New York State is increasingly driving away one of the most powerful economic assets to come along in generations — Baby Boomers in their retirement years.
Come retirement, relatively well-off boomers in New York stampede for the borders to flee the state’s high taxes and cost of living, according to several indicators.
Yet state policymakers have been slow to address a retiree flight, say those who are sounding the alarm. Left unchecked, billions of dollars in spending and tax revenues will be leaving the state with the departing retired Baby Boomers, who now range in age from 50 to 68.
Between 2004 and 2011, Internal Revenue Service data that tracks taxpayers moving in and out of states showed that New York lost $20.5 billion in total income with nearly 40 percent of that income flowing to Florida, a state that assesses no income tax. Not all that sum can be attributed to retirees, but it indicates that New York is losing both retirees and a share of its working core.
In 2012, more Boomers left New York — after accounting for those coming and those going — than any other state in the nation.
While New York’s retirees have long been been fleeing to Florida and other warmer states to escape the cold weather, the outflow is increasing. Now, even those retirees who would have preferred to stay in New York with the cold winter weather are moving south for a more hospitable tax climate.
“Economically speaking, the Baby Boomers are a powerhouse group, and they’re heading for the hills,” said David Irwin, communications manager for AARP in New York.
Retirement planners say they are seeing an increasing trend among Baby Boom retirees opting to leave New York. The movement that should alarm policymakers because it poses a potential for drastic shortfalls in state income tax revenue in future years, say economic experts.
“This is the story of Michigan and Detroit, only larger,” said Arthur Laffer, former Reagan administration economic adviser and now chief executive of Laffer Associates, an economic research and consulting firm in Nashville, Tenn. When comparing New York to virtually any other state on a retirement cost-of-living basis, the Empire State always comes out on the losing side, he said.
Never looked back
Retiree migration is part of a larger issue for New York: The state is losing the competitive battle for all residents.
During the 12 months ended July 1, 2013, the Census Bureau estimated New York lost 104,000 residents to other states, according to data compiled by the Empire Center, The number was the largest net domestic migration loss sustained by any state, according to Empire Center calculations.
“I’m not sure it’s on the radar as much as it needs to be,” said Assemblywoman Donna Lupardo, D-Endwell, who has expressed concern that by the time the state reacts to Boomer flight it may be too late. “Hopefully, we can add some urgency to the issue.”
Among those Baby Boomers who left New York were Peggy and Bill Elliott. The Norwich couple relocated to the Florida retirement community of The Villages, 50 miles north of Orlando, during 2005. Bill, now 64, and Peggy, now 60, have no regrets, and even encourage their friends to consider a similar move.
“Property taxes are about one-sixth of what we would have paid in Norwich, and there’s no tax on retirement income,” Bill Elliott said.
That’s just part of the story. Utility costs, which averaged $320 a month in Norwich, are never more than $150 a month at their Florida home, even when the air conditioning is running full blast.
“We have money for the extras and we could have never done that in Norwich,” said Peggy Elliott, who worked as an advertising sales representative for The Evening Sun in Norwich. “If we stayed there we could not have traveled.”
‘Why should I pay more’
The pace of retiree departures is expected to accelerate as more Baby Boomers reach retirement age and their ties to the state become frayed because their children have also moved away to find jobs.
Experts are quick to note that a growing retiree community should be viewed as an asset because while they can still contribute to the economy with significant buying power, they ask little in return in terms of services such as schools.
“Retirees are saying: ‘Why should I pay more in New York taxes when, for the most part, Florida is a better use of my money,” said Kelly Zarcone of the Buffalo-based law firm of Ward, Brenon, Lipman and Zarcone, which has a thriving practice advising New York retirees how to move out of state to rid themselves of the New York income tax bill.
A recent survey by New York’s AARP chapter estimated that 60 percent of the state’s Baby Boomers expecting to retire in the coming years have plans to move from the state, exporting more than $105 billion in income annually.
“New York state’s 50-plus are a major force at the ballot box and in the local and state economy — but many are worried about their futures here, and finances and affordability are major factors for them,” said Beth Finkel, New York director for AARP, which calls the trend “Boomer flight.”
While the sun may be one factor prompting New Yorkers to relocate, wealth advisers said a growing contingent of retirees are taking flight to avoid their pension and private investment income from being swallowed by state income and property taxes.
“There’s a fairly strong incentive for well-to-do retirees to leave New York,” said Kent Gardner, chief economist for the Center for Governmental Research in Rochester.
New York has a long-standing reputation as a miserable place to retire. AARP, Forbes, Kiplinger’s Personal Finance Magazine among others prominently list New York as one of the worst states for retirement, citing high income and property taxes as the main reasons for state coming in at the bottom of the pile.
Among other states attracting a share of New Yorker income are North Carolina, Georgia, South Carolina and Texas, all of which offer some respite from New York’s tax burden. While not all those departing migrants are retirees, wealth advisers in the region said many states are proving attractive to the New York retirement community for reasons well beyond weather.
Even after considering the potential higher costs from homeowners and car insurance in locales such as Florida and Texas, an analysis of the bottom line costs still leaves former New Yorkers well ahead when they assess costs of relocating or remaining.
“From a tax standpoint there are more friendly places to retire,” said Jeffrey Kerr, a Binghamton-based financial adviser who said many of his clients have done the side-by-side analysis and several have opted to relocate.
Those with strong family ties in the region may choose to relocate to just across the border to Pennsylvania, Kerr said, while still realizing savings on both income and property taxes. Another client of Kerr’s selected New Hampshire, long known as a tax haven, a state with no income or sales tax.
“I can’t think of anyone who has not asked the question” whether it would be more advantageous to move out of state in retirement, said William J. Scannell, managing partner of the Binghamton-based accounting firm Johnson, Lauder & Savidge.
Not all retirees are slammed by New York taxes. Those who collect a public pension — such as teachers, government workers and retired politicians — aren’t subject to state income tax. However, even many public pensioners have moved: 20 percent collect their retirement checks outside New York, according to figures compiled by the Office of the State Comptroller.
For other retirees, only the first $20,000 in private retirement income such as pensions or tax-advantaged savings, such as a 401k, is tax exempt. Social security payments are exempt from New York income taxes. For those with more lucrative retirement packages, the tax bite could be substantial, prompting them to abandon New York for states where they can retain a larger share of their retirement income.
In Florida there is no income tax on pension income. For the top income brackets, the potential bite from estate taxes can also be a major factor to consider in relocating. Though New York will increase its estate tax exemption to $5 million within the next five years, said Greg Lesko of Lesko Financial Services in Binghamton, Florida has no death tax.
Policymakers say New Yorkers get value from their taxes in more municipal services and better schools than in many other states. But critics say that argument doesn’t wash among retirees. Most of them no longer have school-aged children.
“The main thing that used to keep people here was a strong family network,” Buffalo lawyer Zarcone said. But because the upstate economy has been walloped by a flight of jobs to other states, there’s less reason for Baby Boomers to remain in their long-term home because their children have often moved to find other opportunities.
Based on the recent AARP survey, 56 percent of New Yorkers worry about affording property taxes in retirement, and 51 percent say high utility costs also factor into the costs considered in the relocation decision.
New York keeps a vigilant eye on those who leave and claim a new state as their new domicile. The oversight is greater if they still maintain property in New York. In case of a tax audit, a relocated a former New York taxpayer must be able to prove that they spent more than 183 days out of the state. In addition, they must ostensibly move their entire life to the new state — registering to vote in their new home, changing their car registration, moving their bank accounts to their new home, among other requirements.
“New York can be vicious for those people who move,” Zarcone said. “The burden (of proof) is on the person changing his or her domicile.”
Even though the New York tax man keeps a keen eye on those who claim to to have moved out of state, there is no indication that it will stop the growing move by Baby Boomers to pull up stakes for a lower cost of living elsewhere.
The Elliott’s, formerly of Norwich, note that their retirement community had a population of 62,000 when the moved nine years ago. Today, it stands at approximately 107,000, with many Baby Boomers from New York among the newcomers.
The couple regularly encourages friends and acquaintances to make a similar move, and express no surprise that fellow Boomers are leaving the state for other locales.
“Shame on New York state,” Peggy Elliott said. “They should be losing them. The cost of living is too high.”
Relatively oppressive income and other taxes are driving Baby Boomer retirees from New York.
New York loses more Baby Boomer retirees than any other state.
Some policymakers say New York needs to be far more urgent in addressing the flight of Boomers.
© 2014 Ithaca Journal