Americans each have their own distinct retirement needs and circumstances. And while retirement environments differ across states, some places are far more desirable than others, according to recent research from investment advisory firm LPL Financial.
LPL’s 2016 Retirement Environment Index provides a holistic ranking of the attractiveness of each U.S. state as a retirement destination. The index is unique in that it looks specifically at the 45- to 64-year-old cohort—the largest subset of the Baby Boomer generation—and collectively assesses the strengths and weaknesses of pre-retiree desirability on a state level, rather than a city or regional level.
LPL prepared its insights using proprietary analysis to provide a comprehensive view of the factors that are highly considered when planning for retirement, said Anthony Valeri, senior vice president at LPL Research, and the study’s co-author.
“The retirement environment seeks to discover the complicated answer to the simple question: Which state is most desirable for pre-retirees?” Valeri said in a written statement. “And while each pre-retiree’s decision is based on individual factors, the category grades are designed to illuminate the different ways that desirable can be defined.”
Just 12 states didn’t have grades lower than a “C,” with Virginia leading the way. The state held the top spot in the Index for its high marks in both the community quality of life and financial categories, both in which Virginia earned “A” grades, while receiving a “B” in employment and education.
A high median income relative to the national average, a low cost of living, healthy private sector retirement assets and a below-average tax burden also contributed to Virginia retaining its place as the number one U.S. state in LPL’s Retirement Environment Index for the second year in a row.
At the other end of the spectrum, California anchored the 2016 Index, slipping from its 2015 position at No. 48. Earning a grade of “F” in the financial category, California was hampered in this year’s rankings by an elevated tax burden—fifth highest in the nation—and an “extremely high” cost of living, according to LPL’s analysis.
The state also fared poorly in health care, earning a “D” grade as health care expenditures per capita are below national averages. California also ranks No. 41 in the percentage of pre-retirees covered by health insurance. On a bright side, the state did receive an “A” for community and quality of life.
Speaking of bright sides, Florida, which has often been synonymous with retirement, only modestly leads states with the 65-year-old-plus demographic. The Sunshine State ranked No. 39 on the Index, demonstrating that other factors are more important to retirees beyond sunshine and sand.
The age 65-plus group represents 17.7% of Florida’s population, according to statistical data compiled by LPL Research. Compared to the national average of 13.5%, Florida’s 4.2% advantage is modest, even if a leader.
“Demographic data support the notion that Florida is a popular choice for retirees, but its advantage may be overstated and perhaps it is not the retirement mecca it is portrayed to be,” writes LPL in the 2016 Index report.
Florida received “C” grades in both the financial and health care categories, while also receiving “D’s” in housing and community quality of life, and an “F” in employment and education. The state’s highest earned grade of a “B” came in the wellness category.
“The ‘Florida Factor’ is one of the misconceptions the LPL Research Retirement Environment Index seeks to dispel,” writes LPL. “Although still a popular choice among retirees, Florida is not the ‘one and only destination’ that it is perceived to be.”
Because the retirement environment in each state is unique, LPL extended its analysis to measure broader regional trends. What it found was that states in the Midwest had an average ranking of 15th, yet states in the West had an average ranking of 35th, with the South and Northeast falling somewhere in between.
Retirement planning is personal in nature, with varying circumstances and situations that need to be considered for different retirees. By examining the Retirement Environment Index, LPL aims to provide a resource that helps individuals consider what matters most to them in retirement, which they can use to facilitate discussions with their financial advisers about how to best prepare to meet those goals.
When planning for retirement, it is important for Americans to do more than just create a financial plan based on what they think they’ll need, considering their budget and position in life, said David Reich, LPL executive vice president and head of Retirement Partners.
“When planning for retirement, it is important for Americans to do more than just create a financial plan based on what you think you’ll need, considering your current budget and position in life,” said David Reich, LPL executive vice president and head of Retirement Partners, in a prepared statement. “Healthcare, rising home costs and access to creating the quality of life you desire should be factored into your long-term plan.”
View LPL’s Retirement Environment Index.
Written by Jason Oliva