The Garden State vs. the Sunshine State: Retirement Math

My state, New Jersey, has become a case study for financial disaster. (Forgive the cynical language, but you try to describe the New Jersey balance sheet and budget with one short phrase.)

Many Baby Boomers are just beginning to contemplate if they're ready to retire. As a financial planner, I can attest to the fact that every New Jersey Baby Boomer client talks about New Jersey evacuation. Each client has his or her own reason for fleeing the state, and the destinations vary.

However, one state has surpassed the rest in welcoming these refugees, so much so that we call it "God's Waiting Room." That's Florida.

Even if you focus mainly on advising clients or selling life insurance and annuities in some state other than New Jersey, you may find that many of your clients have similar thoughts about moving to another state when they retire. "I could move to Florida" may be as much a part of some clients' retirement planning thinking as ideas about their likely investment performance.

(Related: How Americans Use IRAs)

To dig deeper into the New Jersey vs. Florida comparison, let's begin by examining the two most common financial reasons for the exodus from the Sopranos state…

Income Taxes: Florida has none. New Jersey can top out at 11.8% for the wealthiest residents, according to NJ.com.

Property Taxes: Florida taxes on average 0.97% of a property's assessed value, whereas New Jersey taxes 1.89% of assessed value. New Jersey's property taxes are the worst in the nation.

Combine Florida's lower taxes with its much cheaper homes, if you move there, you get instant savings.

So where does Florida get the money for such nice things?

About 59% of state general revenue comes from sales taxes, 13% from the lottery, 5% from corporate tax, and less than 30% from various other sources.

Florida's sales tax is 6%, plus an additional city tax that in some areas can reach a total of 8.5% (although some items are exempt, such as groceries), according to the Florida Policy Institute.

Even though New Jersey's income and property taxes hog the negative limelight, the state also has its own flat sales tax of 6.625%.

So, if that tax revenue is enough for Florida, why not Jersey? The Sunshine State has a population of 20.6 million, versus New Jersey's 8.9 million residents.

This begs the questions, are Floridians less expensive to support? Are they operating with economies of scale not available in the smaller, congested states of the Northeast? Or is the Garden State offering better services?

Let's look at where all the money is going.

1. Education

Florida allocates 28% of its budget to education, spending $7,408 per pupil, below the national average of $11,762, and well below New Jersey, at $18,235. Teachers in Florida average a $47,267 salary (54% higher than the state's median income), vs. New Jersey's teachers, who average a $76,430 salary (46% over their median income).

Nevertheless, Florida is ranked seventh overall in education and first in higher education by US News & World Report. New Jersey ranks second in terms of overall education and 28th in terms of higher education.

2. Law Enforcement

A cop can expect to earn a $49,085 average salary in Florida, and $87,490 in New Jersey, according to U.S. News & World Report. New Jersey ranks fourth in terms of public safety, and Florida ranks 35th.

3. Government Workers Pension and Post-Retirement Benefits

Florida has $20.2 billion of unfunded liabilities in this category, which pales in comparison to New Jersey's over $150 billion deficit. New Jersey's pension and post-retirement benefits obligations amount to four times the state budget. In 2001 New Jersey's public unions successfully lobbied the legislature for a 9% pension increase, and a reduction in employee pension contributions, from a suggested 5.5% down to 3.5% of salary. The unions also won the right for workers to retire five years earlier at full pension.

Florida has $11.6 billion in debt. New Jersey has $195.5 billion in debt.

Consideration of these statistics and others has led Truth in Accounting to give Florida a "C" for fiscal responsibility and New Jersey an "F."

In conclusion, maybe Florida is right for some, and New Jersey is right for others.

You could go through a similar process to compare Florida with your state.

It doesn't take an economist to realize that retiring on a lofty pension from a high-tax state in a low-tax state like Florida makes sense, especially if primary education is not a major concern.

Unless there is an upheaval of the system, I project more government workers will strive to make their fortune in the Garden State, send their kids away for college, and eventually reap their post-retirement rewards in the Sunshine State.

A word of caution: The cost of providing health care for one person over age 65 is three to five times higher than providing care for someone under age 65.

That raises questions about whether Florida's strategy of using low taxes to attract senior citizens will have staying power.

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