How to Budget For Travel in Retirement

When people think of retirement, they often imagine themselves exploring the world and using all of their newly found free time to do everything they never had time for while they were working.

There is an argument to be made that retirement is the perfect time to travel and explore the world. All of the constraints of earning a living and raising children are gone. On the other hand, you now have a fixed income and those long-overseas trips start fitting into the budget less and less.

Retirees nowadays are finding that travel costs are as much as 40% higher than expected and most don’t budget for travel when retired.1

If you have put traveling on hold to focus on your career, the last thing you want is to establish that you don’t have the money to travel in retirement.

1. Calculate Your Travel Budget

Even before retirement, it is impossible to plan a trip without having a solid understanding of how much money you have available to spend. You can generally withdraw around 4% of your retirement savings per year without having to worry about running out of money. If your savings balance totals $2-3 million, you have about $80,000 to $120,000 a year to work with.

There are things like taxes and basic living expenses that need to be subtracted. After these expenses are accounted for, you’ll be left with an amount that you can use for travel each year.

2. Plan Your Trips and Research Costs

Once you know how much you can afford, your goal should be to make that money work to its fullest. Assess which trips mean the most to you and see how much they will cost. Even if you use a travel agent, you should research your trips to get an accurate estimate and see what time of year will work best for you and your money.

Make sure you have a general plan for your whole retirement travel goals ahead of time. Prioritise the more physically demanding trips to do while you have more energy. It will be easier to go on a Himalayan hiking adventure when you’re in your 50s and 60s than it would be in your 70s.

3. Have a Buffer for your Budget

After you have a solid idea of how much your trip will cost, spend the extra time to see if there are any discounts you can get. Senior discounts aren’t something to avoid. After all, you’ve waited a long time for them. You might be surprised by what discounts you can get on hotels, car rentals and meals that might allow you a couple of extra nights away. It’s also important to make some room for unforeseen expenses that might arise on your trip.

As a general rule in your planning, assume that things like transport will cost more than is expected. Extra activities will also come up on your trip that may be a once in a lifetime opportunity that you can’t pass up.

The last thing to remember is travel insurance. The cost of travel insurance is minor compared to the costs you would face if something went really wrong on your trip.

If you’d like to find out more about retirement planning, our team at Ethica Private Wealth Specialists may be able to help you with a 2 Hour Free Consultation.

This information has been provided as general advice. We have not considered your financial circumstances, needs or objectives. You should consider the appropriateness of the advice. You should obtain and consider the relevant Product Disclosure Statement (PDS) and seek the assistance of an authorised financial adviser before making any decision regarding any products or strategies mentioned in this communication.

References:

  1. https://www.capitalgroup.com/our-company/news-room/Baby-Boomer-Investors-Expect-the-Unexpected.html