===================================================================== Center for Community Economic Development University of Wisconsin-Extension Community Economics Newsletter No. 306 April 2002 ===================================================================== A Newsletter from the Center for Community Economic Development; Community,Natural Resource and Economic Development Programs, and University of Wisconsin-Extension, Cooperative Extension Service ===================================================================== Does Retiree Household Income Matter? Comparing the Economic and Fiscal Impacts of Low and High Income Retirees in Rural Wisconsin* by Martin Shields, Judith I. Stallmann, and Steven C. Deller** In 1920 less than 1 American in 20 was over age 65. By 1995 the proportion of Americans over 65 had risen to 1 in 8. It is expected that 1 in 5 Americans will be over the age of 65 by 2030. As baby boomers demonstrate, the population’s age structure greatly influences consumption patterns, which in turn ripples throughout the economy. In this issue of Community Economics we examine the economic and fiscal impacts of elderly residents in a rural region. Two distinct household types—high and low income—are compared. We find specific household characteristics have important effects not only on the relative size of the economic impact, but also on the extent to which net fiscal impacts are positive or negative. This suggests rural development planners may want to target specific types of retiree households (i.e., wealthy) when pursuing retiree in-migration as an economic development strategy. The graying of rural America The aging of rural America results from two trends: in-migration of urban retirees to rural areas, and out-migration of rural young adults to urban areas. These two trends, however, do not occur uniformly across rural areas. Areas that attract in-migrant older persons tend to also attract or retain young adults, in part because of the jobs created by the in-migrants. In the second case, young adults leave rural areas searching for work, leaving behind an older population that ages-in-place. For more than 20 years, researchers have examined the graying of America and its impact on the economy. This work usually shows positive economic impacts on the receiving communities from in-migrating elderly. For example, USDA ERS finds “retirement destinations” have experienced above average population and employment growth and rapid income growth. This research, coupled with a surge in the number of potential retirees as the baby boom grows older, has made retiree recruitment a popular rural development strategy. To date, the literature has focused on higher income retirees, who exhibit a greater tendency to migrate long distances and are the target of retirement recruitment strategies. It is important to remember though, that the aged are not a homogenous group and should not be treated as such, which the development literature tends to do. Clearly, not all retirees can be described as high-income or footloose looking to relocate into a rural area. An often-overlooked group is elderly whom age-in-place. Their characteristics and needs are different from those of in-migrating elderly and require a different set of services and policies. One study of older movers finds that those who move for amenity or retirement reasons tend to be younger, wealthier, more highly educated, married and own their home than those who do not move. Still, for any given five-year period, only about five percent of the population over age 60 make a long distance move. In essence, the majority of elderly elect to age-in-place. Assessing retiree impacts In this study we simulate the economic and fiscal impacts of two distinct sets of elderly populations using the Wisconsin Economic Impact Modeling System. Each simulation assumes that 500 households age 65 and over relocate into a rural region in north-central Wisconsin. As such, the scenarios take the form of exogenous in-migration of two different household types. The household types are: 1) incomes below $20,000 and 2) incomes over $50,000. This comparison is akin to examining the difference between those retirees who might in-migrate to a region (high income) and those that age-in-place (low income). For the Wisconsin System, the scenarios are best described in terms of the changes in final demand that different household types present to the local economy. To do this we turn to the 1995 Bureau of Labor Statistics Consumer Expenditure Survey. Previous work with this data shows that there are significant differences in spending habits between household types and these differences can be used to assess differences in economic and fiscal impacts. Because experience suggests these two elderly groups would contain some mix of income levels, this analysis should be thought of as simulating the most extreme scenario of the differential impacts of these heterogeneous groups of elderly on the community. The two household types differ most by their expenditure patterns. The low income elderly spend approximately $13,000 annually while the high income elderly spend $40,000. There also are notable differences in average household size (1.5 people for low income versus 2.3 people for high income). For the low income elderly households the Wisconsin System suggests that 500 new households will create 100 initial jobs and a total of 156 jobs for an implicit employment multiplier effect of 1.56, or 0.2 jobs for every person in the household. This compares with 600 initial jobs for higher income elderly with a total employment impact of 810 jobs for an implicit multiplier effect of 1.35 or 0.7 jobs for every person in the household. The primary cause of the larger employment impact for the higher income households comes from greater levels of local purchases. Population impacts are also important. While the initial effect determined by the scenario under consideration (in-migration) dictates the bulk of the population impact, the ripple effects in employment, earnings, changes in relative housing prices, and unemployment influence population changes through indirect migration. For low income elderly households, the initial effect is 750 (=500*1.5) additional persons and an indirect effect of an additional 69 persons for a total population change of 819 persons. For higher income elderly households, the initial effect is 1,150 (=500*2.3) additional persons and an indirect effect of 266 persons for a total population change of 1,416 persons. In addition to employment and demographic impacts, we used the model to examine the effects on local governments and school districts. First, our analysis shows total expenditures increase for all publicly provided services. For the low income scenario total non-education expenditures within the region increase by about $538,000; while for the high income scenario the increase is nearly $1.3 million. The driving factors behind the large differences in absolute spending increases are higher population impacts and higher levels of income under the high income retirement scenario. On the revenue side, our model predicts that total local government revenues will increase under the low income scenario by $1.1 million and by $2.3 million under the high income scenario. Here, aggregate changes in property values are the source of the increase. From a local government perspective, both developments pay for themselves. Differences of impacts on public education expenditures are slight. Here, we see total expenditures on schools increase about the same under both scenarios ($1.4 million in low income versus $1.6 million in high income). The changes, though small, are due entirely to the indirect and induced migration, as neither set of migrating elderly households introduces new children to the school district. Unfortunately, we were unable to estimate changes in school revenues, as Wisconsin’s public education formula was undergoing dramatic restructuring at the time we constructed the model. We can speculate, however, that school district revenues are likely to show greater increases in the high income scenario than the low income one, as the houses of wealthier retirees tend to make larger contributions to the local tax base. In sum, our results suggest that there are unique impact patterns by different household types. From an economic development perspective, our results suggest communities seeking to maximize the employment and fiscal benefits provided by retirees may want to focus efforts on attracting high income elderly households. * This paper summarizes results from “Simulating the Economic and Fiscal impacts of High- and Low-Income Elderly on a Small Rural Region,” Review of Regional Studies (1999) 29(2):175-196. **Martin Shields is with Penn State University; Judith I. Stallmann is with Texas A & M University and Steven C. Deller is at the University of Wisconsin-Madison/Extension. 1 The Wisconsin Impact Modeling System is a conjoined input-output/econometric model of rural Wisconsin counties. Steven C. Deller Community Development Economist Issued in furtherance of Cooperative Extension work, Acts of May 8, and June 30, 1914, in cooperation with the U.S. Department of Agriculture. Carl O‘Connor, Cooperative Extension, University of Wisconsin-Extension. University of Wisconsin-Extension, U.S. Department of Agriculture and Wisconsin counties cooperating. UW-Extension provides equal opportunities in employment and programming, including Title IX and ADA.