It’s that time of year again. Ohio is filled with grey skies and a flurry of four-letter words: cold, wind, and snow. If you’re thinking of Florida, here are four key kips to making your snowbird experience a success.
Try Before You Buy
It’s good advice to rent in the area you’re thinking of buying. I’d suggest staying for a month in each location and try a few. Don’t get hung up on the rental house itself but get diligent investigating the area.
Do you like the neighborhood? Is it comprised of mostly retirees or a mixed with younger families, and which do you prefer? Is it an active community with events and amenities you enjoy? Is it close to attractions, restaurants, and other locations you will visit, and how is the in-season traffic to get there?
If you’ve been visiting friends or family in a location that you like and neighborhood you’re fond of, buying on day one is more reasonable. Who likes to move twice?!
Choose & Document Residency
You can have two homes, but you can have only one primary residence and state of domicile. Carefully choosing and documenting is important.
The obvious plus for Florida is no state income taxes. Ohio has had decreasing tax rates but still tops out at a 5% rate (3% for business income). Neither state has estate taxes, and Florida has a more generous property tax exemption.
The higher your income, the more you benefit from avoiding Ohio income tax. Yet, Ohio doesn’t tax Social Security benefits. If your retirement income is comprised more from Social Security, the state tax savings may be negligible and consumed by higher average Medicare costs in Florida.
Know The Flow
As with anything financial, you need to understand the cash flows. If you rent, it’ll be straight forward and generally be your rent and any travel costs back and forth. If you buy, it’ll be more complex.
Florida is filled with communities that cater to snowbirds and make life easier for all residents. Many are gated communities, providing more security for when you’re there or not, and have a homeowner’s association. The association may handle your mowing and landscaping and may even include basic cable service or alarm monitoring in the monthly association fee.
You will also have property taxes, insurance, and utility bills. A home-watch service while you’re in Ohio or other services for pool maintenance or pest control may be necessary. These culminate in your annual carrying costs … unless you also want to add a golf membership.
Additional costs to furnish your home, make improvements, or buy another car to leave in Florida will be one-time or less frequent but are important to consider.
Put into Your Plan
Now that you know your costs and have declared domicile, you can accurately fit your winter retreat into your overall retirement plan.
Take the simple example of paying cash for your Florida home: your cash is converted to another asset – illiquid home equity. If your home appreciates at the same rate as your investments, then the carrying costs are the sole net impact on your plan. Your equity will be received when the home is later sold.
If your investments grow faster than your home appreciates, then you will have an opportunity cost in the form of having less wealth. Or if you choose always to maintain two homes, then the equity will never become available for retirement spending in later years. Either puts more stress on your retirement plan, and you need to ensure your plan can handle it.
Perhaps most importantly, you need to prioritize your goals. If your plan doesn’t go as intended for whatever reason, having a predetermined plan where to cut back is critical. It could be as simple as selling one of your homes rather than trying to maintain both forever. For most, a second home is a nice-to-have but not a need-to-have.
