Hurricane Ian and the new retirement risk

We don’t normally do it in this space, but it’s time we talk about the weather.

Most of the On Planning columns here at InvestmentNews revolve around the perils associated with the investing side of retirement and how to avoid them. Our wheelhouse is topics such as the effect of interest-rate risk on 401(k) portfolios, not to mention market volatility, government policy, longevity and sequence risks.

Thanks to Hurricane Ian, however, it’s time we add Florida risk to the list.

Not that we, or a very healthy number of retirees, don’t love the Sunshine State. Florida has long been the preeminent retirement destination for Americans seeking to live out their golden years in relative comfort, and deservedly so. No snow shoveling. No individual income tax. Disney World for the grandkids. Baseball spring training. Freshly squeezed orange juice. Authentic Cuban sandwiches. The list goes on.

Perhaps unsurprisingly, the most recent WalletHub survey of The Best & Worst Places to Retire ranks four Florida cities — Orlando, Miami, Fort Lauderdale and Tampa — in its top 10 best places. That’s outright impressive considering that WalletHub evaluated more than 180 U.S. cities on 46 key measures of affordability, quality of life, health care and availability of recreational activities.

Along those same lines, Florida came in second in the recently released TOP Data report of the Best States to Retire, trailing only Connecticut. TOP Data dug deep for its study as well, comparing all 50 states across 38 relevant metrics in five key dimensions: affordability, entertainment, health care, safety and wellness.

Unfortunately, the WalletHub list was released in early September and the TOP Data rankings were based on data collected in August, prior to Hurricane Ian’s devastation. So even though both surveys offer granular evidence as to why New York or Illinois natives might want to hang up their proverbial snowbird wings and become full-time Floridians (TOP Data even factored in “bingo halls per capita”!), there undeniably needs to be a rethinking of retirement location metrics in the wake of Hurricane Ian, a catastrophic event that has been linked to the deaths of at least 119 people in the state and that caused damage estimated to be between $41 billion and $70 billion.

It's a highly repeatable event at that. Forty percent of all U.S. hurricanes hit Florida, according to the Department of Commerce’s Atlantic Oceanographic & Meteorological Laboratory. Eighty-eight percent of major hurricanes have hit either Florida or Texas.

Meanwhile, NASA predicts on its website that hurricanes will likely cause “more intense rainfall and have an increased coastal flood risk” going forward as a result of rising seas resulting from global warming. Additionally, NASA says the global frequency of storms may “decrease or remain unchanged, but hurricanes that form are more likely to become intense.” Meteorologically speaking, the worst is yet to come.

(NASA, by the way, has a vested interest in Florida’s weather given its expansive presence at the Kennedy Space Center, so it really can’t be accused of falsely claiming that the sky is falling, especially now that it already has.)

Future retirees and the list-makers that cater to them ought to factor such findings into their decision-making. Not just the potential for injury or loss of life due to a vicious storm like Ian, but more specifically the financial considerations and added expense of necessities like homeowners, windstorm and flood insurance.

Why buy three policies instead of one? Well, in Florida “hurricane insurance” does not technically exist as a stand-alone policy.

Homeowners living in hurricane-prone states such as Florida may need to pay a separate “hurricane deductible,” most commonly 2%, under their homeowner’s insurance coverage. That 2% doesn't mean 2% of the damage caused by the storm, however. The 2% stands for 2% of your dwelling coverage. In other words, if your policy covers your dwelling at an amount of $200,000, your hurricane deductible would be 2% of $200,000, or $4,000.

The Bureau of Labor Statistics shows that for people over age 65, a little over a third of their spending goes to housing. This includes expenses like a mortgage or rent, taxes, insurance of all kinds, maintenance, utilities and furnishings. It’s a misconception that once a mortgage is paid off, there are no more housing expenses.

“As part of considering all aspects of where to live, a retiree needs to think about what some of these other expenses and risks they could encounter might be. And for any that are ‘low frequency, high severity” — a small chance that it will happen, but a very big financial impact if it does — insurance is the first place to look to manage that risk," said Stuart Ritter, retirement insights leader at T. Rowe Price. "The cost of that insurance and protecting against that risk needs to be part of the decision process and baked into the expected overall housing expenses.”

We’re not trying to bash Florida. It’s been bashed enough, and we are rooting for a big comeback post Ian. We also understand there’s a lot more to selecting a retirement destination than insurance fees for a future storm that may or not strike.

Still, those expenses and weather implications need to be considered before one chooses to retire in a state highly susceptible to severe weather events.

Making it back at the bingo hall is simply not a viable financial strategy.

[More: Are your assets protected from the next hurricane?]