How to Be a "Snowbird" in Retirement: 6 Financial Planning Issues to AddressSubmitted by Reby Advisors | Certified Financial Planners | Danbury, CT on July 15th, 2019
By Devone McLeod, CFP®, July 15, 2019
This article also appears in our Summer 2019 Newsletter.
Moving south for retirement or purchasing a second home to use as a “snowbird” residence is a dream for many retirees.
People who move south often do so for the warm weather and lower cost of living; playing golf or other outdoor activities all year long can be healthier and more fulfilling, especially in a location where your money goes further than it does in the northeast!
Before buying that retirement home, however, you want to make sure you’ve considered some really important financial planning issues. Here are six:
TAXES: Taxes in Connecticut and New York are among the highest in the country. If you plan to keep your residence and “snowbird” – especially to and from Florida – you may be able to avoid state income taxes altogether! Talk to your financial advisor and CPA to make sure you’ve followed the appropriate steps to make this happen, which brings us to establishing residency…
RESIDENCY: There is a common misconception that all you need to do is live in a state for six months and one day in order to claim that state as your primary residence, but it’s not that black and white. If ever challenged on it, you need to be able to prove that your life is primarily based in your new home down south. Make sure you also change your license and car registration and be able to show that you are part of your new community.
FINANCING: Should you pay with cash or take out a mortgage to buy your second home or new home? Talk to your advisor about the cashflow ramifications of either option. Most of the time, we recommend leveraging the low interest rates available today, and keeping your money in investments that will earn more than the cost of borrowing.
HEALTHCARE: Medical expenses will likely be one of your biggest expenses in retirement. If you ever need long-term care, it’s going to be less expensive in the south than in the northeast. In addition to the financial aspect, it’s also important to have access to great healthcare! We recommend making sure your new residence is within close proximity to high quality care.
TIMING: Are you making the decision to buy at the right time, or should you wait? What will the tax consequences be if you have to sell assets in an IRA or 401(k) account – which will be taxed as ordinary income – as opposed to accumulating assets in non-retirement accounts which will be taxed as capital gains? Will buying a new house now put you at greater risks to run out of money?
CASHFLOW: You’ll need income in retirement to pay the bills and enjoy your life. If your net worth is tied up in real estate, will you have enough cashflow to sustain your lifestyle? You can’t buy groceries by offering the local market a piece of your living room. It’s critical to know how much income your money will be able to generate for you over the course of a 30- or 40-year retirement after accounting for the amount of cash you’ll be spending on your new home.
Moving south or buying a second home for retirement can be one of the most rewarding investments you ever make. Just make sure you make the decision after considering all consequences for your taxes, your income and your lifestyle security. Please do not hesitate to call us if you need help making this decision; call (203) 790-4949 or email firstname.lastname@example.org.