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America’s snowbirds are refusing to let inflation ground their flight. To keep their calendars filled with sunny, warm days year-round, retirees are finding creative ways to offset the rising costs of maintaining two homes.
But it isn’t easy, and I should know. Until recently, my wife and I juggled two residences: one in Puerto Rico in the winter/spring months and one in Pennsylvania in the summer/autumn months. Just for starters, keeping track of bills, doctor appointments, and travel budgets proved tough, but it got easier thanks to more precise financial planning. We finally bought a property on the east coast of Puerto Rico and now spend more time in the area, but we learned, often the hard way, about the pros and cons of seasonal living.
I know we’re not alone.
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“Seasonality is becoming a key driver in budgeting, as costs are starting to break out regionally,” said David Kang, founder and taxation advisor at San Francisco-based Keeper Tax. “The cost of insurance premiums, property taxes, and utility bills also varies greatly from state to state, affecting retirees with fixed incomes more acutely.”
No doubt, two-season snowbirds face burgeoning day-to-day costs, including groceries, dining, and services, and those costs can grow higher depending on where in the country you live, as well. Then there’s the matter of keeping utilities running in two homes, as well as facing complex tax realities by living in two homes year in and year out.
“Costs depend significantly on the retiree’s financial situation,” said Adam Spiegelman, founder and wealth advisor at Spiegelman Wealth Management in Alamo, CA. “For those people with unlimited wealth, seasonal cost swings may be negligible.
“But for retirees on fixed or single incomes, costs like air conditioning in Florida, insurance rates in Texas versus New Mexico, dining, and crime-related insurance all matter as the financial burden of seasonal living is growing,” Spiegelman said.
Tips on managing two residences in retirement
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While there are no hard-and-fast figures on how many U.S. retirees manage two homes, data indicate the trend is growing. For example, the state of Florida, a popular winter destination for snowbirds, sees its population grow by 5% during the winter months, as it adds about 1 million seasonal residents to its rolls before they head north in April or May.
Heading to a warm winter state like Florida, Arizona, or South Carolina? A bit of planning ensures your seasonal, two-state retirement goes smoothly.
Pay attention to taxes
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The most significant state tax implications for retirees who spend six months in one state and six in another center on determining which state is considered your permanent home base (your residency) and on whether establishing residency in a specific state improves your tax situation.
“Your permanent home base is the state where you intend to return indefinitely, while residency is typically based on where you physically live for a significant portion of the year,” said Lisa Greene-Lewis, tax expert and financial analyst at TurboTax.
“Some states use the 183-day rule to determine residency, which can be challenging for snowbirds who split their time between a high-tax state and a no- or low-tax state,” Greene-Lewis said.
To establish domicile in the low-tax state, Greene-Lews advises snowbirds to ensure they spend at least 183 days there, as simply splitting time evenly may not suffice.
“Snowbirds dividing their time between a high-tax state and a low-tax state must avoid spending 183 or more days in the high-tax state to prevent being classified as a statutory resident there, which could subject them to that state’s taxes,” she noted.
As a non-resident snowbird, you may rent out your property for part of the year, and any rental income could still be taxable in that state, regardless of your primary residence. “To minimize your taxable rental income, deduct eligible expenses,” Greene-Lewis said.
Stretch your calendar to get the full snowbird cost picture
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It’s best to leverage a location’s advantages by spending time in lower-cost areas during high-cost periods.
“Retirees are becoming more aware of residency laws so they don’t create tax obligations by filing in the wrong state,” Kang said. “Low fixed costs, especially housing and insurance, also go a long way to your overall financial health. The main benefit is flexibility; if it’s used wisely, it can save you a lot of cash.”
Know your fiscal realities
You likely don’t need a financial advisor to tell you how fast things can add up living the snowbird life, especially on a retiree fixed income. That means building more room in the household budget, which matters when you go south for the winter.
“Here in South Florida, things got expensive over the past few years,” said Jeff Lichtenstein, CEO and broker at Echo Fine Properties in Palm Beach Gardens, Fla. “For instance, there’s some adult peer pressure to go out for dinner, for instance, as lifestyle has changed.”
Buying in planned communities or 55-plus communities with hefty club or HOA monthly charges of $300 or more can change budget realities, as can the weather.
“By the water, the salt in the air also means things don’t last as long,” Lichtenstein said. “Roofs last 20-25 years, and if older than 15 years, oftentimes a mortgage with insurance is very difficult and costly. The problem is snowbirds expect things to be like they are in New York instead of having the ‘when in Rome do as the Romans’ mindset.”
Look for home insurance savings opportunities
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Financial experts say insurance cost-cutting measures are in play, but the issue can cut two ways.
“Moving your domicile to a lower-risk state can reduce homeowners insurance costs significantly, especially when compared to high-risk states like California and Florida, where premiums have spiked dramatically,” Spiegelman said.
Renting instead of owning in those higher-risk states eliminates the insurance burden. However, retirees also need to watch for estate tax exposure. “Some states with no income tax still carry significant state estate taxes, which can cost beneficiaries dearly,” Spiegelman noted. “Reviewing and adjusting coverage based on actual time spent in each location is also worth exploring.”
The bottom line is to coordinate with both your tax advisor and insurance professional. “That’s because the variables are numerous and the financial stakes are real,” Spiegelman said.
The takeaway on seasonal living in retirement
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There is a hidden asset that most retirees in a snowbird situation often overlook: their life insurance policy.
“I work with clients who are stretched financially and considering downsizing or selling a property, but never think to ask whether the life insurance policy they have been paying into for decades has market value,” said Alex Barba, a licensed life settlement broker at Lifeforce Financial, in Miami, Fla.
If you’re 65 or older, have a life insurance policy with a face value of $100,000 or more, and no longer need the coverage, the policy may be sold in the secondary market through a life settlement, Barba said.
“The proceeds can fund a more comfortable seasonal living arrangement without touching retirement accounts or selling real estate,” said Barba. “Most retirees have never heard of this option, but it’s a gap worth addressing.”