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The so-called ‘Great Wealth Transfer’ has commenced and it is believed that by the year 2045 a total of $72.6 trillion will move from Baby Boomers and The Silent Generation to Gen X and Millennials, and it’s believed Millennials will become the wealthiest generation in US History in the next 20 years.
Some Millennials, those born between 1981 and 1996, have gotten a head start. The average household income in the United States is around $75K but there are Millennial households raking in $200K or more and the IRS classifies those households as “high earners.” Of those high earners, the two most popular states they are opting to live in are Florida and Texas, in that order, according to a recent study from Smart Asset.
While the study doesn’t posit theories of why high-earning Millennials are choosing Florida and Texas over other states the answer should be obvious but we’ll get to that more in a second. Here’s one of the key findings from Smart Asset:
“Florida and Texas gained the most wealthy Millennial households. When looking at the inflow and outflow of wealthy Millennials, Florida had the highest net immigration of high earners in this age group with 6,188 households. Texas ranked second with a net gain of 5,151 households. Trailing behind in third was North Carolina with a net of 1,970 households moved in.”
They also found that California and New York lost the most wealthy Millennial households with California seeing a net loss of 9,181 Millennial households and New York seeing a net loss of 4,251. Illinois and Massachusetts were 3rd and 4th in net loss with -3,163 and -1,927 respectively.
Why Millennials Choose Florida And Texas Over California And New York
As a born-and-raised Floridian who also lived in NYC for a decade and is back in Florida now, I can tell you that ‘the weather’ isn’t bringing Californians to Florida and while Florida weather is better than New York during maybe January through March, New York has 4 seasons and New Yorkers quickly learn that Florida’s renowned humidity is no joke.
The reason, of course, is taxes. More specifically, state income tax. The list of states with no state income tax includes Florida, Texas, Nevada, New Hampshire, South Dakota, Tennessee, Washington, and Wyoming.
For a household in New York City earning $200K/year, the state tax rate is 5.85%. The city of New York takes another 3.876% on top of that. So you are looking at 9.7% in additional tax for living in NYC where, to be fair, as a resident you have more opportunities than other cities in terms of access to museums, nightlife, concerts, events, culture, etc. But you are paying a LOT for that.
The city of San Francisco has a 0.38% income tax which is paltry compared to NYC but those earning over $68,351/year pay *at least* 9.3% in state income tax in California. That tax bracket is $68,351 to $349,137 (9.3%), and it goes up to 12.3% for anyone earning over $698K/year.
Side note: it is WILD to tax someone making $349K the same rate as someone earning $68K/year because those two earners are living DRASTICALLY different lifestyles. There are five separate California state income tax brackets below that 9.3% bracket from $68K to $349K. It seems crazy that bracket isn’t broken up into a smaller group.
Is This The New Status Quo?
Sooooo yeah, rich Millennials are moving to Florida and Texas and they are leaving California and New York but the primary reasons have nothing to do with culture wars as some in the news would have you believe. As the wealthy Millennials benefit from the Great Wealth Transfer they want to keep more of their money and Florida and Texas are states that make that possible.
Similarly, a recent CNBC study found Texas ranks #3 and Florida ranks #5 as the ‘Most Business Friendly States’ so many of the high-paying job opportunities available to high-earning Millennials are found in these states which, when you boil it down, is also based heavily on… taxes.
Of course, things could change in the future. With the Great Wealth Transfer will also come a changing of the guard across political offices throughout the country. As Millennials occupy more positions of power, the nationwide tax landscape will surely shift. And with Baby Boomers and The Silent Generation getting older and and older and older, real estate opportunities will certainly cause wealthy Millennials to move around the country in search of optimal living conditions.