Dreaming of Warmer Weather in Retirement?
Written by: Harmony Wagner, CFP®, CPWA®
In the depths of Northeast midwinter, many of us dream of sunnier climates. For retirees no longer tied to the daily grind of work, the temptation to fly south for the winter can become irresistible. The benefits of warmer weather are clear, but there are also costs and concerns to consider before making the move. As with any major life decision, becoming a snowbird is something that involves careful planning across a broad range of issues. If the idea of spending the winter months in a warmer locale sounds attractive to you, here are four main considerations to factor into your retirement planning.
1.Costs: Perhaps the most obvious concern is how to cover the costs, particularly housing which usually represents the most significant expense. If you choose to purchase a second home, you’ll have to plan for the initial purchase price, plus the ongoing annual costs of taxes, insurance, maintenance, and improvements. Alternatively, you might elect to rent or live on the road in an RV. In addition to housing expenses, travel costs will be incurred in getting to and from your winter destination. Living expenses often spike as well. When the weather is no longer a limiting factor, hobbies and activities can continue year-round, and that may involve a higher entertainment or leisure budget. When considering the costs of a “snowbird” lifestyle, I recommend erring on the side of over-estimating spending needs. If the financial plan works with a higher spending number, you can have confidence in being able to maintain your standard of living, even if the costs are higher than you had initially thought.
2. Taxes: I do not typically advise clients to make decisions about where to live based only on state income taxes, but they do potentially have an impact on a client’s financial situation and must be included in the cash flow planning. Some states (i.e., Florida and Tennessee) have no state income tax, so moving to one of those may have a positive impact on a retiree’s net cash flow. Other states (such as North Carolina or California) are not considered especially tax-friendly for retirees, and the state tax bill may eat into their spending ability. While taxes shouldn’t be the only decision-making factor, the tax picture could impact which state you decide to make your primary residence. Your state of residency also affects your estate after you pass away, particularly if you purchase property there. It’s important to understand the probate and/or estate tax situation for your destination state so you can do the proper estate and tax planning.
3. Medical Coverage: Maintaining appropriate medical coverage and access to health care providers is an important consideration for retirees. Spending a significant portion of the year in a different part of the country increases your odds of needing care, whether routine or emergent, in a different state. For those 65 or older who are enrolled in Medicare, your coverage will be active in any state, but for those under 65 who are on a private or employer-sponsored plan, you may need to evaluate how your policy will function away from “home”. In both cases, you’ll want to determine whether you will establish a relationship with a new provider(s) in your “winter” location, so you can pro-actively secure any health care that you might need.
4. Logistics: Beyond the major financial and health-related issues, there are also logistics to consider. For example, how will you maintain the home that you aren’t living in at the time? If you plan to change your primary residence for tax purposes, do you have a plan to ensure you are spending enough time in the new state to qualify for residency? Have you thought about how you will make new connections, and how it will affect your family relationships and social life to spend a lot of time away from your current community? While these may seem like small details, they can have a large impact on your stress level and quality of life. Having a plan in place for addressing these items can greatly improve your satisfaction with the arrangement.
Deciding to become a snowbird in retirement may sound appealing, especially when the weather forecast features lots of snow and ice. However, it’s a big financial and emotional decision that requires proper planning and thought. For retirees who aren’t sure whether the snowbird lifestyle may be right for them, I recommend starting small. Plan shorter stints at first, perhaps by traveling for only a few weeks or a month to determine whether you enjoy being away from “home” for an extended period. For those who haven’t settled on where to live, try renting for a week or two in different cities or states before taking a more permanent step such as buying a second home. If you have “snowbird” dreams that you would like to discuss with an advisor, please reach out to our team.