Retiring in Pennsylvania at 65: What’s Your "Magic Number"?

The Snapshot: Estimated Savings Targets

Based on recent cost-of-living data and projections, here are the estimated savings benchmarks for a 25-year retirement (age 65 to 90). These estimates assume you have a paid-off mortgage or low rent, receive average Social Security benefits, and withdraw 4% of your portfolio annually.

• Essential or Frugal Lifestyle: If you plan to live modestly, you will likely need an annual income between $47,000 and $52,000. To sustain this, your recommended nest egg is $665,000 to $750,000.
• Comfortable Lifestyle: For a lifestyle that includes travel and dining out, you will likely need an annual income between $68,000 and $80,000. To sustain this, your recommended nest egg is $1 Million to $1.2 Million.
• Luxurious Lifestyle: If you plan on high-end travel or maintaining a large estate, you will need an annual income of $100,000+. To sustain this, your recommended nest egg starts at $1.8 Million.

1. The "Pennsylvania Advantage": Why You Might Need Less

One of the biggest factors working in your favor is Pennsylvania's tax friendliness. Unlike many other states, PA’s tax code allows your savings to stretch further, meaning your "gross" income need is lower.

• 0% Tax on Retirement Income: Pennsylvania is one of the few states that completely exempts 401(k) withdrawals, IRA distributions, and traditional pensions from state income tax (provided you are eligible and over age 59½).
• 0% Tax on Social Security: You will not pay state taxes on your Social Security benefits.
• Flat Income Tax: Any earned income (like a part-time job) or investment income (dividends/interest) is taxed at a flat 3.07%, which is historically low compared to neighbors like New York or New Jersey.

Key Takeaway: In many other states, you might need to withdraw $60,000 to keep $50,000 after taxes. In PA, if your income comes from a 401(k), keeping $50,000 usually just requires withdrawing $50,000 (excluding federal taxes).

2. Cost of Living Breakdown

To refine your number, you need to look at where your money goes. Pennsylvania sits near the national average for cost of living, but specific categories matter.

Housing (The Big Variable)

• Philadelphia & Suburbs: If you plan to retire in Bucks, Chester, or Montgomery counties, expect costs 20–40% higher than the state average. You may need an additional $150k–$250k in savings to cushion higher property taxes and home prices.
• Western & Central PA: Areas like Pittsburgh, Erie, or Lancaster offer significantly lower housing costs. It is often possible to find comfortable condos or homes for under $250,000, drastically reducing the nest egg required.
• Property Tax/Rent Rebate: PA offers a rebate program for seniors (65+) with lower incomes, which can return up to $1,000 to help offset housing costs.

Healthcare

While housing is affordable, healthcare in PA runs slightly close to or above the national average. Expect to pay roughly $7,000–$9,600 per person per year. A 65-year-old couple should budget roughly $315,000 (cumulative) for out-of-pocket medical expenses throughout retirement (excluding long-term care).

Utilities

PA winters are cold. Utility costs here are often higher than the national average due to heating bills from December through March. Ensure your budget includes a "winter buffer" for these seasonal spikes.

3. The Social Security Offset

Your savings don't have to do all the heavy lifting. The average Social Security benefit in Pennsylvania helps offset your "annual income need."

• Average Annual Benefit (per person): ~$22,000
• Average Household Benefit (Couple): ~$44,000

The Math: If you need $68,000 annually for a comfortable lifestyle and receive $44,000 from Social Security, your savings only need to generate the remaining $24,000. Using the "4% Rule" (multiplying the needed annual amount by 25), you would need a portfolio of $600,000.

4. Risks to Watch Out For

• Inheritance Tax: While not a direct cost to you, PA has an inheritance tax (ranging from 4.5% for children to 15% for friends). If leaving a specific dollar amount to heirs is part of your goal, you may need to save extra to cover this "exit fee."
• Long-Term Care: The average cost of a semi-private room in a PA nursing home is over $120,000 per year. Medicare does not cover this. Without Long-Term Care insurance, a single medical event can drain a modest nest egg rapidly.

Summary Checklist for Age 65

If you are approaching 65 in Pennsylvania, run through this quick check:

1. Check your Pension: If you were a state employee or teacher (SERS/PSERS), your pension is state tax-exempt.
2. Estimate Property Taxes: These can vary wildly by school district. Ensure your retirement budget accounts for these rising over time.
3. Gap Calculation: (Total Annual Budget) minus (Social Security + Pensions) = Income Gap.
4. The Final Number: Multiply your Income Gap by 25. This is your target savings number.