dream for many retirees, with its stunning beaches, lush hiking trails, and beautiful weather year-round. If you're considering making the Hawaiian Islands your home for your golden years, there are a few things you need to consider. The cost of living in Hawaii is notoriously high, with a high cost of living index, high tax rates, and expensive home prices. However, if you plan to retire to Hawaii on a budget, there are still ways to make it work.  With careful planning and a solid retirement savings plan, you can live in Hawaii and enjoy all the benefits of living in paradise.

How to prepare to retire in Hawaii

Here are considerations to prepare for Hawaii's high cost of living as you gear up for retirement:

  1. Speak with your investment advisor about your retirement plans to adjust your investments accordingly. Start this conversation early to maximize your money before retiring.
  2. Contribute as much as possible to your retirement plans.
  3. Create a budget based on Hawaiian expenses and compare it with your estimated retirement income.
  4. Downsize before moving to reduce moving costs and prevent your new living space from feeling crowded.

About Daniel Masuda Lehrman

I am a Fee-Only Fiduciary and Founder of Masuda Lehrman Wealth LLC. Prior to starting my own firm, I was a Vice President Financial Consultant at Charles Schwab in their Downtown Honolulu office. I have worked in financial planning for 10 years at Vanguard, Fidelity, and Schwab. I'm a CERTIFIED FINANCIAL PLANNER™ professional (CFP®) and Certified Student Loan Professional with an Economics degree from the University of Michigan.

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