LPL RESEARCH RETIREMENT ENVIRONMENT INDEX

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1 LPL RESEARCH PRIVATE CLIENT THOUGHT LEADERSHIP May 2017 DISRUPTIVE INSIGHTS LPL RESEARCH RETIREMENT ENVIRONMENT INDEX STATE-BY-STATE HOLISTIC VIEW INTO PRE-RETIREE LANDSCAPE O V E R V I E W The LPL Research Retirement Environment Index is a holistic ranking of the attractiveness of each U.S. state as a retirement destination. This unique index looks specifically at the 45- to 64-year-old cohort (pre-retirees) and collectively assesses strengths and weaknesses of pre-retiree desirability on a state level, rather than city or regional level. The 45- to 64-year-old cohort is the largest subset of the Baby Boomer generation but also includes some older members of Generation X. States are evaluated on six key factors, each with its own supporting metrics, to evaluate overall desirability for retirement.

2 THE RETIREMENT ENVIRONMENT INDEX SEEKS TO DISCOVER THE COMPLICATED ANSWER TO THE SIMPLE QUESTION: WHICH STATE IS MOST DESIRABLE FOR PRE-RETIREES? The Retirement Environment Index seeks to discover the complicated answer to the simple question: Which state is most desirable for pre-retirees? No state scored well in every category, and, conversely, no state did poorly in every category. Each pre-retiree s decision is based on individual factors, and the category grades are designed to illuminate the different ways that desirable can be defined. A pre-retiree in a very healthy financial situation may put less weight on the financial category, as monetary considerations may be less meaningful than community and/or quality of life factors, for example. For others, the situation may be reversed. The Retirement Environment Index is designed to grade and rank states on their preparedness and desirability for the pre-retiree cohort. For some individuals, where to reside is already decided, but the index can still help spark conversations among residents and state officials to focus on areas that need improvement while continuing to support aspects of strength. 02

3 INDEX CONSTRUCTION METHODOLOGY For each subcategory, each state was assigned a score based on the state s standing relative to the national average and the distribution of the state-level data. The subcategory scores were then weighted to reflect relative importance and aggregated to a final grade for each category. The broader six category grades were also weighted, resulting in an overall grade for each state. The weighting system was designed such that a very negative or positive score in one particular subcategory would have a large influence on the category grade, but a more limited influence on the overall grade. Letter grades for categories and subcategories are based on each state s percentile rankings for both subcategory and category grades: Percentile Range Grade Percentage of States INDEX COMPOSITION The index is comprised of six broad categories that affect retiree desirability. Within each category, four to six diverse subcategories provide depth and balance. Financial: A state s fiscal health and the financial health of a state s pre-retirees will likely directly impact individuals ability to enjoy a fulfilling retirement. Financial factors rank high across all surveys of pre-retiree preparedness. Healthcare: Access to, and cost of, healthcare are key determinants of retirement satisfaction. Along with financial factors, the quality of healthcare comprises a top concern. Housing: The availability of affordable housing, and the presence of nursing care and/or assisted living facilities, are both of vital importance and can be a major expense to consider during retirement. Community Quality of Life: Social factors, which take into account crime rates, traffic patterns, and weather conditions, are key determinants of retiree happiness and satisfaction. Employment and Education: The 20 years before retirement can generate the highest rate of savings if fully employed. Employment may offer benefits beyond income, such as 401Ks, pensions, and health insurance. Wellness: Personal habits and tendencies impact health during the final years of employment and into retirement. Poor habits are associated with premature death, poor quality of life, and increased healthcare costs, in addition to strains on state-provided resources % A 10% 70 90% B 20% 30 70% C 40% 10 30% D 20% 0 10% F 10% 03

4 9 8 1 A Nebraska A C C A C C A Michigan B B B C C C A Minnesota B B D B B B A South Dakota A C C C C C A Wyoming A D C A C C B Tennessee A C B C D D B Virginia B C C A B C B Missouri B C A C C D B Utah B D C B B A B Iowa B C C B C C B New Hampshire C B D B A B B Delaware C A C C C C C Idaho B F B A D B C Texas A F C B C D C Washington B C D C C B C Wisconsin C B C B C C C Kansas C C B C B C C Georgia B D B C C D C Pennsylvania C B C C C C C Massachusetts D A F B A B C North Carolina B C C C D D C North Dakota C C C C B C C Colorado C D D B B A C Maryland D B C C A C C Alabama C C A C D F C Rhode Island D A D C B C C Connecticut F A D B B A C Ohio C C B D C D C Florida C C C C F B C District of Columbia D A F F A B C Vermont F B D A B A C West Virginia D B A C D F C Indiana C C C D C D C Louisiana C C B D F D D Illinois D C C C C C D Maine D B C F C C D Oklahoma C D B D D D D South Carolina C D B D D D D Alaska C C F D C C D Arizona C F C C D B D Arkansas C D A D F F D Mississippi C D A D F F D Montana C F C C D B D Kentucky D C B C D F D Nevada C F C D C C F Hawaii F C F C A A F New Jersey D C D F B C F New Mexico C D C F F C F Oregon D C D D C C F California F D D B C B F New York F B F F C C Rank 2016 Rank Rank Overall Grade Source: LPL Research 05/15/17 State Financial (35%) Healthcare (20%) Housing (15%) Community Quality of Life (10%) Employment & Education (10%) Wellness (10%)

5 U.S. States by Overall Retirement Environment Index Grade GRADE KEY A B C D F Rank State 1 Nebraska 14 Texas 27 Connecticut 40 Arizona 2 Michigan 15 Washington 28 Ohio 41 Arkansas 3 Minnesota 16 Wisconsin 29 Florida 42 Mississippi 4 South Dakota 17 Kansas 30 District of Columbia 43 Montana 5 Wyoming 18 Georgia 31 Vermont 44 Kentucky 6 Tennessee 19 Pennsylvania 32 West Virginia 45 Nevada 7 Virginia 20 Massachusetts 33 Indiana 46 Hawaii 8 Missouri 21 North Carolina 34 Louisiana 47 New Jersey 9 Utah 22 North Dakota 35 Illinois 48 New Mexico 10 Iowa 23 Colorado 36 Maine 49 Oregon 11 New Hampshire 24 Maryland 37 Oklahoma 50 California 12 Delaware 25 Alabama 38 South Carolina 51 New York 13 Idaho 26 Rhode Island 39 Alaska Source: LPL Research 05/15/17 05

6 REGIONAL TRENDS The retirement environment in each state is unique, and some states differ vastly from neighboring states. However, regional trends are worth highlighting. States in the Midwest scored the best on averages this year (average 15th place out of 51 states), followed by the South. The West had the largest range of scores, with Wyoming ranking number five, and California coming in at number 50. Within each category, there are also distinct regional trends among the four major U.S. census regions (Northeast, South, Midwest, and West): Financial: The Midwest was the clear regional winner in the Financial category for 2017, with metrics in line with national averages except for cost of living, which is well below the national average, and just below that of the South. The Northeast s higher cost of living and tax burden pulled average financial scores lower for the region. Healthcare: The Northeast remains the standout in the Healthcare category, doing well in most subcategories that demonstrate excellent access to, and cost of, quality care. The Midwest trails in this metric across all subcategories. Housing: The Midwest leads, followed closely by the South, based primarily on broad housing affordability. The Northeast trails for the same reason. Community Quality of Life: The South comes in at the top of our ranking, with high scores across all metrics. The Northeast came in at the bottom this year due to higher crime and foreclosure rates. Employment and Education: The Northeast stands out, followed by the West. The Northeast s advantage is driven by higher college degree attainment rates and higher employment rates. The Midwest trailed. Wellness: The Northeast and the South were strong across all categories, whereas the Midwest followed behind, largely due to higher levels of obesity and lower life expectancy for 65 year olds. 06

7 BIGGEST MOVERS NEBRASKA The New #1 NE Nebraska moved several spots higher to take the number one spot this year s rankings. In doing so, it dethroned Virginia, which had maintained the top spot for two years running. Although Nebraska slipped one grade in Housing, improved scores in the Financial and Community Quality of Life subcategories helped the state power higher in the rankings. Virginia, for its part, still ranked highly in most categories, though a slight downgrade in the Financial subcategory (from an A to a B) pushed it to a still respectable seventh place this year. RI RHODE ISLAND Previous Ranking 36, Now 26 Moving from a B to an A in Healthcare helped Rhode Island move 10 spots higher this year. The state scored well across the board, but high rates of preventive health screenings and a lower rate of hospital discharges due to preventative issues were factors. The state also scored well in Employment and Education across the board, helping its overall rating. ALASKA Previous Ranking 50, Now 39 AK Improvements in Financial and Community Quality of Life scores helped Alaska move 11 spots higher for Low poverty and foreclosure rates helped quality of life scores, while an increase in median income and slight decrease in a still relatively high cost of living helped move the Financial score higher. 07

8 WISCONSIN Previous Ranking 26, Now 16 WI Marginal declines in Financial, Healthcare, and Community Quality of Life scores led Wisconsin to fall from an overall score of A in 2015 to a C in While the state maintained an overall C rating for 2017 a bounce back in Healthcare and Community Quality of Life scores pulled the overall ranking ten spots higher to 16th. Above-average healthcare expenditures per capita, above-average rates of health insurance coverage, and high rates of preventive care helped move the overall Healthcare score higher. Declining poverty, foreclosure, and crime levels helped move the needle for Community Quality of Life. D.C. WASHINGTON, D.C. Previous Ranking 16, Now 30 Washington, D.C. saw the largest drop in rankings year over year, driven primarily by a decline in its Financial score. An increase in cost of living (where the district already ranked second highest of any state), coupled with continued low scores in Housing and Community Quality of Life hurt the district s 2017 ranking. On the plus side however, Washington, D.C. continues to rate highly in the Healthcare and Employment and Education categories. NEW YORK Previous Ranking 49, Now 51 NY Low Financial, Community Quality of Life, and Housing scores combined with a slight drop in Healthcare scores from an A to a still very respectable B were the largest drivers in New York s fall to the bottom of this year s rankings. California, which was at the bottom of last year s rankings, managed to move one spot higher on a slight increase in its Housing score. 08

9 IMPORTANT DISCLOSURES The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. METHODOLOGY To complete the Index, LPL Research pulled public data sources for each of the 50 states and the District of Columbia. The six key categories are weighted to reflect the relative importance of each for pre-retirees as they approach retirement age: financial 35%, healthcare 20%, housing 15%, community quality of life 10%, employment and education 10%, wellness 10%, and each category was then weighted by several subcategories. Financial category is measured by the selected criteria: cost of living, median household income, private sector retirement assets, state pension funds relative to pension obligations, and tax burden. Healthcare category is measured by the selected criteria: home health aide costs, discharges from ambulatory care-sensitive conditions per 1,000 Medicare enrollees, healthcare expenditures, percentage of year-olds covered by health insurance, percentage of persons 50+ who received colon cancer screening, and physicians and dentists per 100,000 people. (The previous iteration of the Retirement Environment Index included home health aide costs in the financial category. Housing category is measured by the selected criteria: home ownership rate, median home price list value, median rent list price, and nursing home costs. Community quality of life category is measured by the selected criteria: 30-year average number of heating days, percentage of mortgaged homes in foreclosure, percentage of persons with commute longer than 60 minutes, percentage of population living in poverty, and violent and property crime per 100,000 people. Employment and education category is measured by the selected criteria: percentage of year-olds with college degree, percentage of employed yearolds, percentage of employees with employer provided health insurance, and percentage of the private sector offering health insurance. Wellness category is measured by the selected criteria: estimated remaining life expectancy for persons aged 65, percentage of adults age 18+ diagnosed with diabetes, percentage of adults 18+ who are physically active, percentage of adults 18+ who currently smoke cigarettes, and percentage of adults age 18+ with obesity. DATA AVAILABILITY The following subcategory data points were not updated, as there was no more up-to-date data than that used in the previous iteration of the Retirement Environment Index: home health aide costs, private sector retirement assets, state pension funds relative to pension obligations, healthcare expenditures, discharges from ambulatory care-sensitive conditions per 1,000 Medicare enrollees, percentage of persons 50+ who received colon cancer screening, and physicians and dentists per 100,000 people, nursing home costs, estimated remaining life expectancy for persons aged 65, percentage of adults 18+ who are physically active, % Employees w/ Employer Provided Health Insurance, percentage of mortgaged homes in foreclosure and 30-year average number of heating days. SOURCES Financial data from C2ER, Census Bureau, Census and Tax Foundation, and Department of Labor (DOL) via BrightScope, Inc. Healthcare data from American Dental Association (ADA), American Association of Medical Colleges (AAMC), Census Bureau American Community Survey (ACS), Center for Disease Control (CDC) Behavioral Risk Factor Surveillance System (BRFSS), Centers for Medicare & Medicaid Services (CMS), Dartmouth Atlas, and Kaiser Family Foundation. Housing data from Census Bureau, Metlife Mature Market Institute, and Zillow via Haver. Community Quality of Life data from Census Bureau, Census Bureau American Community Survey (ACS), CoreLogic, FBI, National Oceanic and Atmospheric Administration (NOAA), and RealtyTrac. Employment and education data from Agency for Healthcare Research and Quality (AHRQ) Medical Expenditure Survey, Census Bureau, Census Bureau American Community Survey (ACS), and Kaiser Family Foundation. Wellness data from Center for Disease Control (CDC), and Center for Disease Control (CDC) Behavioral Risk Factor Surveillance System (BRFSS) This research material has been prepared by LPL Financial LLC. To the extent you are receiving investment advice from a separately registered independent investment advisor, please note that LPL Financial LLC is not an affiliate of and makes no representation with respect to such entity. Not FDIC or NCUA/NCUSIF Insured No Bank or Credit Union Guarantee May Lose Value Not Guaranteed by Any Government Agency Not a Bank/Credit Union Deposit RES Tracking # (Exp. 05/18) 09