3 things to consider before flying south
The idea of leaving the cold winters and heading to a warmer locale is certainly enticing. It is so enticing, in fact, that many retirees proudly take on the nickname, that can occasionally be construed as negative. A snowbird, simply put, is an individual who chooses to travel during the winter months to warmer destinations. Some, upwards of 20% of snowbirds will eventually transition into “sunbird” status. Sunbirds are snowbirds who eventually take up permanent residence in their southern home, and only head north for a few short weeks or months each year.
While the idea of heading south and leaving the snow behind seems like the perfect way to kick back and enjoy your much-earned retirement, there are some financial considerations you need to think about before you trade in your snow boots for sandals.
Taxes
Income tax, social security tax, and property tax can be a complicated thing, especially for snowbirds who plan to utilize their vacation home as their permanent residence. Before your taxes are due it is important to sit down with a professional and discuss how to establish new residency and, more importantly, how to break your previous residency. Some states look at the number of days you’ve spent in each state consecutively, while others consider property holdings a form of residency.
New York, for example, is notoriously harsh on New Yorkers who insist they have flown the 4th-floor walkup. They look at everything from primary doctors to social connections. Why do they do this? Because states like Florida, where many end up snowbirding, have much more attractive income tax policies. Michigan has interesting residency policies, too. It really is best to sit down with a tax expert to see how everything will work out if you choose to head south for the winter.
Renting vs. Leaving the Home Vacant
For retirees planning to purchase homes in Florida, Arizona, and California, part of the decision-making process includes what to do with the property when they aren’t there. For example, if you plan to purchase a home in Jupiter, Florida, but plan to spend the summers back north, whether or not you rent out that home as a vacation spot can heavily play into what you can comfortably afford.
Experts suggest buying a home you can afford without a rental income and utilizing the rental income to cover taxes and additional expenses. This is your best option, as it ensures you don’t absolutely need to rent out space if you decide it simply isn’t for you.
Experts also suggest utilizing a management company to handle bookings and any damages that might occur when vacationers go wild. While rare, problems can be difficult to navigate, and a management company can take care of all of it for you for a fee.
Consider the Cost of Living
Before you become one of the many snowbirds, explore the cost of living in the area you are headed. Real estate doesn’t always coincide with the cost of living. Take Hilo, Hawaii for example. The area boasts gorgeous beaches, a laidback lifestyle and the magical charm of Hawaii at alarmingly low real estate costs. The remote nature of the locale, however, means you are going to pay up for everyday comforts. Cars, furniture, and food are all much more expensive here. Hilo’s staple foods, like milk and eggs, are upwards of 50% higher.
Experts suggest coming up with a budget and balancing out the cost of living in your home state with the cost of living in your snowbird residence. Also keep in mind extra expenses, such as increased insurance costs for a second home in addition to your primary residence. You might be surprised what you find. While some of these costs can be worked around, there are some that might just make your winter residency dreams a nightmare.
Snowbirding can be a perfect and glorious way to spend your retirement. After all, you’ve put up with harsh winters and stretches of blustery falls for long enough. Spending some fun in the sun seems much deserved, but before you take the plunge, do consider these financial pitfalls so your lengthy dream vacations are enjoyable and carefree.
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