The higher cost of living and uncertain financial markets are prompting some snowbirds to adjust their plans.Shawstreetpro/iStockPhoto / Getty Images
Snowbirds preparing to wing their way south are facing headwinds this year. The recent period of high inflation and the low value of the Canadian dollar have made it more expensive to spend their winter in the U.S. Meanwhile, travel insurance premiums rise as a snowbird gets older.
On top of that, those who own property in the U.S. are being hit with higher premiums for home insurance priced to accommodate rising risks of events such as flooding, says Kris Rossignoli, a cross-border tax and financial planner at Cardinal Point Capital Management ULC in New York. “We’ve seen some snowbirds with second homes in the U.S. [experience] 10 per cent annual increases.”
Mr. Rossignoli says the mix of a higher cost of living and uncertain financial markets is prompting some snowbirds to adjust their plans.
“Snowbirds are selling larger homes or vacation properties and purchasing smaller, more affordable homes, and others may choose to rent rather than own property in winter destinations, [which] reduces maintenance costs and insurance costs.”
He adds that some snowbirds are also reallocating budgets. They’re cutting back on other discretionary expenses, such as luxury items or home renovations, or even deciding to save less for the future or trim projected financial gifts for family and inheritances for heirs.
Mr. Rossignoli says advisors can help snowbird clients by reviewing their budgets regularly and ensuring they’re accounting for inflation, foreign exchange rates and higher insurance costs. Snowbirds also need diversified investment portfolios, rebalanced if they’ve skewed too much toward equities thanks to strong stock markets this year.
The key, he says, is “working through all the options, staying proactive and maintaining flexibility.”
Softening the sting
Colin Ryan, senior portfolio manager and senior wealth advisor with Colin Ryan Wealth Management at Wellington-Altus Private Wealth Inc. in Winnipeg, works predominantly with high-net-worth clients who are “price inelastic” when it comes to travelling to the U.S. in the colder months. “They’re going to make it happen, but it does sting a little bit.”
That said, he knows people who shifted their winter vacation to Victoria from Phoenix to make the trip less expensive, and others opting to “take the chill out of the winter [with less time away] versus going down for the whole winter.”
It’s a natural reaction to sticker shock when people look at today’s prices for travel-related costs including flights, hotels, car rentals, gas and restaurant meals. Inflation may have moderated, but prices just aren’t what they were just a few years ago.
One of the most important strategies Mr. Ryan puts in place for snowbirds is to hold U.S. companies in U.S. currency. In particular, U.S. dividend-paying stocks can generate an income stream in U.S. dollars. That means snowbirds don’t have to worry about converting Canadian funds to pay for their time in the U.S. and being subject to both conversion fees and fluctuating foreign exchange rates. At the same time, they’re exposed to the long-term growth potential of U.S. equities.
A withholding tax is imposed on dividends paid by U.S. companies into non-registered accounts held by non-residents of the U.S., but Mr. Ryan says this generally doesn’t outweigh the benefits. Furthermore, the withholding tax doesn’t apply to registered accounts, including the registered retirement income funds that snowbirds often have.
Those spending time in the U.S. should have some diversity in their portfolios to help maintain inflation-beating growth and provide “an income stream that’s going to allow for them to have the lifestyle they want,” he says.
Snowbirds generally fall into one of two categories, says Gerry Scott of Vancouver and founder of the Snowbirds US Day Tracker app, which is designed to help Canadians avoid spending too long in the U.S. and being classified as U.S. residents for tax purposes.
Some, like most of Mr. Ryan’s clients, are wealthy enough that higher costs don’t affect their decisions. Others are finding it more and more difficult to winter in warmer climates. Adding a layer of complexity, he says there’s been a shift toward younger snowbirds buying property in the U.S. in their 40s or 50s and spending more years (and more money) dodging the Canadian sleet and snow.
For those without ample resources, there may be a temptation to change sun destinations, but Mr. Scott cautions that cheaper prices may not be worth the security risks in some countries. People who want to stick to U.S. destinations have to make compromises, and he warns some may feel pressured to shift toward higher return (but also higher risk) investments to compensate for higher costs.
“Snowbirds are taking on more risks and may not be familiar or aware of the risks they’re taking on,” he says.
That underscores the importance of working with professionals who understand the ins and outs of cross-border planning, including the immigration and tax consequences when someone spends too many days in the U.S. and the estate planning consequences when someone owns property there.
“This is not a do-it-yourself market,” Mr. Scott emphasizes. “Get comfortable with someone you can trust and someone who has a great track record of helping snowbirds.”