Tuesday, October 31, 2006

Lure of Flying South for the Winter

So the kids are launched, your job is winding down, and the Canadian dollar's looking strong. Why not fly south for a well-deserved break each winter?

Many retirees have already made the move, with some half-million Canadians perched across a half-dozen southern U.S. states from now until next April.

But there are lots of calculations and considerations involved in seeing if the snowbird lifestyle is right for you and determining the best way to go about it, say financial planners, legal experts and snowbirds themselves.

"It pays to do a lot of homework," says Jim Grieves, 68, a retired sales and marketing executive in Tottenham, Ont. After the last of their four children left home six years ago, Mr. Grieves and his wife Jean, 68, decided after doing the numbers to head for the Sarasota area in Florida for six months each year. "You don't want to come across any surprises," he says.

It pays to be prudent, says Ron Harvey, a certified financial planner in Ottawa who at 54 is himself a recent empty nester considering such issues. He has a number of clients who, crossing the double threshold of newly becoming empty nesters while at the same time retiring, are considering major expenditures and life changes, from taking expensive foreign trips to becoming snowbirds. He cautions them to pause and enumerate all of the costs and other issues involved in such moves and how these might affect their overall life plans and budgets.

"People start looking for the great big instant reward, but this is just the beginning of the next stage of your life, and you have to think about how things fit into your goals and dreams," says Mr. Harvey, adding that people should especially consult with a financial planner in such cases. "Don't get caught up in the emotional excitement as opposed to the economic reality of what you can afford."

One of the biggest issues for older Canadians moving to the United States for a period each year is the cost of medical insurance and making sure it's going to kick in when provincial health care plans don't.

"You've got to make sure you're covered for what's wrong with you and what could be wrong with you," says Gerry Brissenden, 75, who lives near Orillia, Ont., and is president of the Canadian Snowbird Association. The group represents some 70,000 members who spend up to six months a year living outside the country.

Mr. Brissenden and his wife Joan, 75, a retired executive secretary, became snowbirds 13 years ago as their four boys moved out of the house. At that time they paid about $300 each for medical insurance; today they pay $1,500 each, which covers everything from regular medical appointments to emergency care while away.

Mr. Brissenden recommends that people look not just at the lowest-cost insurance option but consider which policy works best for them, and especially fill out applications honestly in terms of pre-existing health issues, from stress to medical conditions. He says that medical insurance should work so that you never pay a hospital or doctor directly but send any bills to the insurance company to recoup the money from your provincial system and pay the balance. Some company pension plans provide medical insurance that may have to be topped up for long out-of-country stays.

Getting money to the United States is another major issue. The Snowbird Association offers a currency exchange program that allows members (and non-members, for a small fee) to have money transferred between their accounts at Canadian and U.S. banks at good rates. Using credit cards or withdrawing cash from bank machines in the U.S. is an option, but exchange rates can be punitive.

Terry Ritchie is a certified financial planner at Transitional Financial Advisors Inc., a company based in Calgary and Arizona that assists Canadians and Americans with cross-border issues. He recommends that snowbirds hold U.S. investments that pay for their time in the south rather than speculating about what the Canadian dollar might do.

"When you're in the U.S., you should use U.S. dollars to support your U.S. lifestyle, and in Canada spend your Canadian dollars," Mr. Ritchie explains.

When it comes to U.S. immigration and tax rules, timing is everything, he adds. Under immigration law, Canadians can spend up to six months in the States, but tax laws calculate your stay over a three-year period and state that anyone who spends more than four months a year in the country is "substantially present" there and subject to tax on their worldwide income.

Snowbirds can file a simple Closer Connection Exemption Statement that relieves them from this as long as they don't have U.S. employment income or operate a business there. Those who do earn money in the United States (from the sale or rental of U.S. property, for example) have to file a U.S. tax return reporting that income.

Mr. Ritchie says snowbirds should also make sure that legal documents such as wills, powers of attorney and health directives such as living wills apply in the jurisdictions where they are wintering, or have new ones drafted there.

Where to settle in your new snowbirding life is another issue. Mr. Harvey suggests that clients go south for short periods to try out different places rather than - or at least before - settling on one in particular, especially if they are buying.

The Grieves had a feeling they would eventually live part-time in Florida because they honeymooned there in 1958, and checked out different areas each time they visited over the years. In 1999, they bought a "manufactured home" in a senior's community that offered optional social activities and was home to a fair number of other Canadian snowbirds.

Other issues to consider when it comes to location, Mr. Grieves says, include proximity to airports, hospitals, beaches and amenities for people who visit, such as grandchildren.

Empty nesters usually have the advantage of being able to downsize their Canadian home to help pay for a home in the States, but "it can become costly to keep two places going," Mr. Brissenden says.

Issues associated with your Canadian property include carrying costs as well as maintaining a minimum level of heat and ensuring someone trustworthy keeps an eye on your place through the winter. Other practicalities include redirecting mail, at a cost of about $100 for six months, and paying Canadian bills, which can be done by automatic debit or telephone. The Brissendens have bills forwarded down south and pay them on-line.

In the south, homeowner insurance can be a major cost, especially in Florida. Some insurers are not handling new policies at all, forcing people to opt for much more costly insurance offered by the state.

In terms of the cost of everyday items in the United States, prices are still significant, even with the higher Canadian dollar. Mr. Grieves notes that gas, liquor and other luxuries remain the only things that are cheaper south of the border.

Thinking of migrating?

One of the main questions snowbirds have to consider is, is it better to rent or to own? Lawrence Barker of the Canadian Snowbird Association offers a few tips to consider:

Check out the taxes: Property taxes can be higher for temporary residents in some states.

Get legal advice: Always use a lawyer when buying or selling property.

Rent before you own: See if the area and lifestyle suit you before making the investment.

Know the operating costs: Make sure your budgeting includes all the costs of running two homes, including condominium or common fees and insurance coverage.

Renting out can be tricky: Renting your seasonal property can help defray costs but it may be subject to certain rules and you'll likely be required to take out additional home insurance.

Research the area: Communities and boards of trade issue information on costs, demographics, climate and other local factors to consider.


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