Some Retiree Myths
There seems to be a persistent feeling that retirees – taken here to be anyone age 55 or better -- are a drain on an economy. When pressed, those who express such feelings usually respond with one or more of the following reasons.
- Retirees have below average incomes
- Retirees do not spend as much as their younger counterparts
- Retirees do not support public schools
- Retirees get more than their fair share of public health benefits
- Retirees do not pay their way
However, years of research into the impacts of retirees by Thomas, Warren + Associates (TW+A) has consistently shown these to be myths.
Myth: Retirees Have Below Average Incomes
Many people believe that most retirees are poor. When they think of retirees they conjure up images of an old lady eating cat food in order to make her social security check stretch through the month. They seem to forget that Warren Buffet is also a retiree. In fact, retirees, as a whole, are surprisingly well off. There may be old ladies eating cat food to stretch their budget, but they are almost as much an anomaly as is Warren Buffet.
In reality, on a per capita basis, retirees have significantly higher incomes than do individuals below age 55, even when children not yet old enough to enter the workforce are excluded. The per capita income of Arizona’s retiree residents in 1996 was about 20% higher than residents 16 to 55 years old. In 2000 Florida’s retiree residents’ per capita income was 14% higher than that of the state’s 18 to 55 year olds. This is not just an anomaly associated with two of the country’s premier retirement destinations. The 2000, per capita income of North Carolina’s retirees was 19% larger than their younger counterparts, and the per capita income of Louisiana’s retiree residents was an amazing 27% higher than the state’s 18 to 55 year old residents.
The reason that retirees have higher incomes than their younger counterparts is twofold. Those between the age of 55 and 64 who are still working are in their prime earning years. Their salaries are at their apex. Thus, it is to be expected that these people would have higher per capita incomes. However, most people age 65 and older have at least one income, social security, and many have two or more incomes, social security and privately funded pensions. Thus, while most people age 65 and above have incomes, the same is not true for those under age 55. Contrary to popular belief, there continue to be many families where only one adult works.
Myth: Retirees Spend Less Than Their Younger Counterparts
After the previous discussion, the myth that retirees spend less than their younger counterparts would seem to be patently false; because retirees have larger per capita incomes, it would be expected that they should spend more per capita. However, this is not the case. People generally do not spend their money as individuals, but as households. In most households, each individual does not buy his or her own groceries, car, house, etc. On a per household basis, the incomes of those under age 55 are slightly higher than they are for retirees.
Nevertheless, the spending by retirees, on a per household basis, is nearly as large as the spending by those under age 55. The primary difference is not how much each group spends, but what they spend their income on. In general, retirees spend more on services, shelter, household operations, out-of-pocket medical expenses (including insurance), and charity while their younger counterparts spend more on food and beverage, apparel, transportation, recreation, and education. Thus the spending by retirees has a larger impact on their local (state and community) economies than does spending by younger residents because more of their spending stays at home.
This being said, the size of the per capita spending by retirees is significant. Retiree residents of Arizona spent about $23 billion in 1996. This represented about 34% of the total spending by all residents of Arizona. To put this into perspective, Arizona’s retiree residents accounted for only about 21% of the state’s resident population that year. Florida’s retiree residents spent about $118 billion in 2000 or about 48% of the total spending by all Florida residents. To again put this in perspective, Florida’s retiree residents represented only about 28% of the state’s population in 2000. North Carolina is no different. Retiree residents of North Carolina spent about $33 billion in 2000. Thus almost 42% of the total spending by residents of the state was done by 21% of its population. Finally, Louisiana’s retiree residents spent about $24 billion in 2000. This represented 38% of the total spending by all Louisiana residents, but was done by only 20% of the state’s population.
Myth: Retirees Do Not Support Public Schools
Typically retirees do not have children in the local public school system. This appears to have led to the myth that they do not support public schools. As a result, it seems that people believe that retirees are unwilling to vote additional money for their school system. Granted there have been instances where school bond issues have failed to pass in districts with relatively large retiree populations. On the other hand, TW+A’s 1998 survey of 900 retirement-age residents of Arizona found that 71% of the retirement-age individuals surveyed who said they voted, reported voting in favor of school bonding issues.
Regardless of whether retirees vote for new school bonds or not, they do support local public schools. Most funding for local public schools comes from property taxes. Because retirees are more likely to own their own home than those under age 55, and because they tend to have more expensive homes, on a per capita basis retirees pay more property taxes than do their younger counterparts. For example, in 1996, Arizona’s retirement-age residents paid 39% more per capita in property taxes than did residents under age 55. Also, while comprising only about 28% of the state’s population in 2000, Florida’s retiree residents paid 47% of the state’s residential property taxes. Thus, not only do retirees support local schools through their property taxes, they provide more than their fair share of the monetary support for local schools.
Myth: Retirees Get More Than Their Fair Share OF Public Health Benefits
Infirmities are a by-product of increasing age. Thus, it is natural to believe that retirees require more medical care and more expensive medical care than do their younger counterparts. With the high costs of medical care and the growing numbers of retirees, there is an increasing feeling that retirees are getting more than their fair share of public health benefits. While at the federal level this is true, at the state and local level this is not the case. For example, in 2000 the per capita expenditures from general revenue funds for Health and Human Services in Florida was nearly the same for the state’s retiree residents as it was for its younger residents.
This myth seems to be perpetuated because people tend to focus on anomalies, not the big picture. Of course, retiree medical care, especially end of life care, can be expensive. If a retiree does not have Medicare and perhaps a health care policy to supplement it, the state in which they reside may have to pay for much of their health care. However, this is the exception, not the rule. Consider the case of Florida’s Department of Elder Affairs. In 2000, it spent an average of $858 per client. However, this works out to be only $23 per retiree. What these numbers mean is that the Department of Elder Affairs is providing monetary benefits to only a very small portion (2.5%) of the retirees in the state.
In 1996 Arizona spent about $135 more per capita in state funded public health benefits for retirees than it did for those below age 55. However, this must be put in perspective. In the same year, Arizona’s equivalent of Medicaid (state funded health care for those not covered by insurance) spent more per capita for prenatal, delivery, and postnatal health care that it did on retiree health care.
Most retirees do not require state assistance for their health care. They have health care insurance, typically Medicare supplemented by private insurance. Thus, although retiree health care cost can be expensive, only a relatively small portion of it is paid for by their state.
Myth: Retirees Do Not Pay Their Way
The states in which they live derive revenue from retirees, primarily from the income and sales taxes they pay. Because, as noted earlier, retirees have higher per capita incomes than do those under age 55 and have expenditures nearly as great as their state’s younger residents, it should not come as a surprise that they pay more in state taxes per capita than do their younger counterparts, at least in Arizona, Florida, and Louisiana, states for which Thomas, Warren + Associates has done extensive research.
In Arizona, the per capita state taxes paid by its retiree residents in 1996 were 121% of the per capita state taxes paid by residents under age 55. Arizona’s retirees each paid a total of $990 in state income and sales taxes in 1996, while those under age 55 paid $819 each. That means that each retiree resident of Arizona paid $171 more in state income and sales taxes than did each person under age 55. Recall that, on average, a retiree resident of Arizona required an additional $135 more in state funded medical expenses than did a younger individual. Subtracting this state subsidy for retiree medical expenses from the additional state taxes they paid, retiree residents of Arizona provided the state with $36 more per capita in state revenue than did its younger residents.
Because Arizona is a state which imposes both a state income tax and a sales tax on its residents, the question remains whether the same result would hold in a state that does not have a state income tax. Florida is such a state. 73% of Florida’s general revenue in 2000 came from its sales and use tax with the remainder from an array of other taxes, none of which was an income tax. In 2000 the per capita sales taxes paid by retired Floridians was about 185% of the per capita sales taxes paid by younger Floridians. The average retired resident of Florida paid an estimated $508 in sales tax in the year 2000 while a resident under age 55 paid only $298. That is a whopping $210 more in per capita sales tax paid by the state’s retirees. This is even more astounding when it’s recalled that, on a per capita basis, Florida’s retirees received about the same dollar amount of state funded medical care as did the state’s younger residents.
There is no reason to believe that Arizona and Florida are anomalies. In fact, very similar results hold true for Louisiana. Because retirees more than pay their fair share of state taxes, they can be thought of as providing a subsidy to the younger residents of the states in which they reside.
Conclusions
Nothing said here should be construed to mean that everything about having retirees in a community or state is entirely good. They can be quite annoying to younger people, especially those in a hurry. Nevertheless, they provide a definite economic benefit to all residents of the communities and states in which they choose to live. In short, retirees are “gray gold” to those communities and states able to attract and retain them. – Gene Warren