The holidays have been over for a few months. The family left long ago, and now it’s just… cold.
What about booking that next trip? But as a retiree, how much can you responsibly spend?
Budgeting for travel in retirement can be a bit trickier than during your working years, when that expense just comes out of a bank account that rebuilds itself with your paycheques.
Generally, the travel expense we suggest for retirees ranges from an annual amount of $10,000 to up to $50,000. Being single versus traveling with a family has a big impact on that number. How you travel — Holiday Inn versus The Four Seasons, Spirit Air versus Emirates — also really moves the needle.
I’m not going to tell you how much to spend, but rather, how to budget and to get more out of what you do spend.
1. Invest appropriately
As a financial planner, I never want to tell people they can’t take that family trip to Italy because the market is down. For this reason, I believe that one-time expenses that will occur within 24 months should be held in cash alternatives. Think new-car purchases, home improvements and trips.
In the current interest-rate environment, there are plenty of options, including T-bills, GICs and money market funds. Even with principal protection, all investments carry some form of risk. You should ensure that what you’re invested in aligns with your plan and your risk tolerance. The further out the expense, the more aggressive you can be with your investing.
For some retirees, those expenses within two years are likely to be in a money market fund, and those three-plus years out are likely to be in a mix of fixed income and equities.
2. Separate the goal
The most prepared prospective clients come to me with a goal amount or actual amount they want to spend in retirement. This is often in the form of a total monthly or annual dollar amount. The first thing I do is separate out expenses that will not continue for the rest of their life. That includes travel. We usually have that expense decline or downright disappear at some point in their 80s. This may be 10 to 15 years before the plan “ends” and can make a big difference in the success or failure of their plan.
3. Account for declining expenses
If planning for a couple, I usually have them create separate retirement passports (my lighter version of a bucket list). Whatever destinations are overlapping, we want to prioritize. If there is no overlap, I exit and introduce the divorce attorney. Beyond finding overlap, I encourage starting big.
You may have heard of “go-go, slow-go, no-go” phases of retirement. This follows that theme. Theoretically, you will be able to hike the Great Wall at 60 but maybe not at 80. Start with that big, expensive trip. Because of this, the annual amount will decline over time. Rather than trying to input every trip over a 20-year period, we may deflate the expense slightly every year or use what are called “stages”. This would allow for an expense that starts at one level and adjusts down every (fill in the blank) years.
4. Take advantage of flexibility
Flexibility is one of the biggest cost advantages you have in retirement. I recommend subscribing to Travelzoo, Jack’s Flight Club and Going. Some of these will send emails when they find error flight fares and generally inexpensive flights. Google Flights is also a handy flight-alert tool for those destinations you know you want to visit.
It’s very rare that I meet someone who doesn’t have travel as a goal in retirement. It’s equally rare for someone to know how much they’ll spend on it. It’s safe to assume that it’s more than you think, and I would encourage you to guess high as you build out your financial plan. Think of the plan as a GPS that shows you where you can go without running out of gas or time. The above tips and tricks should be helpful once you’ve identified that number.
This article was written by Cfp®, Evan T. Beach and Awma® from Kiplinger and was legally licensed through the DiveMarketplace by Industry Dive. Please direct all licensing questions to legal@industrydive.com.
