Missing in Florida: Retirement Mojo

The Sunshine State just had its first population loss since 1946, according to research from the University of Florida. The State lost 58,000 residents in the year ending March, 2009, the first such loss since military personnel left the State when WWII ended.

This decline is sobering to Florida, a state used to nothing but unending growth. The experts are quick to provide a multitude of reasons for this change, leading the casual observer to think Florida might have lost its (retirement) mojo. The current recession and attendant housing crisis is the most important reason for the decline. Construction is hugely important in this state, yet there is so little of that work that people are leaving the state to find jobs. Meanwhile the free fall in housing prices brought on by foreclosures, bankruptcies, and short sales has brought panic into the market; people are losing their homes and others are afraid to buy and see prices go down further. The state has prided itself on being a low-tax state, which is now producing its own problems. State and local budgets are being cut drastically, helping to fuel the recession and discourage families from moving here. Lastly, the hurricanes of a few years ago have led to dramatic increases in homeowner insurance rates, adding greatly to the cost of living here.

According to Stan Smith, Director of UF’s Bureau of Economic and Business Research, the decline is spread across Florida. Counties in South Florida like Broward, Lee, and Palm Beach Counties all had population losses. In central Florida some counties increased their populations. Those include Alachua County (home to Gainesville and the University of Florida) and Lake County (home to The Villages). According to Smith the population decline “… reflects a very abrupt change from three or four years ago, when Florida was experiencing some of its largest population increases ever”. Since the 1970’s the State experienced net population growth of 10 million per decade; Smith thinks those days are over.

Florida as a retirement destination
To some extent Florida’s population decline is confined more to the working population rather than the retired folks. Although the “halfback” phenomenon is at work (where people retire to Florida only to later move halfway back to the Carolinas), that is probably confined to a small number of people. The question is whether people will stop moving to Florida for their retirement in the years to come. Here are some pros and cons as to what will happen:

Pros for Florida as retirement destination
- Only an Ice Age could take Florida’s winter warmth away from it, and hopefully that’s a few thousand years from now. The Sunshine State is the warmest place in the Continental U.S., so anyone looking for warm winters will still choose Florida over just about anywhere else
- The housing crisis has so distorted the market that Florida real estate is a relative bargain again, after a few years of being overpriced. The Florida Association of Realtors reports that the median price of a FL condo in August was $107,500, down 46 percent from its 2007 level
- Florida is a tax friendly state. Full time residents can Homestead their homes if they are used as a primary residence, which means their taxes can’t go up more than the cost of living. Florida has no income tax or taxes on intangibles
- No state can match the number of active adult and 55+ communities that are already built and looking for residents

Cons against Florida’s retirement importance
- Florida’s negative publicity about population losses, housing crisis, recession, and tax revenue woes are not helping. Some people will think twice about moving into that negative environment
- Many baby boomers have a negative image of Florida (congestion, population age, conservative makeup, untrammeled growth unraveling)
- The housing market is so bad in parts of the State that people are nervous about moving there
- The State’s budget cuts will make people fearful that vital services will not be available
- Most importantly, retirees have so many more choices than they did 20 or even 10 years ago. The Carolinas, Georgia, Virginia, Tennessee, Alabama, etc. have marketing budgets to attract retirees. Some of their tax structures are friendly for baby boomer retirees. There are plenty of brand new 55+ communities to choose from with great amenities available at attractive prices.

Bottom Line
Florida used to own the retirement market. Today it is losing share and doing nothing against a host of eager competitors.

For Reference:
Newsweek article about Florida population losses
Sunshine Harder to Find in Florida

Boomer Conflict Looming on Suburban Retirement: Desire Vs. Reality

Note: This article is a continuation of our earlier article, “55+ Home Buyers and Builders Not Exactly in Synch“. See Part 3, a Boomer’s Retirement Self-Assessment.

Baby boomers’ expressed desires about where they want to retire are pretty clear: we want to continue living where we do now - in suburbia*. That sounds fine as long as we are in our 60’s and 70’s. But think about what will happen when we get into our 80’s and 90’s. Studies find most people outlive their ability to drive by 6 to 10 years. In the suburbs if we can’t drive, we will be in very big trouble. Also, at that age moving and starting over with friends and neighbors is not that easy. It sounds harsh, but the reality is that many of us will become trapped in our homes with no easy exit.

Living in the suburbs is also incompatible with several of the attributes baby boomers say they want in their next homes. Chief among them is low maintenance (since suburban homes tend to be big with large yards to maintain). Another is proximity to doctors and shopping. As the Wall St. Journal puts it: “the suburbs are proving a tough place to grow old”. Bottom line: the conflict between where we want to live and the skills necessary for survival are setting up for a very big problem for millions of baby boomers down the road.

A Bright New Idea - Transform the Suburbs
One obvious solution to this problem is to scrap the suburbs as a retirement destination. Instead, we could move to a city, small town, new urban community, or active adult community where driving is not necessary. A place where proximity to life’s essentials is easy by walking or public transportation. But now another idea, transforming the suburbs so they are more livable is emerging. The implications of this movement are exciting for many suburban towns.

The Wall St. Journal had a fantastic article written by Glenn Ruffenach on this development last week: “Making Suburbia Livable“. The piece centered on towns on the south like Fayetteville (Georgia), Lakewood (Colorado), and Atlanta (GA). These forward-looking towns have hired urban planners and design firms to help them solve the problem of the future - how to make the suburbs livable for all of the boomers that want to grow old there.

One of the most interesting solutions is happening in Lakewood, where a failed shopping mall provided the necessary land for a planned community, Belmar. Here many delighted residents are enjoying 22 blocks of city living —offices, homes, shops, restaurants, and entertainment— right in the middle of suburbia. As opposed to homes set on 1 acre lots, here there is sufficient density to allow “walkability”, where one can walk or to take public transportation for access to shopping, restaurants, and medical services. “Walkability” comes right from the New Urbanism movement, which builds easier access to essentials while leaving the car in the garage.

The need for communities to develop alternatives to the suburbs, or to improve the infrastructure that is already there, is imperative for a number of reasons. At the peak of baby boomer aging bulge in 2030, one out of every five Americans will be 60 or older. Communities will not have enough resources to care for all the seniors who in effect become prisoners in their own homes at the end of life. And as other, more enlightened boomers see the light and flee the suburbs for more livable communities, these towns are going to lose essential tax revenues.

Fortunately some forward-thinking towns are now beginning to hire urban planning experts to plan for communities to will meet the needs of the future. Adding sidewalks, busses or other transportation systems, and neighborhoods with high density housing are some of the alternatives being considered.

Bottom Line
We baby boomers are a stubborn lot. We always want what we want,even if it’s not so good for us. It seems obvious to us that our desire to live in the suburbs is a good example. Look for the 3rd part of this series, which will be a self-questionnaire to help baby boomers identity and prioritize their retirement plans.

*An AARP survey found that 85% of people want to live in their existing homes as long as possible. The NAHB/Met Life study of the 55+ Market had results that pointed in the same direction but not as strongly; that survey found 62% want to stay where they are.

August Home Sales Break Streak, Inventories Decline

August home starts were positive. Unfortunately sales of existing homes including single-family, townhomes, condominiums and co-ops declined 2.7 percent in August, breaking a four month streak of increases. That led to a seasonally adjusted annual rate of 5.10 million units in August from a pace of 5.24 million in July. Lawrence Yun, Chief Economist for the NAR commented: “The decline demonstrates we can’t take a housing rebound for granted.”

There was some overlooked good news in the numbers, however. August 2009 sales remain 3.4 percent above the 4.93 million-unit level in August 2008. Existing inventory of homes, which has been a big part of the housing crisis, fell 10.8 percent to 3.62 million existing homes available for sale, an 8.5 month supply. That is a big improvement from a 9.3-month supply in July. Unsold inventory totals are 16.4 percent lower than a year ago. The national median existing-home price was $177,700 in August, down 12.5 percent from August 2008. Foreclosures, short sales, and the government incentives for first time home buyers were major forces in the market. Distressed sales accounted for about 30% of sales in the month, first time home buyers were also 30% of the market.

55+ Home Buyers and Builders Not Exactly in Synch

Note: This is the 1st of a 3 part article. Here is a link to the second, “Conflict Looming on Suburban Retirement: Desire Vs. Reality“. Part 3 is a Self-Assessment for Baby Boomer Retirement Preferences.

As the largest demographic in American history, the baby boomer population is a well-studied group: all sorts of marketers are anxious to know what we will be up to next. Part II of a 55+Housing joint study done by the National Association of Home Builders and The Met Life Mature Marketing Institute was just released: “What are Builders Building, What Do Buyers Want“, and the results provide an interesting insight into what is happening in the 55+ housing market.

One important fact to know is that some 62% of all boomers plan on staying where they live now,which is generally in the suburbs. That percentage staying home is probably lower than their parents’ generation, but it still represents a very large number of people who intend to age in place. Only 9% are interested in living in a city, and 28% would prefer rural life.

People 55+, who increasingly include a lot of baby boomers, are looking for these features in their new homes:
- Single story home (79% prefer)
- A home should be about 1900 sq.ft., about the size of their current home
- Most (51%) want a 3 bedroom home
- They expect to pay about $189,000 for their new home, around $70,000 less than the value of their current home.
- Highly desired inside features include washer dryer in the home, storage space, easy to open windows, 1st floor master bedroom, and easy to use climate control,
- High speed internet access is an overwhelming need

Community services. Would be buyers are interested in these services in their new communities:
- Proximity to shopping, walking/jogging trails, doctors, and church were the 4 most popular location preferences
- Maintenance programs (indoor and outdoor)
- Transportation services
- On site medical care
- Housekeeping

Some of the features that were not high up on the 55+ market’s mind:
- Green. Only 12% said they would pay more for an environmentally friendly home
- Elevators, compartmentalized toilets, and fireplaces placed near the bottom of desired features

Reasons for relocating:
The top reason for relocating would be to live in a lower maintenance home. Moving to be closer to family members is second, and lower cost living is third.

What the builders are building
- 55+ builders are constructing more single family detached homes (69%) than single family attached or townhouses (29%)
- Most homes are being built in the inner suburbs (46%), followed by the inner suburbs (30%), then cities
-
Gaps between Buyers and Builders - Almost but not exactly in synch.
- Builders are building a higher percentage (29%) of single family attached homes than buyers say they have a preference for (13%)
- 55+ households seem to prefer the farther out suburbs more than builders are building there
- Likewise builders are building a higher percentage of 2 story homes than buyers say they want
- When it comes to interior features there is an interesting mishmash of what buyers want and what builders are including. In general, builders seem more aware of the importance of universal design than consumers. Buyers want more non slip floors and 1st floor master bedrooms than builders are building. But in contrast, builders are including more 1st floor full baths, door levers (rather than knobs), and wider hallways than consumers say they have a preference for.
- When it comes to location consumers are very interested in having a drug store in their community, a preference not reflected by builders.
- Consumers wish builders would offer more maintenance services, both inside and out.

Summary
In general, 55+ consumers and builders for that market are in agreement about their preferences more than their differences. Consumers don’t seem to appreciate the importance of universal design yet. Builders seem to be building more of what they want to build where they can build it, compared to what consumers want. Bottom line for you the consumer: Know what features are important to you in your next home, and make sure you buy a home in a community that has them. This is still a buyers market, so you are in charge!

Part 2: Conflict Looming Over Suburban Retirement: Desire Vs. Reality

Housing Starts Increase in August - Hallelujah

The Commerce Department released August construction numbers last week to the great joy of economists and builders. Overall, construction of new homes and apartments increased 1.5%. Advanced construction permits also increased (2.7%). Construction levels are now almost 25% ahead of where they were in April.

The good news in construction was mostly confined to some odd sectors. Apartment building construction soared 25% (from very low levels). And the northeast, which hardly ever has any good economic news, saw new construction go up 24%. Most other regions were flat or down slightly (the South). As bellwethers of the economy, the positive data lends credence to economists’ opinions that the recession has now officially ended. Now lets see real estate prices recover a bit so people can sell their houses and move to where they want to live in retirement.

PS. Your editor had an interesting chat with a builder friend today. The builder specializes in buying run-down or under-improved houses in nice neighborhoods, then totally fixing them up and selling them, hopefully at a profit. He has no work now, and one reason is that there are too many nice houses on the market at reasonable prices. So although he could buy a fixer upper, chances are he will never get his money back.

All States Not Equal When It Comes to Tax-Friendly Retirements

With many of us baby boomers increasingly worried about their finances in retirement, reducing what we pay in taxes is an attractive option. It’s one option that might not impact our lifestyles in any way. So, if you already live in a high tax state, voting with your feet to escape some of those taxes might be a good idea.

The principal state taxes you typically face in retirement are income, property, and sales taxes. Gasoline, cigarette, and estate taxes certainly exist, but they probably won’t be deal breakers for most people.

The various states that have income taxes differ considerably on how they treat social security benefits and pensions. Your particular situation could have a significant impact on the taxes you pay. For example, if you will get a large military pension you might want to consider a state that considers that income exempt. Some states tax social security (or part of it), and some do not. A few states only tax out of state pensions, while others give exemptions for some government pensions. Many states have a wide variety of exemptions for veterans, people over 65, etc. In some cases those could be big factors. The trick is to research the states you are considering, and know the tax situation before you move. For more specifics about which states tax what kinds of benefits, see Most Tax-Friendly States for Retirement.

Property tax is often the largest tax that retirees pay, so that factor is definitely worth considering in deciding where to live. States like Florida, California, and Arizona have programs that limit how much the appraised value of full time residents’ home can go up, which can be a very important protection. On the downside, these states are now having problems raising enough revenue, so who knows what might happen in their future fiscal troubles.

Income Taxes
These states do not have an income tax: Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming. Tennessee and New Hampshire only tax certain amounts of dividend and interest income.

Sales Taxes
Alaska, Delaware, Montana, New Hampshire, and Oregon do not have any sales taxes. Note that in the states that do have sales taxes, local municipalities often have the right (and do) charge additional city sales tax.

State Tax Burden
The Tax Foundation reports on and ranks each state for its tax burden. You can find the entire list at the Tax Foundation Research.

Not the Only Consideration
A word of caution. Taxes should not be the tail that wags the dog. Being close to family should be a lot more important, as is the type of community and environment you want to live in. You can always change other factors to make ends meet: you can take a part-time job, move to a smaller or less fancy house, or move to a lower cost state.

More Help
Kiplingers has a terrific article on tax-friendly states at Yahoo Finance, along with many other factors you should consider about state taxes and your decision to move.
Topretirements has individual state guides to retirement, each of which has a detailed section on retirement tax factors for that state.
Barron’s article, “Fleeing the Tax Man“, is a great read that explains the flight from high to low tax states.

Fab 4’s New Releases Rock

First we must start with a question for you: “What is the best way for a member of Gen Y or Gen X to bait a baby boomer”? Answer: Be less than reverential when discussing the Beatles. (Thanks to Seth Schiesel of the New York Times).

So the music and the game world is, shall we say, “rocked” about 2 new releases about and from the Beatles. First up is a new video game that is garnering rave reviews, “The Beatles: Rock Band”. It comes as the latest release in the highly successful Rock Band and Guitar Hero series.

We confess we are not into video games. But reading Mr. Schiesel’s highly entertaining review of “The Beatles: Rock Band” might make us think about it. Apparently the computer screen shows the Beatles as they generate their music. The beauty of this game is that it has a chronological theme, so the game and the music change as the Beatles evolved. Using a microphone, electronic drum kit, and simulated bass and guitar, up to 6 players are the Beatles as their career and music moves from Liverpool to the Ed Sullivan Show to Abbey Road and beyond. According to the reviewer, this game brings the joy of music (and what music it is!) to new generations. By participating in its creation and its performance, game players are introduced to something special. And as Mr. Schiesel says, “Never before has a video game has such cultural resonance”.

The second new release is actually from the Beatles. The Beatle’s catalog has been remastered by EMI and will be released this Wednesday, September 9. It’s the complete catalog remastered from the original British albums, not the American releases which the Fab 4 weren’t quite as happy with. Allan Kozzin, music critic for the New York Times, loved the remasterings in “Long and Winding Road, Newly Repaved“. As he says: “In most cases this music has dimension and detail it never had before”. He particularly loved the sound on the “White Album”. The recordings are available individually or as a boxed set for $259.98.Enjoy

Top 10 International Best Places to Retire

Our friends at International Living Magazine have just published their annual list of best places to retire in the world. In what appears to be a tight contest, Ecuador beat out Mexico for the number 1 spot on the Annual Global Retirement Index. Latin and Central American countries head up the list, with only two European countries (Malta and Italy) making the list. In our minds the list shows an unhealthy bias towards Latin America and a disregard of Europe and Asia. That bias is probably a reflection of cost and familiarity. Go here to read their article and list of the best retirement countries and towns.

Without further ado, here is their top 10 List:
The Top Ten Best Places to Retire (and total points out of a possible
100):

Ecuador 79
Mexico 78
Panama 77
Uruguay 75
Italy 73
Brazil 71
Argentina 71
Costa Rica 70
Malta 70
Australia 70

The colonial city of Cuenca was singled out as the best place in Ecuador. “It’s a place of old-world beauty,” writes Sheridan in the magazine’s cover article, “where you can enjoy the wallet-pleasing prices that deliver a private retreat for as little as $300 a month.”

International Living rates 30 countries in its annual index. Rating factors include real estate costs, special benefits offered to retirees, culture, safety and stability, health care, climate, infrastructure, and cost of living. Tax breaks and special government programs to attract retirees are also considered in the selection.

Caption: Boquete, Panama.

Topretirements Opinions
With more than 200 correspondents helping out, International Living has done a very thorough job of rating these countries. All of the countries selected have outstanding places to live. In fact, all of the towns selected within these countries (see article) seem great.

In our opinion though the list of countries is too heavily weighted toward low cost of living. For example, Mexico as #2 is a bit frightening. Many, but not all, expatriates in Mexico live in safe enclaves inhabited mostly by other expatriates. While that might be a great retirement for some, the lack of significant interactions with the local populace, and the restriction to a fairly small geographic area, make it a less than desirable retirement alternative for our tastes. Hopefully Mexico will overcome its current safety problems and be the welcoming destination it could become. There are certainly towns and cities in Central and Latin America where an adventurous American who is willing to learn Spanish or Portuguese could interact with the locals. You do have those two attributes to be happy though, in our opinion, as well as be comfortable with widespread poverty.

Our favorites in Central America would be Costa Rica and Panama. These countries have the political stability and friendly attitude towards the USA that give them an edge. The only problem with Costa Rica is that only small parts of the country are developed - infrastructure is sometimes in short supply. Panama has the problem of expatriate enclaves.

What’s not on the list
We tend to think more about the countries that didn’t make this list. Ireland or Scotland for example, where just about any American could not only speak the language, but interact with the social fabric. Villages in rural France, Spain, and Portugal where the lifestyle is simple and rich (not to mention the food and wine). New Zealand, Thailand, Portugal, Greece. Countries in the old iron curtain such as the Czech Republic. Some of these countries will be more expensive (and a bit harder to get to), but in our opinion the life experience will be richer than living in a gated enclave or a very poor city somewhere else. Like many of the expatriates who live in Central America, retirement in these countries is generally more of a seasonal lifestyle due to legal restrictions and a desire to spend some time in the good old USA.

Your Thoughts
We gave you our opinion, what’s yours? What countries would make your list of the best places in the world? Please respond to this blog via the Comments section below.

For further reference:
Vilcabamba, Ecuador
Costa Rica as a Retirement Destination
What You Need to Know about Retiring in Mexico
Topretirements List of Countries and States for Best Retirement

Debate Over How Much You Can Safely Spend in Retirement Simmers On

For many baby boomers one of the questions we have always loved to debate is about to change. The old question was - how much do we need to accumulate in savings to afford a comfortable retirement? The old question had a corollary which is also changin - when will we be able to retire and start spending?

These questions will change direction because retirement is either here for a lot of us boomers, or it will be here within just a few years. We will have saved and invested what we did, and that is what we have to work with. for many of us, our traditional careers are over. So now the question has mutated into - how much can we safely spend each year and not run out before we die in 30 years or so from now. The decision is a momentous one, because if we miscalculate we might end up working as a greeter at Walmart to make ends meet. Or almost as bad, we will reach the age when we can no longer do anything with a pile of money, but regret that we never took the trips or had the fun we actually could have afforded.

According to several financial analysts inteviewed in the New York Times, (How Retirees Can Spend Enough, But Not Too Much) the question of how much we can take of our 401ks, IRAs, and other retirement savings isn’t that clearcut. And it has even gotten a lot murkier since the recent stock market crash. Will our portfolios ever get back to where they were? Will future returns be assured as they have been in the past?

A rule of thumb used to be that 4% or 4.5% of the principal a year was the right number. So say we had savings of $200,000, that means that we could withdraw $9000 a year and add that to our Social Security and any other pension income. Using that formula we would be able to keep up with inflation, so every year we could safely give ourselves a 4 or 4.5% raise.

Now some experts are questioning that rule of thumb. Some suggest that the right withdrawal rate might be 5 or even 6%. As you might expect, after the experience of this down market that type of thinking has given a lot of people the willies.

Michael E. Kitces is a financial planner with Pinnacle Advisory Group and Jonathan Guyton is with Cornerstone Wealth Advisors in Edina, MN. They have different approaches to setting a withdrawal figure, although they share one principle: flexibility might be the key to finding the right number. If the stock market is overvalued, it might be a good year to take a little extra out of your retirement fund - maybe even 5.5 - 6.5%. The thinking is the market is about to head down anyway, might as well spend it as lose it. Similarly, if the market is severely beaten down (sound familiar?), then we might be looking at a good belt-tightening year. Save the capital now and it will probably come back. Guyton has another idea we like. Carve out a separate discretionary fund for special trips, projects, or down years. His idea gives us some fun money, we just have to realize that once it is gone it is gone.

You can find more about this question at the New York Times - www.nytimes/yourmoney
Also Robert Shiller’s data used in this story

For further reference:
Article: A Surprising Answer: When You Should Start Taking Social Security
Forum Discussion: When to Start Social Security (including buybacks)

Home Prices Are Now at 2003 Levels

Some say it’s a good thing: declining real estate prices are an indication that demand and supply are finally catching up with one another. Fueled by foreclosures and distress sales, at least homes are selling - even if prices aren’t what sellers would like to see.   Year over year price declines slowed in the 2nd quarter of 2009 - the first quarterly improvement since the current slump began.  Even better, economists are pumping fists and high-fiving over the month to month price increases that showed up in many markets during July.

The Zillow Real Estate Market Report for the 2nd quarter of 2009 was just released, and it shows a 12.1% decline in prices from the comparable quarter of 2008. Predictably, the worst hit metros were those who showed the biggest price run- ups and overbuilding in 2005-2006. Florida (-23%) and California (-19%) were hit the hardest hit. Pennsylvania, on the other hand, only experienced a 3.8% decline in prices. As an example of the worst markets Fort Myers (FL) took a 29% haircut in prices, El Centro (CA) a 37% decline, and in Las Vegas prices were off 35%.
For more details check out the Zillow Real Estate Report.

The S & P Case-Shiller Index for the same period, released on August 25, showed very similar results. Its widely watched U.S. National Home Price Index recorded a 14.9% decline in the 2nd quarter of 2009 vs. the year earlier quarter.  That represents an improvement over the 19% decline experienced in the 1st quarter. According to that index, prices have now reached where they were in 2003, and are off some 30% from the 2006 peaks.  Las Vegas and Detroit continue to be the worst hit markets, whereas Dallas and Denver have now recorded several months of positive returns.

Buttressing these favorable (or less bad) reports was news that The Conference Board Consumer Confidence Index ® rose in August - always a good sign for the economy.