“When we think of retirement, we often imagine ourselves exploring the globe and taking advantage of the seemingly limitless amount of free time we suddenly have on our hands.”
Many people see retirement as the ideal time to travel, with all their work-related time constraints gone. However, because most seniors are on a fixed income, paying for those trips is often easier said than done. Add to that the fact retirees don’t usually do a good job of budgeting for travel, and it’s no shock that many find themselves financially stressed.
CNN Money recently published an article, “How to budget for travel in retirement” in which it notes that some retirees realize that travel expenses are 40% higher than expected, but 58% of seniors don’t budget for travel in retirement at all. Here are some tips on budgeting for travel ahead of time.
- Calculate what you can spend on travel annually.You need to plan your trips with a strong sense of how much money you have available to spend. As a general rule, you can withdraw about 4% of your nest egg’s value each year without having to worry about running out of money in retirement. However, you’ll need to deduct for taxes (unless your savings are in a Roth account) before you do anything else. Remember that 401(k) and IRA withdrawals are considered income, so the IRS will tax that cash. You also must estimate your basic living expenses, like housing, food, clothing and healthcare. Once you’ve accounted for these essential costs, you can then see what you can spend each year for travel.
- Prioritize your trips and appreciate their costs. Once you get a feel for how much you can afford to spend on travel, you next need to maximize that money. Identify the trips most important to you and get a good sense of how much they’ll cost. Don’t just guess!
- Add a cushion. Once you see how much your dream trips will cost, you’d be smart to look for any senior discounts. That may be savings on car rentals, meals or even hotels. It’s also important to build a buffer into each trip’s budget to account for the unknown.
There will also always be incidentals, like taxis and tips. They will end up costing more than expected.
Finally, purchase travel insurance to give yourself some degree of protection, if your plans are disrupted or you encounter a health issue that makes you cancel or change your itinerary.
Reference: CNN Money (February 5, 2018) “How to budget for travel in retirement”