This FEDZONE column is the third of three FEDZONE columns presenting the financial considerations of owning two residences in retirement. This column discusses financial management, considerations when choosing a financial advisor to assist with planning, and time considerations for “planning an exit” from living in two residences.
Financial Management
When owning two residences in retirement, upfront and ongoing expenses are an important, and often, overlooked issue. Beyond the financing of two residences (whether the residences are owned or rented), there are a number of expenses that occur as a result of dual residency. These expenses include furniture and household items for two dwellings. In some cases, expenses are exacerbated because of any part-time occupancy. An example of this is homeowner’s insurance. Homeowner insurance may be more expensive for a residence that is not the retiree’s permanent residence. The reason is that the residence may be unoccupied for large amounts of time, resulting in undetected and delayed damages. Similarly, automobile insurance may vary in cost, depending on the state in which the car is registered.
There are ways to decrease the cost of certain expenses that are minimized when a retiree is away for months. For example, suspending auto insurance coverage on vehicles that will go unused for months. There are also service-type expenses that are not candidates for suspension. For example, smart technology is used to monitor an unoccupied residence. These technologies may require continuous Wi-Fi coverage for an unoccupied residence. Homeowner fees for a condominium are another example of expenses that cannot be suspended.
Utilities potentially can result in doubling of expenses. Heat for a home located in a northern climate and air-conditioning for a home located in a southern climate must continue at a level that avoids damage to the unoccupied residence. The following table presents examples of expenses that are commonly associated with owning two residences:
Expenses Associated with Two Residence Ownership
| Expense | Nature of Expense |
| Transportation | Possibility of cars in different states, auto insurance and transportation between residences. |
| Household | Furniture, clothes, supplies, dishes, utility costs. |
| Housing | Property taxes, Homeowners Insurance, including added cost for secondary residence, HOA fees, lawn care, snow removal, security systems, property management, especially if renting a residence while away. |
| Pets | Registration, boarding and transportation. |
| Legal | May be necessary to have legal counsel for both jurisdictions. |
| Health | May require switching from Medicare Advantage to Original Medicare with Medicare Supplement (FEHB program health insurance plan). |
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With respect to management of finances in two different residences, a recommendation for a retiree who plans to live in two residences during retirement is to leverage technology. This is done in order to simply ongoing maintenance of expenses, investments, insurance and related accounts. Through electronic banking and brokerage options, a retiree can consistently manage finances no matter which residence they are currently occupying. Retirees owning two residences are encouraged to manage financial transactions digitally rather than through US mail. During this time of online bill payments that are common, digital fiscal management is necessary to the successful operation of two residences.
Considerations When Choosing a Financial Advisor
When a retiree during retirement lives in two residences that are thousands of miles apart, there will be a need for one-time professional advice to create and execute a financial plan for owning two residences and then provide ongoing professional advice throughout retirement. For legal matters including estate planning and real estate matters in the new state of residence, a local estate attorney and real estate attorney should be consulted. Depending on the size and complexity of the retiree’s estate, having co-counsel in two separate states may be worth the additional expense. This is especially true if one state is a common law state, and the other state is a community property state.
When is the Time to “Plan an Exit”?
A federal retiree who is successful in planning out the ownership of two residences may find out at some point of their retirement that the financial challenges associated with owning two residences may be too much to handle. As a result, there will be a need to forgo living in two residences. As retirees get older, they find themselves dealing with frailty, financial insecurity, or the need to live close to or with family.
When retirees plan the process to live in two residences, discussions with financial advisors about the end of retirement should also be included at the beginning of the process. These discussions will need to continue as one’s retirement proceeds. This is especially important for married couples. One spouse may have health problems, diminished mental capacity, or die. The two-residence ownership (or “snowbirding”) may either have to cease or be modified to accommodate the needs of one of the spouses.
Planning for the future may lead to better financial decisions today. A retiree may use a second home to downsize their primary residence, pay off the remaining balance of the mortgage, or get on a waiting list for a continuous care retirement community (CCRC). Often it takes several years before an individual can enter a CCRC.
A complete retirement plan involves a number of financial considerations that are event driven. Examples of such events are attaining age 65 for Medicare purposes; when to start to take Social Security, and what age to fully retire from the workforce. Retirement is not just “an event.” It is a life stage and therefore proper planning must address ongoing monetary management issues. Upon retirement, a change in residence may occur. For some retirees owning two residences in retirement (“snowbirding”) involves ongoing financial planning. With careful and strategic planning, the financial issues and challenges associated with owning two residences during retirement can be successfully managed.
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Ed Zurndorfer, EA, ATA, CFP®, CLU®, ChFC®, CEBS®, ChFEBC℠: Federal Employee Benefits Expert
A former career Federal employee, Ed has published a staggering 1,200+ separate articles on Federal Benefits and Retirement!
Just “Google” his name, and you are likely to find a plethora of sites that contain his writings. Drawn to its mission to reach, teach
and serve Feds, Serving Those Who Serve is the only financial planning practice with which Ed has chosen to affiliate in over
20 years teaching. In addition to conducting Federal Benefits seminars for Serving Those Who Serve, you can find Ed’s
writings here on our blog in the FedZone, and on Fed-Soup, MyFederalRetirement, FederalNews Radio and NITP.
He is a member of the Maryland Society of Accountants, the National Association of Enrolled Agents, the International Society of Certified Employee Benefits Specialists, the Financial Planning Association, the National Association of Health Underwriters,
and the Society of Financial Service Professionals. Since 1999, Ed has taught many thousands of Federal employees about
their benefits, in person and at Federal agencies all over the country. Ed is a true national treasure.
Edward A. Zurndorfer is a CERTIFIED FINANCIAL PLANNER™ professional, Chartered Life Underwriter, Chartered Financial Consultant, Chartered Federal Employee Benefits Consultant, Certified Employees Benefits Specialist and IRS Enrolled Agent in Silver Spring, MD. Tax planning, Federal employee benefits, retirement and insurance consulting services offered through EZ Accounting and Financial Services, and EZ Federal Benefits Seminars, located at 833 Bromley Street - Suite A, Silver Spring, MD 20902-3019 and telephone number 301-681-1652. Raymond James is not affiliated with and does not endorse the opinions or services of Edward A. Zurndorfer or EZ Accounting and Financial Services. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional.