More states are trying to recruit retirees — and the money they bring — by promising an affordable paradise within their borders.

July marks the first time oldest members of the baby boom generation can make penalty-free withdrawals from retirement savings accounts. States such as Alabama, Florida, Louisiana, Mississippi, West Virginia and Wyoming have taken note of the impending retirement of the post-World War II population bulge and are ready with Web sites, guidebooks and tax breaks to try to lure well-off retirees to relocate.

While people tend to pay less in income taxes and demand more taxpayer-supported services such as health care after they retire, those with the wherewithal to relocate are a different breed and can be an economic boon for states, researchers said. More than half of migrating retirees in 2004 reported incomes over $60,000, and 25 percent had incomes over $100,000, according to U.S. Census data.

“Migrating retirees pay more in taxes than they will cost in services. That’s the main reason states are interested. They can increase the tax base without increasing the tax rates,” said Mark Fagan, a professor at Jacksonville State University in Alabama and an expert in retiree recruitment.

A higher percentage of baby boomers are planning to relocate than did previous generations, Mr. Fagan said. Affluent seniors are like permanent tourists in their new states, enriching communities and bringing up the standard of health care and services, Mr. Fagan said. Overall, baby boomers will wield $2 trillion in buying power by 2007, according to AARP.

Louisiana’s retirement recruitment Web site, “Retire Louisiana,” boasts a list of Top Ten reasons for retiring there, with No. 1 being cost of living. The state has a 4 percent sales tax and a personal income-tax rate that ranges from 2 percent to 6 percent.

West Virginia pitches its proximity to retirees’ home states so friends and family can visit. The state’s site, “Retire West Virginia,” features a map showing that the state is within a day’s drive for 60 percent of the nation’s population.

Wyoming Governor Dave Freudenthal, a Democrat, has held a series of economic planning sessions preparing for 2020, when the state is predicted to lead the nation in percentage of residents age 65 and over. Mr. Freudenthal calls retirees an untapped natural resource.

States Advertise

Many states advertise financial benefits to relocating. More than half the states with a broad-based income tax give exemptions to seniors. The largest breaks for seniors are, in order, Michigan, Kentucky, Georgia, South Carolina, Hawaii, Indiana, Idaho, Oregon Wisconsin, Connecticut and Illinois, according to a study by the Center on Budget and Policy Priorities.

But income tax may not be the only consideration. Taken together with sales, gas, car and real-estate taxes, plus vehicle licensing and registration fees, the best states for retirees’ pocketbooks are Hawaii, Wyoming, Delaware, Alabama and Louisiana, according to Bloomberg Wealth Manager’s June 2005 ranking of wealth-friendly states.

Bloomberg compared tax bills facing retirees with identical tax profiles and found the least tax-friendly retirement state was Texas, followed by Missouri, Minnesota, Illinois and Maine.

This year Oklahoma increased its income-tax exemption for retirees from $7,500 to $10,000. “I want Oklahoma to be the Florida of the Midwest. Retirees make substantial contributions in terms of having the time to volunteer in community activities. It’s a net gain to keep retirees here,” said the bill’s sponsor, state Rep. Randy Terrill, a Republican.

But some believe attracting more retirees through tax breaks has downsides. Peter Francese, founder of American Demographics magazine and director of demographic forecasts for the New England Economic Partnership, said that New Hampshire’s property-tax breaks have made it virtually free for seniors to live there, but that the influx of older people is only slightly offsetting younger people who are leaving.

“The long-term economic consequences are serious. Property taxes will go through the roof to help pay for Medicaid and other expenses of having an aged population, and the economy will suffer when businesses start leaving,” Mr. Francese said.

Generation Will Redefine Retirement

Bargain or not, the generation born between 1946 and 1964 is expected to redefine retirement. Ending the idea of going from work force to golf course, by 2010 one-third more people over 65 will be part of the paid labor force than in 2000, according to the U.S. Bureau of Labor Statistics. Retirement will be a mix of activities besides leisure and will translate into a big impact on the economy, said John Rother, AARP’s director of legislation and public policy.

People who will volunteer, start a second career, or work part-time are the target of Alabama’s retiree recruitment effort. A public-private partnership, the Alabama Advantage Program, produces 30,000 copies of a magazine promoting places to live and provides an online “tool box” allowing comparisons of cities’ cost-of-living and crime rates.

Bill Meadows, program manager, said, “Attracting retirees is not a very glamorous thing. You’ve got to advertise, advertise, advertise, and then work your prospect.” —

Contact Kathleen Murphy at kmurphy@stateline.org