If one of your retirement goals is to travel, Fifth Third Bank can help you make the most of your retirement savings and income to budget for travel
There are few things more exciting than contemplating all the places you can travel in retirement. Your timelines are longer. There's no need for vacation time. And you can finally visit all the places and people that you've wanted to see.
For these reasons, it's probably no surprise that the majority of retirees and pre-retirees report that travel will play a significant role in their retirement. However, one in five hasn't accounted for travel expenses in their retirement financial plans. And that could spell trouble: if you don't figure travel into your budget—you may not be able to afford everything you want to do.
Fortunately, a little planning can go a long way when it comes to retirement travel. Use your current expenses to estimate how much you'll spend. And then coordinate your retirement income in a way that minimizes taxes and helps you reach your travel goals.
Estimating Your Travel Costs
In a recent Fifth Third survey, 81% of pre-retirees and retirees reported that travel was the number one thing they planned to do in retirement. Travel beat out spending time with family and taking up new hobbies. But even so, 21% of survey respondents say they haven't yet planned how they'll fund their trips.
Estimating how much you'll spend on travel in retirement is the first step to understanding how your plans will impact your savings—and what you'll be able to afford to do. Start by looking at how much you've spent on travel over the past few years. In the same survey, 49% of retirees and pre-retirees said that they regularly spend on travel, and 15% report that they spend most of their non-essential funds on travel.
With information about how much you've spent on travel over three to five years, develop an average annual spending number. Then estimate whether you'll be traveling more or less in the future. You'll also want to consider whether your trips will be longer and cost more than what you currently spend. In addition, figure in if you've previously relied on air miles from company travel to pay for travel expenses.
Planning Future Trips in Retirement
Once you determine your estimated annual travel expenses, it's time to ensure your retirement planning accounts for future trips. First and foremost, include your travel costs into your projected retirement expenses. Then work with your financial advisor to see if the added costs impact what you need to save or how long your current savings will last. If the impact is not a problem, travel away!
However, in many cases, pre-retirees may find they either need more savings to sustain their travel habit or a new approach to their trips. Develop a bucketed savings strategy, where you're saving for retirement basics, and have a separate bucket for non-essentials. Keep the latter in a low-risk saving vehicle, such as a money market account or high-yield savings, to protect it from market volatility.
Also, pay attention to taxes and how much you pay. As you work with a financial advisor on retirement income distribution, consider what you can do to potentially reduce your tax burden—any money saved is money you can use on a trip. For instance, you might keep your retirement travel money inside an IRA or Roth IRA, both of which offer tax advantages. The latter can work well if you anticipate being in a higher tax bracket post-retirement.
Finally, consider where you live. Some retirees have found that by moving to a state with lower income or property taxes, they can save several thousand dollars each year. If that works for you, it's money you can use to fund your travel plans.
Traveling Smart to Save
Beyond saving and paying attention to taxes, you can also take action to reduce the cost of your travel—and enable yourself to do more. Consider using a credit card that provides travel rewards for most of your everyday spending. Pay off the monthly balance so you're not in debt, and then use the miles or rewards to help fund your trips. In addition, take advantage of senior discounts. Many hotels and tourist attractions provide discounts for older travelers. They may be small, but if you're traveling a lot, they can add up to some serious savings.
Also, plan to stay places for longer, but for cheaper. Because you're retired, you have the ability to spend a more substantial chunk of time in places. Look for AirBnBs, which are often less expensive than hotels and provide the added benefit of a kitchen. You can shop and cook in the area you're visiting and get to know the culture better, all the while saving on eating out and the expense of hotel lodging.
Lastly, think about investigating house swaps. There are several companies and programs that facilitate home exchanges. Homeowners trade homes with a family in a place they'd like to visit, and then travel there and stay for free. The concept can save you thousands of dollars over the course of your retirement in travel expenses, and introduce you to new people and places you may not have gone otherwise.
Travel is one of retirement's greatest joys. Plan accordingly, and you'll be able to fill the next stage of your life with exciting adventures and meaningful visits to the places you've always wanted to go.