3 Snowbird Money Mistakes That Can Cost Retirees Big
Written by
Nicole Spector
Edited by
Molly Sullivan
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For many, the ideal retirement means being a snowbird. This means you have one permanent home in an area with cold winters, and then “flock” to a home (sometimes permanent, sometimes a rental or sublet) in an area where it’s always sunny, like a beach town in Florida.
Unfortunately, many snowbirds — even those who do their homework — end up taking on greater expenses than they’d planned for. We spoke with experts to find out the three money mistakes snowbirds make in retirement and how to avoid them.
Lack of Preparation for HOA Fees
A condo in a gated community could look like your best budget bet if you’re gearing up to become a snowbird. But you need to be prepared not only for the standard HOA fees that come with these and other types of dwellings, but also for the unexpected ones that can pop up after you buy.
“I’ve personally seen clients in HOA communities get hit with mandatory assessments of $250,000 per unit for forced property upgrades,” said Russell Moran, licensed insurance and financial specialist at Russell Moran Agency. “That’s not a setback. That’s financial ruin.”
It’s usually best to dodge HOA fees altogether.
“My strong preference for most clients is to invest their funds and rent in the South instead of buying,” Moran said. “You know exactly what you’re spending, you’re not tied to a depreciating or damaged asset, 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 glimpsing over rules that could land them in hot water with the IRS or a state agency.
“It isn’t as simple as how many days you stay in that state,” said Chad Gammon, CFP, RICP, EA and the owner of Custom Fit Financial. “For example, if you had a large home in New York and stayed there five or six months as well as had your primary doctor, accountant, church there but then stated that you lived in a low tax state like Florida, that could be challenged.”
The financial damage from such a mistake could destroy your retirement.
“For example, a New York retiree withdraws $100,000 from retirement accounts but claims they are from Florida. They would not pay Florida state taxes. But since their true residency is New York they would avoid about $5,000 of New York state taxes,” Gammon said. “That tax bill would add up plus penalties and could reach $25,000 and upwards fairly quickly.”
What should you do to avoid this mistake and avoid a steep tax bill in your primary state of residence? Switch things up strategically.
“This can mean downsizing your home in the high tax state and changing your doctors and voter registration to the new state,” Gammon said. “Then move heirlooms and very personal items with you to the new state. This is in addition to spending the majority of your time in the low tax state.”
Selecting the Wrong Medicare Plan
Even people who stay in one state all year long have complexities to navigate with Medicare. Snowbirds have even more because they’re shifting between two states. And again, different states, different rules.
“On Medicare, the right plan choice for a snowbird looks different than for someone staying in one place all year,” said Alex Langan, CIO, financial advisor at Langan Financial Group LLC. “Original Medicare paired with supplemental coverage tends to travel better than most Medicare Advantage plans, but the right answer depends on individual circumstances. This is worth a specific conversation with a licensed Medicare advisor before making any decisions.”
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