by Terry L. Besser
Assistant Professor and Extension Sociologist
Iowa State University
Some Communities work hard at attracting new industries. Others would rather attract retirees. Retirees are an economic development opportunity in the same category as new industries. They stimulate local economies by spending their pensions and investment income, derived primarily from sources outside the state, to purchse local goods and services. Both retirees and industries can generate local jobs. Both can bring in new money. Both sources of income can have a multiplier effect on local economies.
Research at the University of Missouri found that every $1.00 spent locally by retirees in Vandalia, Mo., generated an extra $1.22 of economic activity. According to Elton Smith in a study of the Kentucky economy, one new job is created for every $4, 425 of social security income coming into the state. That figure is in 1980 dollars. The retirement income required to create one new job would be higher today. Still, even if the amount is double, or $8,850 of social security income per each new job, it is far below the $91, 743 needed in manufacturing payroll or the $64, 516 in agricultural sales to produce one new job in the local economy.
The reason why retirement income is able to generate more jobs in the local economy than manufacturing payrolls or agricultural sales is because there is less leakage of retirement dollars out of the community. Retirees spend more of their money in local stores. They are more likely to use local insurance agents, lawyers, accountants, beauticians and banks. Further, since less of their income leaves the local area in the form of taxes paid to the federal and state government, there is more available to spend in the local economy.
Researchers have identified two ways that retirement income can benefit the local community. First it can increase the demand for goods and services in local markets. This results in a greater variety of goods and services available to all at more competitive prices, and the possibility of more jobs. Some of these jobs will be in the lower paying service fields such as food service and retail sales, but others are in higher paying occupations like carpentry, auto mechanics, accounting, some health professions and financial services.
Communities can encourage retirees to spend more of their income locally by providing for their special needs and using creative marketing strategies. For example, businesses in some communities provide home delivery of goods and services like groceries, medicines, laundry services, library materials and personal care (for example, hair care).
Retirement income represents a source of capital for local inventments. Gene Summers from the University of Wisconsin says that there is no shortage of capital resources in most communities. Community officials might think there is a shortage because the vast majority of capital is invested outside the community and usually outside the state. Summers cites the AARP (American Association of Retired Persons) Money Market Trust as an example. Two years after start up in 1980, the fund had assets of $4.1 billion, with 650,000 investors whose accounts averaged more than $6,300 each. These investment dollars are siphoned out of the local economy. Community efforts to create and advertise opportunities for low risk local investiments could recapture some of the fleeing capital resources.
Retirees can have a positive impact on the community in non-economic areas. They represent a "market" for such amenities as community theater, recreation centers, parks, libraries, adult education services, community events and celebrations, band concerts and the like. Some also volunteer their time and energy to community service and betterment efforts.
We do not yet know the effect of a large proportion of retirees in a town on public investment decisions. Will it lead to shift from investment in schools to investment in hospitals, from swimming pools and summer camps to home health services? And even if these changes are occurring, we don't know what long term effect they will have on the community.
What we know for sure is that the U.S. population is aging, and that Iowa's population is graying faster than almost any other state. Therefore, it's important for Iowa towns to realize the economic potential represented by the growing number of retirees. Retirement icome can be a resource for community betterment which wise community leaders place in the mix with the more traditional community development strategies like business recruitment and retention.
Contacts:
Terry L. Besser, ISU
Extension Sociology, (515) 294-6508
Del Marks, ISU Extension
Communication Systems, (515) 294-9807
