Boost your Social Security benefits with this ‘bridge’ strategy

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When it comes to claiming Social Security, most retirees can’t wait to start collecting those checks. A 2020 report from the Bipartisan Policy Center found that more than 70% of Social Security beneficiaries currently claim their benefits before age 64. In fact, nearly 35% and 40% of men and women, respectively, claimed their benefits at age 62 in 2018.

But delaying your benefits beyond full retirement age (FRA) will result in larger Social Security payments when the time comes to collect. A retirement strategy known as the Social Security bridge is one way to create an enlarged stream of guaranteed income without an annuity. Researchers at the Center for Retirement Research at Boston College recently examined this relatively unknown strategy and found that many workers would use it if given the opportunity.

A financial advisor can help you make a plan for creating stable and reliable income in retirement. Find a trusted advisor today.

The Social Security ‘Bridge’ Strategy Definition

The bridge strategy is a method for locking in higher lifetime Social Security benefits by using 401(k) assets as a stopgap. Instead of claiming Social Security immediately after leaving the workforce, a new retiree uses their 401(k) assets or other savings as a substitute for Social Security until age 70 when they can claim their largest possible benefit.

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Delaying Social Security until the maximum claiming age (70) can increase a retiree’s benefits by 76% compared to claiming at age 62, according to Alica H. Munnell and Gal Wettstein of the Center for Retirement Research at Boston College. That’s because benefits increase by as much as 8% for every year they are delayed between FRA and age 70. On the flip side, claiming Social Security before reaching FRA diminishes a person’s benefit.

The bridge strategy capitalizes on this incentive and creates a larger stream of annuitized income.

“Using their 401(k) assets as a substitute for Social Security benefits when they retire – as a ‘bridge’ to delayed claiming – would allow participants, in essence, to buy a higher Social Security benefit,” Munnell and Wettstein wrote. “The potential for enhancing annuity income through Social Security is substantial, since the majority of retirees claim before their FRA and about 95 percent claim before age 70.”

And unlike a traditional annuity, Social Security benefits are adjusted annually for inflation to preserve a beneficiary’s purchasing power. Then again, a Social Security bridge may not be beneficial for people with shorter life expectancies. It will also reduce a person’s nest egg earlier in retirement and may diminish or completely deplete the inheritance they plan leave for loved ones.

Annuities vs. Social Security Bridge

An annuity is a contract you sign with an insurance company, whereby you pay a lump sum or make periodic payments in exchange for guaranteed payments at a later date. Although they are often considered expensive and complex, annuities can provide peace of mind to retirees who are worried they may outlive their savings.

“Although annuities would ensure higher levels of lifetime income, reduce the likelihood that people will outlive their resources, and alleviate some of the anxiety associated with most retirement investing, the market for annuity products is miniscule,” Munnell and Wettstein wrote, adding that academics have argued for decades that using retirement assets to purchase an annuity can mitigate longevity risk.

But the researchers noted that people are reluctant to exchange the 401(k) balances they’ve spent decades accumulating for a future income stream.

“Moreover, they often do not appreciate the insurance that annuities provide against running out of income and tend to view the low expected returns associated with this service within an investment framework. … The complexity of annuities and consumer distrust of insurance companies further reinforce biases against buying them as investments.”

Instead of using 401(k) assets to buy an annuity from an insurance company, the Social Security bridge strategy pays the retiree an amount equal to the Security benefits they would have claimed at retirement. By delaying Social Security until age 70, the retiree maximizes their eventual benefits and creates a larger stream of annuitized income.

Also, unlike payments from annuities, Social Security benefits are adjusted annually for inflation, which helps retirees protect their purchasing power.

“Purchasing additional Social Security income does not involve handing over accumulated assets to an insurance company, provides a familiar form of lifetime income that is adjusted for inflation, and does not expose the purchaser to higher costs from adverse selection,” Munnell and Wettstein wrote.

Should You Use the Bridge Strategy?

To gauge this strategy, the Center for Retirement Research conducted an online survey in early 2021 that asked participants whether they would use an employer “bridge” plan that would automatically pay them an amount equal to their Social Security benefits from their 401(k) balance when they retire.

The survey, which was administered by the Nonpartisan and Objective Research Organization at the University of Chicago, polled 1,349 workers between the ages of 50 and 65 with at least $25,000 in their 401(k) accounts.

Researchers learned that despite the novelty of the strategy, a “substantial minority” of respondents said they would use the bridge. In fact, nearly 27% of participants who were given only a limited description of the concept said they would use it if offered by their employer.

The more information respondents were given about the Social Security bridge strategy, the most interested they were. Almost 33% reported a similar interest when the bridge option was framed as insurance with both its pros and cons explicitly explained. Thirty-five percent of the respondents who were given a thorough explanation of the mechanics of the bridge option said they would use it if offered the chance.

Meanwhile, over 31% of respondents said they would not opt out of the bridge option if it was their employer’s default offering.

“The results show that a substantial minority would be interested in the bridge option,” Munnell and Wettstein wrote. “Furthermore, individuals presented with the pros and cons of annuitization versus investment chose to allocate a small but meaningfully larger share of their assets to the bridge strategy.”

“More strikingly, those defaulted into the bridge option ended up allocating much more of their assets to the bridge,” they added.

Bottom Line

The Social Security bridge is a method for delaying Social Security benefits until age 70, whereby a retiree temporarily supports themselves using 401(k) assets or other savings. As a result of delaying their benefits until age 70, a retiree enhances their future payments by approximately 76% compared to claiming Social Security at the earliest possible time (age 62). The Center for Retirement Research at Boston College found that approximately a third of workers between 50 and 65 years old would use this strategy if their employer offered it.

Retirement Planning Tips

  • The 4% Rule is perhaps the most well-known rule of thumb when it comes to retirement planning. The strategy dictates that a retiree can withdraw 4% of their savings in the first year of retirement (adjusting subsequent withdrawals for inflation) and have enough money to last 30 years. However, researchers recently found the 4% Rule may be outdated. New research suggests that retirees following a fixed withdrawal strategy should only take out 3.3% of their savings in the first year.
  • A financial advisor can help you plan for retirement and devise a withdrawal strategy that meets your needs. Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three financial advisors in your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.

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This article originally appeared on SmartAsset.com and was syndicated by MediaFeed.org.

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The best county for retirees in every state

 

Retirement may be the time to move closer to family or put down new roots in a warm climate. Helping make that decision a bit easier is an index of the best places to retire in each of the 50 states, which was created by 24/7 Wall St.

Suggesting locales from Alaska’s majestic Kenai Peninsula to Arizona’s desert Pima County, the index weighed health costs, taxes and housing expenses, all significant for retirees likely to be living on fixed and reduced incomes.

“Because of the medical, social, and financial consequences of entering old age, life can change dramatically in retirement,” said 24/7 Wall St.

Among the best spots were Arkansas’ Baxter County in the Ozark Mountains; Chaffee County in the Colorado Rockies; and Park County, Wyoming, home to Yellowstone National Park.

Lovers of sun and sand could find a haven on the beaches of Delaware’s Sussex County, Florida’s Sarasota County or Beaufort County, South Carolina, and fishing fans might opt for Louisiana’s Jefferson Parish on the Gulf of Mexico or the lakes and ponds of Cumberland County, Maine.

The index took into consideration health factors such as the number of medical professionals per capita and access to exercise opportunities. Economic factors included median home values, the monthly cost of living and state and local taxes.

It only considered counties where the 65-and-over population grew at least as fast as the rest of the nation and was larger than the national average.

Demand for retirement locales will only grow bigger. The U.S. Census Bureau says by 2035, the number of adults age 65 and over will hit 78 million and outnumber children under age 18.

 

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Christoph Strässler / Flickr

 

When it comes to retirement planning, our thoughts usually jump straight to finances. Do I have enough saved in my 401k? How will I manage healthcare costs? When should I start collecting Social Security?

All valid concerns, for sure. But Eric Thurman, author of Thrive in Retirement: Simple Secrets for Being Happy for the Rest of Your Life, says money is just one key factor to consider as you transition to this new life stage.

“Many people expect to live ‘happily ever after’ in retirement but haven’t thought much about how that will occur,” he says. He lists these areas as focus points for a happy retirement.

 

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Thurman points to two key factors for keeping your mind healthy in retirement — cognitive strength and mental health. He says there are lots of options for maintaining a strong brain as you age, and he doesn’t think crossword puzzles and card games are enough. “You need to stretch. You need to be learning a foreign language or a musical instrument — something that’s forcing you to develop new skills,” he says.

Appreciating or creating art might help too. One study found that artistic activities boosted cognitive function in older people. And another study found that people predisposed to Alzheimer’s disease who were intellectually active delayed the start of the disease by nine years.

Your mental health needs attention, too. Thurman says that the unresolved hurts and losses that can surface in retirement may need attention. “If you’re raising children and busy with your career you can get distracted all of the time. Once you’ve got a lot of free time you can ruminate,” he says.

Counseling, support groups, or grief recovery programs could help. “Don’t let your mind be captive to old wounds that keep coming up,” he says.

 

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Your retirement years won’t be nearly as happy if you’re frail and unhealthy.Thurman thinks some people stop taking care of their health as they age because they may not realize how much longer they are likely to live. By 2050, a projected 19 million people in the US will be age 85 or older.

He encourages people to think about themselves in the future: “If you get to be 90, what kind of a 90-year-old do you want to be? Do you want to be stuck in a chair, or need help or a walker to get around? Or do you want to be able to do anything you want to do?”

You don’t have to train for a marathon, or eliminate cookies and potato chips. Just boosting the intensity of what you already do and adding more nutritious foods to your diet can help you stay fit and healthy.

 

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“I have a friend who is a psychiatrist who says that the number one health issue in the U.S. and the world is loneliness,” Thurman says. “We can have hundreds of followers on Instagram or Facebook and not have that personal human contact necessary for wellbeing. We aren’t good about that.”

He says employment patterns in the last generation or two have increased isolation, since it’s more common for people to relocate for work and live further away from their families.

According to the National Institute on Aging, social isolation and loneliness are linked with high blood pressure, heart disease, obesity, reduced immune system function, anxiety, depression, cognitive decline, and Alzheimer’s disease.

 

jacoblund/istockphoto

 

Population: 203,360

65 and over %: 19.0% (15th of 67 counties)

Est. monthly expenses for family of 2: $4,343.67 (2nd out of 67 counties)

Median home value: $182,000

 

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Population: 57,961

65 and over %: 14.8% (5th of 29 borough)

Est. monthly expenses for family of 2: $5,341.27 (14th out of 29 counties)

Median home value: $234,600

 

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Population: 1,007,257

65 and over %: 18.1% (7th of 15 counties)

Est. monthly expenses for family of 2: $3,876.65 (14th out of 15 counties)

Median home value: $166,300

 

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Population: 41,093

65 and over %: 30.5% (1st of 75 counties)

Est. monthly expenses for family of 2: $3,478.55 (39th out of 75 counties)

Median home value: $124,400

 

Sweetmoose6 at en.wikipedia / Public domain

 

Population: 18,724

65 and over %: 25.8% (4th of 58 counties)

Est. monthly expenses for family of 2: $4,201.70 (32nd out of 58 counties)

Median home value: $228,900

 

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Population: 18,818

65 and over %: 24.1% (10th of 64 counties)

Est. monthly expenses for family of 2: $4,197.89 (37th out of 64 counties)

Median home value: $313,200

 

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Population: 897,417

65 and over %: 16.2% (4th of 8 counties)

Est. monthly expenses for family of 2: $4,257.11 (8th out of 8 counties)

Median home value: $235,300

 

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Population: 215,551

65 and over %: 25.2% (1st of 3 counties)

Est. monthly expenses for family of 2: $4,249.98 (3rd out of 3 counties)

Median home value: $242,900

 

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Population: 404,839

65 and over %: 34.8% (4th of 67 counties)

Est. monthly expenses for family of 2: $4,156.50 (19th out of 67 counties)

Median home value: $215,300

 

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Population: 11,173

65 and over %: 33.6% (1st of 159 counties)

Est. monthly expenses for family of 2: $4,103.24 (49th out of 159 counties)

Median home value: $197,900

 

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Population: 196,325

65 and over %: 18.5% (1st of 5 counties)

Est. monthly expenses for family of 2: $4,848.14 (5th out of 5 counties)

Median home value: $316,000

 

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Population: 10,104

65 and over %: 24.6% (6th of 44 counties)

Est. monthly expenses for family of 2: $3,917.45 (11th out of 44 counties)

Median home value: $256,000

 

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Population: 198,134

65 and over %: 16.1% (80th of 102 counties)

Est. monthly expenses for family of 2: $3,979.79 (66th out of 102 counties)

Median home value: $136,100

 

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Population: 61,581

65 and over %: 16.1% (57th of 92 counties)

Est. monthly expenses for family of 2: $3,990.13 (6th out of 92 counties)

Median home value: $158,100

 

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Population: 20,575

65 and over %: 18.7% (61st of 99 counties)

Est. monthly expenses for family of 2: $4,143.31 (8th out of 99 counties)

Median home value: $161,500

 

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Population: 34,683

65 and over %: 18.4% (63rd of 105 counties)

Est. monthly expenses for family of 2: $3,864.68 (72nd out of 105 counties)

Median home value: $120,000

 

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Population: 99,258

65 and over %: 16.2% (73rd of 120 counties)

Est. monthly expenses for family of 2: $3,649.43 (57th out of 120 counties)

Median home value: $123,200

 

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Population: 437,038

65 and over %: 15.6% (25th of 64 parishes)

Est. monthly expenses for family of 2: $4,036.27 (19th out of 64 counties)

Median home value: $176,000

 

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Population: 289,173

65 and over %: 16.8% (15th of 16 counties)

Est. monthly expenses for family of 2: $4,721.10 (1st out of 16 counties)

Median home value: $259,400

 

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Population: 51,559

65 and over %: 26.2% (2nd of 24 counties)

Est. monthly expenses for family of 2: $4,171.72 (16th out of 24 counties)

Median home value: $252,100

 

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Population: 161,197

65 and over %: 15.3% (10th of 14 counties)

Est. monthly expenses for family of 2: $4,639.86 (9th out of 14 counties)

Median home value: $272,700

 

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Population: 32,978

65 and over %: 20.2% (33rd of 83 counties)

Est. monthly expenses for family of 2: $3,849.82 (29th out of 83 counties)

Median home value: $171,100

 

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Population: 5,270

65 and over %: 26.1% (2nd of 87 counties)

Est. monthly expenses for family of 2: $4,284.08 (23rd out of 87 counties)

Median home value: $241,400

 

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Population: 78,221

65 and over %: 15.7% (45th of 82 counties)

Est. monthly expenses for family of 2: $3,620.78 (65th out of 82 counties)

Median home value: $88,500

 

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Population: 999,539

65 and over %: 16.9% (79th of 115 counties)

Est. monthly expenses for family of 2: $3,897.75 (74th out of 115 counties)

Median home value: $181,100

 

 

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Population: 66,290

65 and over %: 16.6% (44th of 56 counties)

Est. monthly expenses for family of 2: $4,290.89 (9th out of 56 counties)

Median home value: $220,600

 

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2. Each advisor has been vetted by SmartAsset and is held to a fiduciary standard to act in your best interests. If you’re ready to be matched with local advisors that can help you achieve your financial goals, get started now.

 

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Population: 4,318

65 and over %: 26.7% (5th of 93 counties)

Est. monthly expenses for family of 2: $4,311.88 (41st out of 93 counties)

Median home value: $62,300

 

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Population: 47,632

65 and over %: 25.4% (4th of 17 counties)

Est. monthly expenses for family of 2: $4,277.85 (9th out of 17 counties)

Median home value: $311,400

 

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Population: 89,280

65 and over %: 18.8% (5th of 10 counties)

Est. monthly expenses for family of 2: $4,092.95 (6th out of 10 counties)

Median home value: $215,600

 

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Population: 125,717

65 and over %: 16.5% (4th of 21 counties)

Est. monthly expenses for family of 2: $5,346.02 (1st out of 21 counties)

Median home value: $393,800

 

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Population: 18,031

65 and over %: 17.2% (20th of 33 counties)

Est. monthly expenses for family of 2: $3,934.80 (4th out of 33 counties)

Median home value: $285,300

 

SPONSORED: Find a Qualified Financial Advisor

1. Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to 3 fiduciary financial advisors in your area in 5 minutes.

2. Each advisor has been vetted by SmartAsset and is held to a fiduciary standard to act in your best interests. If you’re ready to be matched with local advisors that can help you achieve your financial goals, get started now.

 

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Population: 64,701

65 and over %: 20.3% (5th of 62 counties)

Est. monthly expenses for family of 2: $4,330.03 (23rd out of 62 counties)

Median home value: $192,800

 

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Population: 252,268

65 and over %: 18.4% (49th of 100 counties)

Est. monthly expenses for family of 2: $4,329.91 (37th out of 100 counties)

Median home value: $209,800

 

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Population: 11,574

65 and over %: 18.8% (33rd of 53 counties)

Est. monthly expenses for family of 2: $3,703.54 (51st out of 53 counties)

Median home value: $130,400

 

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Population: 1,257,401

65 and over %: 17.0% (43rd of 88 counties)

Est. monthly expenses for family of 2: $3,458.20 (78th out of 88 counties)

Median home value: $123,900

 

Pixabay

 

Population: 62,421

65 and over %: 15.2% (60th of 77 counties)

Est. monthly expenses for family of 2: $3,882.56 (64th out of 77 counties)

Median home value: $104,000

 

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Population: 363,471

65 and over %: 17.7% (23rd of 36 counties)

Est. monthly expenses for family of 2: $4,034.99 (29th out of 36 counties)

Median home value: $232,800

 

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Population: 18,302

65 and over %: 20.1% (20th of 67 counties)

Est. monthly expenses for family of 2: $4,378.06 (16th out of 67 counties)

Median home value: $173,800

 

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Population: 49,028

65 and over %: 19.1% (2nd of 5 counties)

Est. monthly expenses for family of 2: $4,451.59 (2nd out of 5 counties)

Median home value: $341,300

 

Angusdavis/Public Domain

 

Population: 179,316

65 and over %: 24.9% (3rd of 46 counties)

Est. monthly expenses for family of 2: $4,702.03 (1st out of 46 counties)

Median home value: $283,800

 

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Population: 17,572

65 and over %: 15.6% (50th of 66 counties)

Est. monthly expenses for family of 2: $3,814.69 (62nd out of 66 counties)

Median home value: $173,400

 

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Population: 126,437

65 and over %: 17.1% (62nd of 95 counties)

Est. monthly expenses for family of 2: $3,609.55 (82nd out of 95 counties)

Median home value: $152,800

 

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Population: 25,939

65 and over %: 28.7% (8th of 254 counties)

Est. monthly expenses for family of 2: $3,750.25 (125th out of 254 counties)

Median home value: $269,900

 

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Population: 155,577

65 and over %: 19.9% (3rd of 29 counties)

Est. monthly expenses for family of 2: $4,040.76 (14th out of 29 counties)

Median home value: $240,300

 

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Population: 36,054

65 and over %: 21.4% (2nd of 14 counties)

Est. monthly expenses for family of 2: $4,641.36 (10th out of 14 counties)

Median home value: $208,600

 

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Population: 27,516

65 and over %: 15.2% (97th of 133 counties)

Est. monthly expenses for family of 2: $4,005.88 (73rd out of 133 counties)

Median home value: $226,200

 

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Population: 75,138

65 and over %: 17.6% (22nd of 39 counties)

Est. monthly expenses for family of 2: $3,839.28 (16th out of 39 counties)

Median home value: $256,400

 

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Population: 42,906

65 and over %: 20.2% (18th of 55 counties)

Est. monthly expenses for family of 2: $3,779.52 (54th out of 55 counties)

Median home value: $114,800

 

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Population: 73,427

65 and over %: 19.2% (28th of 72 counties)

Est. monthly expenses for family of 2: $3,754.34 (51st out of 72 counties)

Median home value: $127,700

 

TheCatalyst31 / CC0

 

Population: 29,276

65 and over %: 20.4% (5th of 23 counties)

Est. monthly expenses for family of 2: $4,269.06 (11th out of 23 counties)

Median home value: $236,200

This article originally appeared on Considerable.com and was syndicated by MediaFeed.org.

 

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