Florida’s Retirement Problems

Florida has a famously old population. Many regions are jokingly referred to as “Heaven’s waiting room” because it is where people go to spend their last years before death.

Demographic trends can make it appear as if Florida has a steady influx of new residents. Many reports have optimistically touted the expiration of State and Local Tax (SALT) deduction benefits, saying that it will lead to a Florida population boom. And, that is true, to an extent. But, it’s important to look at these population dynamics closely. These population inflows are often made of older people, who have a very different economic value and contribution model than younger people.

When people retire to Florida, they’ve often already exited the workforce. If they are still working, they may be only partially engaged. This means that they often live off of their retirement funds, which they plan “draw down” for the rest of their life. This has pro’s and con’s for a local economy.

On one hand, it is good to have an influx of new residents; especially wealthy residents with resources to contribute into an economy. And, it is true that wealthy, retired folks don’t take jobs away from local job-seekers. At first, this seems great. But, there is a dark side to this dynamic, too.

Economists know that dynamic economies require balanced engagement between market participants. For every give, you should have a take. And, vice versa. Said another way, healthy, vibrant economies should have a robust exchange of goods and services between providers and consumers. For even healthier, and even more vibrant economies, you should have creative collaboration and innovation. Some people might call this phenomenon “synergy” — which means that the collective outcome of a relationship is greater than the sum of its inputs. When you put the parts together, something magical happens, and the final product is even better than any one individual could have created alone. With retired populations, these healthy, dynamic economic elements are not present.

Retired folks are usually older, and in the later stages of their lives. By definition, they have usually left their peak-earning years. Crucially, they usually do not have young children, or growing families, which are both life-stages which require immense consumption. People with young and growing families must spend heavily to raise those families. Everyone knows this intuitively, but food, schools, clothes, entertainment, family vacations, housing and every other aspect of living are higher among families, when compared to retired folks. So, by retirement, most folks have have excited the stages of life where they tend to consume the most.

Retired folks tend to consume a very specific set of services. Their demands fall disproportionately into two categories: low-value services, like restaurants and low-skilled home-health-care, and high-end professional services, like doctors and attorneys. This creates a skewed, imbalance economy with “Haves and have-nots”. You don’t have to be an economist to see that a community which consists of only waiters and probate attorneys is not very healthy, dynamic, or likely to grow.

If you’re optimistic, you might suggest that it’s great that Florida’s aging population is “primed” to dump loads of wealth into the economy after they pass away. Well, that is a good intuition. But, it’s unlikely to happen. One issue with an aging influx of out-of-state retirees from New York is that their children are often settled and content in New York. They often have families, careers, and roots, which prevent them from uprooting and moving from New York to Florida.

So, when their aged, retired parent(s) pass away in Florida, a few things will happen. The deceased retiree’s house will ultimately go into the real estate market, in search of a new owner. And, the wealth and Estate of that deceased retiree will flow back to the heirs in New York. That wealth is unlikely to remain in Florida, except for the fees charged by a Florida probate attorney. And, even then, that’s only if the retiree didn’t already make advance plans for their Estate to be handled by their long-time family attorney in New York. What about the retiree’s house that will go on the market? It’s probably going to sell for a discount, for a variety of reasons.

For Sale: Florida Retirement Home. Must Sell!

Retirement houses often sell for a steep discount. Why? Because retirement homes are often (But not always!) out-dated, and may have deferred maintenance. It makes sense that frugal, frail retirees are not eager to replace roofs, plumbing, or live in a dusty construction zone during a bathroom remodel. Old-folks’ homes often require extensive repairs, rehabilitation and updating, after being lived in by a retired person, so these houses sell for low prices. This does create an opportunity for real estate investors to come in, perform cosmetic fixes, and put the houses back onto the market at premium rates. But, this dynamic has its own pitfalls; it too, creates a two-speed housing market; old, out-dated housing for a discount, or unaffordable, high-end, luxury. Unfortunately, residents of Florida have struggled with this reality for a long time.

Ultimately, Florida’s economy both suffers, and benefits from, its unique dynamic. As baby-boomers from around the country, and even world, aspire to retire in warm and sunny Florida, these economic imbalances will only grow. One day, the imbalances will be too much for the economy to bear, and a dramatic rebalancing must occur. In economics and finance, there is a common refrain of wisdom: A tree cannot grow to the sky. It means that when there are inherent limitations to a system’s growth, it’ll grow until it can’t grow any more. I think that imagery is pretty fitting for Florida’s economy: the fundamental imbalances and weaknesses will ultimately prove to be their own limiting factors.