February 15, 2009 – You have probably read about the problems Greece is having with its unmanageable debt these days. Well if you thought that sort of problem couldn’t effect you as a retiree in the good old USA, think again. A recent article, These 7 States are Headed for Something Worse, by Gregor Macdonald at Seeking Alpha makes a good case with 4 different reasons why 7 U.S. states are NOT the best place to retire. His conclusions are quite similar to what Topretirements reported on back in November (see links at end of article).
While Mr. McMacdonald’s piece was not specifically directed at retirement decisions, we think it is relevant. Here are the 4 reasons why he thinks these 7 states are in trouble:
1. All of the states on his list have large populations (at least 8 million people)
2. They are borrowing heavily,at least 1 billion dollars, to pay unfunded unemployment insurance claims
3. Each state has at least 15% underemployment
4. All are net importers of energy
The 7 states on his list are:
So what does this mean to these states? Macdonald makes the point that all 7 states are being squeezed very hard, with no great resolution in sight. Real wage growth is stagnant or going backward. According to Macdonald, all “…seven states are squeezed hard at both ends: no wage growth at the top, and no relief through cheaper energy costs at the bottom.” The result – taxes will have to go up, interest costs on borrowing will increase, and services will decline. The spiral might get worse as residents get fed up and move elsewhere.
Is This Relevant to You as a Retiree?
For you as a potential retiree the impact of these states’ financial predicament might not be quite as bad. if you are retired, you probably don’t have to worry about being unemployed. You might have to pay higher taxes – if you have taxable income. You do have to be worried about cuts in services, as well as subsequent taxpayer revolts. And certainly it’s not much fun to live in a place where the news is bad and the economy is depressed.
We should note that Texas could have qualified for this list. But Macdonald took it off because it is a net energy exporter (not importer as erroneous first version stated) and thus doesn’t face quite as much pressure.
What do you think? Does his argument make sense to you, or could it affect your decision? Comment in the section below and let us know.
This article has stirred up the biggest controversy of any we have ever written. We view that as a very good thing, since it shows that people are thinking and expressing their opinions. The part of the article that was the most controversial was that North Carolina and Florida made both this “states to avoid” list and Topretirements’ “best” list, which is more accurately a “most popular” list. The fact is that these 2 states are such popular retirement destinations that even the most serious financial problems might not affect retirees’ plans to retire there.
The good news for Florida is that it has cut expenses in the face of declining revenues. Whether other states can do that is another matter – some are in worse shape than others. As other commenters noted, we also wonder why states like Oregon or New York didn’t make the list. The Pew Center’s report, “Beyond California“, offers a more thorough review of states in trouble, and we highly recommend it. Their list has 10 states on it, but does not include 2 states on Macdonald’s list – North Carolina and Ohio.
Retirees don’t have to be as concerned about the financial health of their state as do younger workers. Retirees usually don’t pay that many taxes, and it is the younger people who are going to have to struggle with future debts. Lastly, some readers were concerned that Macdonald was trashing every city in the state (e.g.; Asheville). NC might have economic woes, but that doesn’t mean all of the cities within it will be all that affected. Asheville remains the most popular retirement destination, and for good reason.
Everyone, thanks for the wonderful, spirited comments! John Brady