Living in the northern half of the United States can leave you dreaming of warmer climates during the winter months. Swapping the hardships of cold temperatures, ice and snow for warm and welcoming weather can be very appealing. But, rather than attempting a permanent move to a sunny spot like Arizona or Florida, many people adopt a “snowbird" lifestyle and move just for the winter months.
While being a snowbird can certainly have a positive impact on your quality of life, there are numerous social, medical and financial implications to consider before you spread your wings and fly south.
Does your destination meet your needs?
It's vital to keep in mind that your overwintering destination must meet not just your present needs, but also serve you well as your physical and emotional concerns and requirements evolve as you mature.
“We always advise our clients to go visit a place first before they settle down more permanently as snowbirds," says Angie O'Leary, head of Wealth Planning at RBC Wealth Management - U.S. “When deciding on a location, it is wise to look at the big picture and think about your needs along the entire aging process. Things like how easy it is to get around and access to public transportation are important concerns. Are there lots of people who are the same age as you and will it be easy to find a community and friends?" Amenities for seniors are also key to a new lifestyle in a new area or country.
Think about medical care and costs
Because snowbirds often tend to be older, another critical issue regarding location and affordability is medical care coverage and related expenses.
“If you qualify for Medicare, depending on what plan you're on, it may not cover cross-state care," O'Leary say. "If you're too young to qualify for Medicare, you will also need to check your out-of-plan coverage, which often contributes to more significant costs."
Regardless of your age, if you choose to head overseas or go south of the border during the winter instead of staying in the U.S., out-of-country costs can add up. "Medicare does not cover healthcare while you are outside the U.S.," says O'Leary.
But even if you're going to be out of the country, you still need to sign up for Medicare once you turn 65. Not only are there potential penalties for not enrolling, O'Leary says, but you will need those services upon returning to the U.S.
"It is also important to have alternative health care and emergency evacuation services, or a well thought-out plan to self-insure, when they are out of the country," she adds.
The quality and accessibility of health care professionals is another crucial factor to consider, especially if you have an existing medical condition.
The pros and cons of renting vs. owning
Potential snowbirds may find the notion of owning property in a warm weather state appealing, but renting is definitely easier in terms of avoiding possible tax and residency implications, says Robert C. Stern, wealth planning consultant at RBC Wealth Management - U.S. Stern feels it's important to highlight the pros and cons of each housing option so snowbirds are fully aware of the implications their decision may have on their wealth plan.
“Buying a second home can come with many unforeseen costs and inconveniences," Stern explains, encouraging people to be realistic about the challenges of home ownership in another state or country. "Your second home may be vacant for a good part of the year. What support system do you have in place to help oversee or maintain that home while you're away? Have you budgeted for maintenance and insurance costs?"
Furthermore, though some snowbirds might plan to rent out their winter homes to offset expenses, that's not always a realistic expectation, given the amount of work and maintenance that could be required. "It's vital to have honest conversations about how second homes can be cash-flow negative - even if they're rented out part time," says Stern.
Research tax and residency challenges
Tax and residency issues are other important factors to consider when thinking about the cost of a snowbird lifestyle. Snowbirds could be deemed a resident of their winter state and therefore be subject to, and in some cases benefit from, different state tax rules when they spend 183 days or more annually in their winter location. Stern notes that tax law changes in 2017 eliminated the deductibility of state income taxes against the federal income tax and capped property tax deductions at $10,000 per year. Due to the complexity of tax and residency laws, Stern recommends consulting a tax professional who has extensive experience helping snowbirders understand and plan for their potential tax obligations.
O'Leary also points out that state income taxes aren't the only tax consideration to keep in mind. “If you buy a residence in a second state, you also have to think about property taxes, which can vary wildly from state to state," she says. Some states tax Social Security, and there are also sales taxes, vehicle taxes and more that can contribute to the cost of living differences. "You want to look at the overall tax picture before you make a decision."
Look at the big picture and plan, plan, plan
The top priority for any potential snowbird, Stern notes, is to think about all the personal and financial implications involved. “There should be peace of mind that comes from knowing you've addressed potential pitfalls, and that a move south won't undermine your overall vision of retirement," he says.
RBC Wealth Management does not provide tax or legal advice. We can work with your independent tax/legal advisor to help create a plan tailored to your specific needs.
Investment and insurance products offered through RBC Wealth Management are not insured by the FDIC or any other federal government agency, are not deposits or other obligations of, or guaranteed by, a bank or any bank affiliate, and are subject to investment risks, including possible loss of the principal amount invested. RBC Wealth Management, a division of RBC Capital Markets, LLC, Member NYSE/FINRA/SIPC.
RBC Wealth Management, a division of RBC Capital Markets, LLC, Member NYSE/FINRA/SIPC.