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For many people, the ideal retirement means becoming a snowbird. This means you have a permanent home in an area with cold winters, and then “flock” to a home (sometimes permanent, sometimes rental or sub-rental) in an area where it’s always sunny, such as a beach town in Florida.
Unfortunately, many snowbirds – even those who do their homework – end up spending more than they planned for. We talked to experts to find out three money mistakes snowbirds make in retirement and how to avoid them.
Lack of preparation for HOA fees
If you’re preparing to become a snowbird, a condo in a gated community may seem like your best budget bet. But you need to be prepared not only for the standard HOA fees that come with these and other types of residences, but also for unexpected fees that may pop up after you buy.
“I have personally seen clients in HOA communities face mandatory assessments of $250,000 per unit for forced property upgrades,” said Licensed Insurance and Financial Specialist Russell Moran. Russell Moran Agency. “This is not a shock. This is a financial ruin.”
It’s usually best to avoid HOA fees altogether.
“My strong preference for most clients is to invest their funds and rent in the South rather than purchasing,” Moran said. “You know exactly what you’re spending, you’re not tied to depreciation or damaged property, and you can walk away if the area doesn’t work out.”
Not understanding different state tax rules
Snowbirds may also make the mistake of not fully understanding how tax laws may differ between states, or may make the mistake of overlooking rules that could get them in trouble with the IRS or a state agency.
“It’s not as simple as how many days you stay in that state,” said Chad Gammon, CFP, RICP, EA and owner of . Custom Fit Financial. “For example, if you have a big house in New York and you’ve lived there five or six months and your primary doctor, accountant, church is also there, but then you said you live in a low-tax state like Florida, that could be challenged.”
The financial loss from such a mistake can ruin your retirement.
“For example, a New York retiree withdraws $100,000 from retirement accounts but claims they are from Florida. They will not pay Florida state taxes. But since their actual residence is New York, they will avoid about $5,000 of New York state taxes,” Gammon said. “That tax bill will also include penalties and that can reach $25,000 and above quite quickly.”
What should you do to avoid this mistake And Can you avoid a huge tax bill in your primary state of residence? Change things strategically.
“This could mean downsizing your home in a higher-tax state and changing your doctors and voter registration to the new state,” Gammon said. “Then take heirlooms and very personal items with you to the new state. This is in addition to spending most of your time in the low-tax state.”
Choosing the Wrong Medicare Plan
Even people who live in the same state all year long have complications navigating with Medicare. Snowbirds have even more because they are relocating between the two states. And again, different states, different rules.
“On Medicare, choosing the right plan for a snowbird looks different than for someone who lives in the same place all year,” said Alex Langan, CIO, Financial Advisors. Langan Financial Group LLC. “Original Medicare paired with supplemental coverage fares better than most Medicare Advantage plans, but the right answer depends on individual circumstances. It’s worth a specific conversation with a licensed Medicare advisor before making any decisions.”