Climate Change Will Cost Retirees Trillions

While it's widely acknowledged that storms, heat waves, droughts and wildfires are becoming more frequent and virulent, the hydra of climate change struck the Southeast in merciless fury recently.

Taking the lives of more than 200 and causing up to $200 billion in damage, it will take years for residents from Florida to North Carolina to recover from Hurricane Helene. Many of them are older Americans who moved to these areas in retirement. The majority, it's estimated, are not covered by insurance, nor did they think they needed it in the mountainous regions of Appalachia. Damage more recently from Hurricane Milton is still being assessed.

With climate change, the costs of recovery and adaptation are piling up for retirees in ways few ever expected. Most homeowners in the Southeast didn't have flood insurance for their homes. Only about 4% nationwide do. So the lion's share of expenses for rebuilding — or relocation — will be out of pocket.

The increasingly dire climate reality — even for those not living in typically vulnerable coastal areas — triggers pressing questions on how to manage climate adaptation costs. Only about 0.8% of homes in the seven-state area ravaged by Helene had federal flood insurance, for example, compared to 21% in coastal counties, The Washington Post reported.

Shannon Martin, an insurance analyst with bankrate.com, is urging her 82-year-old father to move from hurricane/flood-prone New Orleans to Buffalo, New York, where she lives now. She notes that many homeowners may not be aware that they need flood insurance, even if they don't live in historically flood-prone areas. "In mountainous areas (like Western North Carolina), they didn't realize they needed flood insurance," Martin said.

Climate adaptation takes many forms in seemingly mundane ways. When my wife and I (we're both in our seventh decade) considered some needed home maintenance work this summer, we noticed our gutters were overflowing during monsoon-like rainstorms on our suburban Chicago home. Not only was the water gushing over the side of our house, over the last several years, the water flow promoted extensive rot of the cedar trim closer to the ground.

We had to replace multiple pieces of trim. Then our trusted painter suggested we increase the capacity of our downspouts, which couldn't keep up with the higher volume of rain in recent years. Several thousand dollars later, we could quantify the impact of climate change, although the rainwater flows away from our home much more efficiently now.

I'm certainly not comparing our minor climate adaptation to the immense suffering in the Southeast and other areas ravaged by severe weather, since we wanted to stay in our home in the near future, we needed to make upgrades to accommodate increasingly intense rain events.

Of course, for those living in the Sunbelt, coastal, desert or wildfire zones, our unexpected expense is relatively trivial. We know two families who felt compelled to move from Western states (California and Colorado) to avoid being in the path of wildfires. They tell us they are "climate refugees." (Welcome to the Midwest, where the winters are somewhat milder, yet the warmer season weather is more violent).

There are probably no places that will be spared the multiple impacts of climate change. "We're all Florida Now," as a recent Margaret Renkl column in The New York Times trumpeted. Last year, Illinois surprisingly led the list of states hit by the most tornadoes: 136. Along with the states that are historically hotbeds for twisters, that statistic translates directly into higher homeowner insurance premiums.

Residents of the 10-worst states for tornado activity last year, for example, paid an average of $2,230 per year in homeowner's insurance premiums (for $300,000 in dwelling coverage), according to bankrate.com. Yet the range of premiums is wide: You would pay an average $1,188 in Ohio (#9 on the tornado list) to $3,726 in Texas (#4). Note that half of the states on the worst-twister list are in the Sunbelt, where retirees continue to relocate. Surprisingly, according to Bankrate's Martin, Nebraska has the highest state average premium — $5,600 a year for an average $300,000 home.

"Of the 10 worst states for tornadoes," a Bankrate analysis shows, "six have home insurance costs that are higher than the national average. The added cost of home insurance in these regions may be tied to the greater risk of tornado damage, but that might not be the only force at play. Other natural disasters can affect the cost of home insurance in a particular state, as well."

Of course, climate change isn't the only gremlin behind higher insurance costs. Inflated construction supply costs and contractor labor rates have risen in the post-COVID inflation wave. Still, if you're living on a fixed income, increased home maintenance and repair costs are an unwanted surprise.

If you're engaged in estate planning, there's also a pressing concern that your home will drop in value due to climate-related risks. What if you're in a flood or wildfire zone? While we all have confidence in rising home values over time, that may not be the case in many areas exposed to severe conditions.

"Property values can also plummet when a hurricane or flood slams neighborhoods on or near the water, affecting retirees' finances or devastating a home they had intended to leave to their children," notes Kim Blanton of the Center for Retirement Research at Boston College. "As weather extremes intensify, many more properties and retirees will be affected, experts say."

All told, the Godzilla-like numbers linked to climate change are more than just ominous clouds on the horizon. While estimates on negative climate impact vary widely, severe weather events could cost $38 trillion by 2050 globally, estimates the World Economic Forum. Dollar wise, that could reduce individual income values by at least 20%. That figure is more than double the European Union's gross domestic product.

It pays to do some research before you choose where to retire or whether to age in place. The traditional thinking of moving from a northern state to a Sunbelt community may no longer make economic sense.

• If you're eyeing relocation, consider states less prone to wildfires, drought, flooding and wind damage. While there's no guarantee you'll be spared from climate risk in non-coastal locales, it's worth checking out independent risk measures. Bankrate's Martin recommends Climatecheck.com, which provides snapshot risk ratings by locale on drought, wildfires, heat, storms and floods. "Understand the environment you're moving into," Martin advises. "It's an emotional decision but could impact your future finances."

• In addition to dwelling prices, look at the increased costs of homeowner/renter insurance, taxes and homeowner's association and condo fees. How much have they risen in recent years? Ask how much premiums/fees are projected to increase next year. Zillow, the real estate listing service, is also now providing climate risk scores.

• Is your property insurance up to date? If you're in a flood-prone area, you will need to separately purchase flood insurance, which isn't covered by standard homeowners' policies. Are you insuring everything you need with "replacement cost" coverage indexed to inflation? Do you have enough in short-term cash savings to cover out-of-pocket expenses? You also need to see if you're covered for other "perils" such as wildfires and wind damage. You can also save money by "bundling" homeowners and vehicle policies with a single insurer.

• Not relocating? Do you need additional upgrades to your "forever" home? Those in areas prone to power outages should consider back-up generators, especially for people who are operating essential medical equipment or need to keep medicines cold. If you are due to replace a roof, windows or doors, ask whether they are climate resilient. One bonus: you can obtain federal income-tax credits for certain home energy improvements through the Inflation Reduction Act.

Of course, I hate to be a broken record, but there's no state that will be immune from the impact of climate change, although aging in place may be a sound idea if where you're living now is less vulnerable to extreme weather. We all love abundant sunshine, yet it's impossible to ignore the black clouds and relentless heat that should figure into our retirement equations going forward.