What Will Travel Look Like in 2021?

A pay telescope with New York City in the Background

Some experts believe there will be a slow recovery as newly-vaccinated travelers cautiously test the waters. I think this outlook is wrong – it’s too conservative if the early signs of recovery gain momentum.

Wanderlust is building, and I’m feeling it myself. I know I’m tired of staring at the same four walls of my home, with an occasional trip to the grocery store or a restaurant to pick up food.  Armed with a vaccine, I will travel. I’m not alone.

How do I know others are dreaming of a return to travel? 90% of participants in the Generali Global Assistance Holiday/2021 Travel Sentiment Survey indicated they’d be traveling for leisure in 2021.

Answering a survey is one thing, but taking action, like booking a cruise, is another. In September, Carnival, one of the world’s largest cruise lines, announced 2021 second-half bookings were at “…the higher end of the historical range…”.

So how do you prepare for travel in 2021, keeping in mind it could rebound quickly? The first question is…

Are you comfortable traveling?

Your comfort level with traveling is going to be fluid this year. It will change depending on whether you’ve received a vaccine or not and the overall number of COVID-19 cases in your area.

There is no right answer when it comes to comfort level, and it may be even more complicated when making plans with family and friends as there may be varying levels.

Decisions you will have to make include how to get to your destination? Are you comfortable flying in a small, metal tube packed with hundreds of strangers? Or do you prefer the family sedan packed with your hygienically-challenged teenagers?

Road Trip - Feet out the window

Where will you stay? An Airbnb can offer a contactless experience, where you won’t have to interact with employees or other guests. Some hotels and motels provide this option as well.

Are you comfortable with riding up twenty floors in an elevator with other guests? You can try to catch only empty elevators, but there are no guarantees. Or would you be more comfortable in a motel with direct outdoor access?

Other factors to consider are cleanliness, price, and amenities that may, or may not, be available. 

How do you feel about being near large groups of people? A trip to the city will put you in close contact with others, whereas you might not see another soul if you vacation in the country.  

Stay informed

Even as the pandemic lessens, there will be areas where it may not be contained. Gauge the safety of any destination and make sure there are no restrictions in place for visitors.

If you’re traveling internationally, many countries will demand proof you’ve been vaccinated, make quarantines mandatory, and test you on arrival. Make sure you’re aware of the current procedures in place, and then double-check them. An internationally accepted proof of vaccination has not been approved, so make sure you have proof that is acceptable to the countries you plan to visit.

Put together a detailed itinerary and make sure the places you want to visit are open and operating hours fit your schedule.

Where do you find all of this information? I’ve put together a resource that is a good starting point, and you can find it here:  Coronavirus Travel Advice – a Resource Guide.

Book early, but book wisely

If my prediction of a strong travel rebound is accurate, you’ll want to book as early as possible. Supply will overwhelm demand at some point, and prices are going to rise dramatically. However, this is with the caveat of making sure everything is refundable or covered by insurance through a credit card or separate policy.

Consider using miles to book your trip. Purchases of airfare and hotels using miles are generally refundable but check the fine print. Another reason to use miles is the travel industry is struggling, and these miles may be devalued.

Budget

Has your spending dropped during the pandemic? Travel, dining out, festivals, sporting events, movies in theatres – have all been reduced dramatically in my life.

Did someone say travel fund? Yes. That was me. It’s time to earmark some of your savings for a vacation if you were not harmed financially during the pandemic.

I realize many people lost their jobs, and a vacation is the last thing on their minds, regardless of how much spending dropped. It still makes sense to start planning, even if the date is in the distant future.

The simple act of planning a vacation can make you feel better. And who doesn’t want that right now?

Photos, glassess and a book spread across a map - planning

Putting together a detailed itinerary and budgeting for your future vacation will not only make you feel good, but you’ll be financially prepared. While you’re at it, consider tucking a little away into a tax-advantaged retirement account. (The retirement advisor in me couldn’t resist.)

Do I need travel insurance?

When you start to book your next trip, there will be a strong desire to buy travel insurance. The coronavirus will weigh heavily on the decision. However, before you load up on insurance you might not need, ask yourself if it makes sense in your situation.

Only buy insurance on non-refundable expenses. Check to see if big-ticket items like airfare and hotel are refundable and under what conditions. Will you get cash back or a voucher to use another time? Under what circumstances can you receive a refund?

Read your credit card guide to benefits, or call customer service to see if you might be offered coverage. Credit cards targeted at frequent travelers often will cover parts of your trip.

Your homeowner’s, auto, and renter’s insurance will also provide coverage in certain situations. Check your policies as they may cover your belongings while traveling

There’s a big difference between losing some money and risking your health. Make sure you are covered for medical emergencies and medical evacuations above all else.

After you determine what portions of your trip are already covered, calculate possible losses. You may find out the total you are liable for is minimal. Would you be comfortable losing this amount, and can you sleep at night without insurance? If the answer is yes to both of these questions, you should be able to skip travel insurance.

For a more in-depth discussion on travel insurance and whether you need it, you can refer to my article: Do I Need Travel Insurance?

Too soon?

I debated whether it was a good time to write this article. Too soon? However, I firmly believe we will be traveling again in 2021. I could be wrong, but sometimes it pays to be an optimist when planning for the future. Remember to stay informed, book early, budget wisely, and use travel insurance only when needed. Safe travels!


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    Financial Advisor David Tuzzolino

     

    David Tuzzolino, CFA, CFP®, is the Founder and CEO of PathBridge Financial, a firm that specializes in providing comprehensive financial planning and investment management services for clients that are nearing retirement and love to travel.

    5 Things We Learned About Retirement Planning and Travel in 2020

    A Shopping Cart filled with toilet paper

    2020 is almost over. It seems like a bigger than normal celebration is in order, but ironically, the usual New Year’s festivities will be muted. Lockdown orders and an unwillingness to gather in crowds will do that.

    You can’t live through such a unique year without learning something. Maybe it was how to make a mask with an old t-shirt and duct tape, or perhaps it was how to time deliveries at your local supermarket so you could hoard Clorox Wipes.

    What have I learned? I’m glad you asked.

    Do it now

    “The future is promised to no one.”

    A great quote that either came from the Bible, Clint Eastwood, or Walter Payton – Google seems confused. Regardless, 2020 reinforced this concept with the subtlety of a tire iron to the knee.

    Globally there have been 1.6 million poor souls that have died from COVID-19 – a tragic number that continues to climb and a stark reminder that tomorrow is not guaranteed.

    So, do it now. Whatever you’ve been putting off, do it now. Of course, now doesn’t necessarily mean this instant. Do it as soon as it’s reasonably safe. Time with loved ones, long-delayed retirement planning, bucket-list travel – whatever you’ve been putting off. If it’s important to you, 2020 should be that gentle forceful push to get you moving.

    A large elephant nudges a baby elephant from behind

    Don’t try to time the market

    Sure, it’s easy. Sell high and buy low.

    When you’re unemotionally scanning a long-term chart of the S&P 500 in your pajamas, with hot cocoa by your side, the 2020 market drop seems like a tiny blip. Living through it was quite different. With a pandemic raging in the world and global stock markets plunging, opening a newspaper (or news website of your choice) delivered headlines like this:

    Coronavirus Rescue Package Fails to Clear Hurdle in Senate

    IOC Considers Postponing Tokyo Olympic Games

    Coronavirus Hits U.S. Senate as Rand Paul Tests Positive

    Marriott, Hotel Owners Furlough Thousands of Workers, Cut Staff

    And my favorite :

    The Great Toilet Paper Scare

    These articles appeared in the March 22nd edition of The Wall Street Journal – the day before the S&P 500 bottomed.

    Successfully timing the 2020 market involved two trades – selling before the most rapid bear market in history and buying before the fastest recovery. I’m sure everyone has an uncle who brags about how they nailed it to the day, but for most, coming out ahead navigating this market was extremely difficult.

    How hard is market timing? The September 2007 article “Mutual Fund Flows and Investor Returns: An Empirical Examination of Fund Investor Timing Ability” measured mutual fund investors’ performance from 1991-2004. Investor timing decisions caused them to average returns that were 1.56% lower each year than they could have been. Compounded over a lifetime, this is a crippling blow to an investor’s net worth.

    There is undoubtedly an investment guru who sidestepped the crash nimbly and then bought aggressively at the bottom. You’ll hear all about their genius. Don’t be impressed until they do it a second time.

    The best course of action? Keep diligently adding to your retirement accounts. You’ll buy more at lower prices, and your nest egg will thank you. Buy and hold investing works.

    The emergency fund became sexy

    For most people, the emergency fund is boring. It’s a pile of cash in a high-yielding account (try to control your laughter, these used to exist) that sits there unloved. That’s until a once-in-a-generation pandemic sweeps the globe and leaves financial destruction in its wake.

    Financial planning 101 – save 3-6 months of expenses for a rainy day. And every so often, a torrential downpour like 2020 comes along to make you happy you did. 

    Woman stands in pouring rain with umbrella

    If you made it through the year with your job, you were one of the lucky ones. Nearly 16 million Americans were not so fortunate.

    I’ve written many times that the emergency fund is not sexy, but it’s critical when you need it. It can reduce stress and give you extra time to weigh your options when an emergency strikes.

    Retirement may come earlier than you think

    “First time in nearly 50 years people 55 and over have lost jobs at a higher rate than younger peers” – AARP

    Unemployment has hit older workers hard during a time in their lives traditionally used to shore up retirement savings. These high-income years, paired with the ability to make catch-up contributions, are often instrumental to the financial success of a retirement plan.

    Whether it’s companies trying to cull well-compensated employees, or other forms of ageism, this development is unsettling. It may become the normal course of action when future economic shocks hit the economy.

    Even in good times, older workers often leave the workplace earlier than planned. Issues such as health or caring for loved ones can cut short a career.

    The pandemic is a harsh reminder that plans don’t always go as expected.

    The best way to prepare for the unexpected is to develop a retirement plan early and fund it aggressively. If you’d like to retire the day you reach 65, put together a plan that shaves a few years off that number. It’s better to save as if you’re going to retire a few years sooner than desired because early retirement may come whether you want it to or not.

    Another benefit of conservatively preparing for a premature exit is your employer may offer an early retirement package. You will be in a better position to accept an attractive offer. Also, early retirement packages can precede layoffs, so it’s nice to have options.

    Prepare for the future

    A good plan is most valuable when the world around you is falling apart. How did 2020 treat your plan?

    If it’s important to you, plan for it. Put together a budget for expenses, review your insurance policies, make sure your beneficiaries are up to date, and your will remains true to your wishes. It’s too late to come up with a well-conceived plan when you’re in the middle of a crisis.

    If you love to travel, now’s the time to plan your future adventures. Figure out where you want to go, what you want to do, and when you want to do it. Sure, you’ve always had the dream of an African safari sometime later in life, but now’s the time to put a date on it.

    Safari at Sunset

    If you’re not doing it already, include travel in your retirement budget. Most people want to travel when they are done working, but most don’t budget for it. (Financial advisor hint: It can be expensive.)

    Not to make this into a commercial, but now’s the time to put together a comprehensive financial plan. If you have the time, knowledge, and desire to do it yourself, I highly encourage you to go for it. If you need help, find a fee-only financial advisor who will help you with it.

    Conclusion

    The pandemic we are living through is miserable in so many ways. However, the worst thing to do is not learn from it. The last nine months have been a painful time for many, but the experience may ultimately help us all make better decisions and lead a more rewarding life.


    Your questions about planning for retirement and travel answered. Where to go? What to do? How to plan it? How to afford it?

    You’ll not only be signed up for my newsletter, but you’ll also get a PDF that shows you exactly what a comprehensive retirement plan for people who love to travel is all about. Thanks for reading!

     

     
     
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    Financial Advisor David Tuzzolino

     

    David Tuzzolino, CFA, CFP®, is the Founder and CEO of PathBridge Financial, a firm that specializes in providing comprehensive financial planning and investment management services for clients that are nearing retirement and love to travel.

    7 Financial Tips for College Grads in 2020

    Confetti fills the air over a group of college graduates

    Fall graduation is near, and although this year it will be different in many ways, the importance of starting life with a firm set of financial principles is as critical as ever. Earlier this year, I was lucky enough to work with Jared Defaria, an economics student at Johns Hopkins University. I asked him to put together a list of financial tips for college graduates, and he did a fantastic job of writing the article below. (Please ignore the “by David Tuzzolino” that appears above as I spent a half-hour trying to remove my name from the post and was unsuccessful.) Please take a few minutes to read through his work and pass on these financial tips to the new college grads in your life.


    Build a Budget

    Budgeting your expenses is the first step to ensuring that you are meeting all your needs in an affordable way and not wasting any money.  By establishing a monthly budget, you have something concrete to follow. There are dozens of helpful budgeting tools available online, so find one that best suits your needs.

    A cartoon figure analyzes a college grads budgetA college grads budget

    Or, create your own spreadsheet to establish your budget and keep track of your expenses. This will help you avoid eating out too much or forgetting about the 2 or 3 streaming services you’ve been paying for but not using.  Always keep an eye on your budget to prevent these unnecessary payments.

     

    Live Within Your Means

    In order to start building savings, it is necessary to limit unnecessary spending, especially at this stage in your life.  Eating lunches and dinners out and taking trips with your friends seems tempting with your first real paycheck, but it could wreck your budget.  There are also ways to avoid certain expenses that may seem necessary, but you can certainly live without.

    One example of this is a car.  If you can find a way to live near enough to work to avoid spending on a car, your budget will only increase for all your other expenses.  Spending a little extra on housing to achieve this could still be beneficial, but make sure you’re someone who can handle those morning strolls to the office.

     

    Create an Emergency Fund

    It may seem difficult to put money away in case of something completely unforeseen, but an emergency fund couldn’t be more important.  Whether you’re in between jobs, you incur a large medical expense, or a car repair; an emergency fund will give you that extra cushion.

    Live Within Your Means
    A good rule of thumb is to have savings equal to three to six months of expenses to keep you on your feet.  Make sure that you place the money in an account with easy access and a high-interest rate.  There are many options for savings accounts that provide a perfect spot for your emergency fund, and dropping a small piece of your paycheck into that account is all it takes.

     

    Understand Investments and Retirement Plans

    Before you can determine what retirement plan is right for you, it is first necessary to understand what they are and what they provide. Understand the differences between a 401k and Roth IRA, both of which would be sensible retirement plans for a college graduate.

    A 401k is a good option if your employer offers a company match for what you put into the account.  Make sure you know if they do and what the match is. Contribute at least up to your employer’s match to maximize the value of your 401k.

    A Roth IRA provides a great option for recent college grads.  Contributions and earnings from the account can be withdrawn tax-free and without penalty for any reason once the investor reaches age 59 ½ and the account has been open for at least five years.

     

    Quickly Pay Off High-Interest Debt

    As a college graduate, there is a good chance you are left with student loans.  However, most federal student loans for undergraduates have low, fixed interest rates that don’t need to be paid off quickly.  Once you’ve graduated college, you need to focus on paying off all high-interest debt, such as credit card debt, personal loans, and some private student loans. 

    Quickly Pay off High Interest Debt

    Much of this debt can be avoided from the start just by following most of the tips we’re discussing now.  By always paying your credit card bills on time, creating a budget, and building an emergency fund, you can avoid most high-interest debt.  Too much of this debt early on in life can weigh you down.

     

    Establish Good Credit (And Be Smart About It)

    It may seem risky to establish credit this early, but many more opportunities will be available to you in doing so.  With good credit, banks and other lenders will be much more willing to loan you money and at a much better interest rate.

    At this stage, the best way to establish good credit is to start using a credit card (and to always pay your bills on time).  By using your credit card for all regular purchases, like getting coffee or going to the movies, benefits will build up, and your credit score will improve (again, as long as you pay your bills on time).  Most importantly, make sure to still stick to your budget and avoid any impulse buys.

     

    Understand What Insurance You Need

    Insurance is necessary but, for a recent college grad, you can avoid paying hefty premiums for insurance you don’t really need.  For example, life insurance is very important once other people become financially dependent on you, but while you are still independent, you can focus on different types of insurance.

    Health insurance, car insurance, and renter’s/ homeowner’s insurance are all things to consider at this stage in your life. There is a strong chance that your employer will provide health insurance, and that is something to look into when selecting your first job. 

    More often than not, you will be renting a home once you graduate rather than owning one, so the next step to focus on is renter’s insurance.  Many people make the mistake of thinking that they will be covered under their landlord’s insurance; however, you will definitely need your own insurance.  Renter’s insurance is important for any damage you might cause, any injury on the property, and for personal items in case of theft, fire, flood, etc.  Make sure to always know exactly what is covered under your insurance plans.

    If you get kicked off of your parents’ plan, it will be necessary to purchase car insurance.  It’s important to note how to create the most affordable insurance plan, as car insurance can get expensive at this age.  You’ll need to consider what kind of car you’ll have, where you’ll be driving, how much you’ll be driving, and your previous record when considering insurance, as those will all be factors in the cost. 

     

              Written by Jared Defaria


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    Financial Advisor David Tuzzolino

     

    David Tuzzolino, CFA, CFP®, is the Founder and CEO of PathBridge Financial, a firm that specializes in providing comprehensive financial planning and investment management services for clients that are nearing retirement and love to travel.

    Your Travel Budget Is About to Implode – Here’s What to Do About It

    A crying piggy bank is broken open and a travel budget (pennies) lies all around.

    Econ 101

    You remember Econ 101, don’t you? It was that class you took freshman year of college where you sat in an auditorium filled with 500 of your classmates watching a dry professor drone on about widgets while viewing an unending series of graphs. If economics wasn’t your calling in life, you probably forgot most of the material.

    However, if there is one universal lesson that you learned, it’s supply and demand. And this is why your travel budget is about to implode.

    If you’re gearing up for retirement in the next two or three years, it could be incredibly ugly. And even if your ultimate retirement date is far in the future, this economic concept is going to affect your travel plans greatly for the next several years.

    Supply

    COVID-19 has dealt a serious blow to travel infrastructure. Cirium, a travel industry data and analytics company, reports global flight volume is down 54% year over year, and 30% of the worldwide airline fleet is in storage.

    In a September American Hotel & Lodging Association survey, half of the hotel owners stated they were in danger of foreclosure. Popular travel destination and early-pandemic hotspot, New York City, is being especially hard hit. According to the Wall Street Journal, the state of New York could lose 250,000 rooms permanently, which equals about 20% of supply.

    The cruise line industry has been decimated, and nearly all ships are docked.

    Docked, deserted cruise ship

    Industry leader Carnival is reducing its fleet by 18 ships, equivalent to 12% of capacity. It’s uncertain how many of these ships will be purchased and returned to service by other cruise lines and how many will be scrapped. This supply is not coming back anytime soon, either. Carnival has already announced there will be no ship deliveries in 2024 and only one in 2025. After scrambling to keep companies afloat in 2020, it will not be easy for cruise line management teams to jump back into growth mode and order new ships anytime soon. 

    Restaurants are in better shape than many other leisure-related companies given their ability to operate at reduced occupancy and provide delivery, but their struggles are still severe. The National Restaurant Association expects approximately 1 in 6 restaurants in the U.S. to close in 2020. Everyone wants to open a restaurant, right? Will the old adage hold true with 2020 stresses a recent and painful memory?

    This devastation extends to the entire travel industry, and it may continue to get worse as we suffer through a long winter with COVID cases spiking in many places around the world. The good news is several vaccines look promising, and the end might be nearing. But what will remain of the travel industry?

    Demand

    I love to travel, and I miss it tremendously. I find myself reading blogs and watching videos about travel to pass the time while waiting for a vaccine. By the middle of next year, I will be visually vibrating with anticipation. I’m certainly not alone.

    A November survey by Destination Analysts states that 80% of U.S. travelers have tentative trip plans sometime over the next year. And this is before a winter, where the northern part of the country will be in virtual lockdown.

    Globe wearing a surgical mask

    Combine COVID fatigue with an effective vaccine, and you’re going to see an explosion in revenge travel.

    If the pandemic has taught us anything, it’s don’t put off doing the things you love. I think travelers are going to take this to heart in a big way. Not only will they be traveling, but exotic, bucket-list trips will likely move to the front of the line.  

    Cruise lines are already seeing signs of this pent-up demand. In September, Carnival announced that 2021 second-half bookings were at “…the higher end of the historical range…”.

    The exact timing of a travel recovery is uncertain, but it will undoubtedly come when the pandemic is under control. Unfortunately, the COVID-fatigued group of travelers that are finally set free may be in for an unpleasant surprise.  

    Demand Up and Supply Down

    You don’t have to dig out your Econ 101 textbook and a mechanical pencil to figure out what’s going to happen when a flood of travelers descends on a battered leisure industry operating at reduced-capacity. Prices will increase – dramatically.

    Expect to pay more for nearly every component of your vacation. You’ll be competing with other travelers for every flight you book, cruise you schedule, and hotel reservation you make. The days of finding last-minute discounts will be over as soon as safer conditions prevail.

    I don’t see this supply-demand dynamic reverting to normal for years. Sure, new restaurants can be opened in a relatively short amount of time, but will there be a long line of entrepreneurs willing to take the risk after witnessing the COVID carnage?

    Airlines and cruise lines can not turn on a dime. Wikipedia lists over 30 airlines that have entered bankruptcy in 2020. Some of these companies will restructure, but others will cease operations. Airlines that continue to fly are putting planes into storage and may find it uneconomical to return the aircraft to service. Building new planes can take only a few weeks, but the industry backlog could grow rapidly with an increase in demand. Building a new ship can take years, and larger vessels cost over a billion dollars.

    The crush of travelers released from COVID hell will run full speed into a reeling travel industry. Prices will spike. It may take some time for these companies to heal, and a rush to increase capacity is unlikely. The travel industry will enjoy robust pricing (deservedly so given their recent pain), and your vacations will cost more. There will come a time when entrepreneurs increase capacity to meet this high-margin demand, but gun-shy business owners may be slow to react.

    Solution

    It’s time to take a hard look at your travel budget. Does it still make sense? Will you be able to afford the elevated prices that could last two to three years? If you’re like me and refuse to give up your travel dreams, here’s what you need to do.

    Save more money. It’s time to start funneling more money into your travel budget. If you’ve been fortunate enough to keep your job and are working from home, you’ve likely decreased spending on dining out, commuting, entertainment, etc. Earmark at least some of your savings for travel, and you’ll be prepared for higher prices.

    Money being placed in a pink piggy bank

    Consider less-popular destinations. Resist the temptation to join the masses at tourist hotspots. Sure, you might want to show off your newly-gained immunity by mingling with large crowds, but your travel budget will suffer. Less-touristy destinations will allow your dollar to go further.

    Book your travel far in advance. Many businesses are offering fully refundable options. Take advantage of these and book your trip early. Prices should be lower this winter, given an uncertain future. Even if you’re unsure of the timeline for a vaccine and a return to safe travel, feel free to book a vacation as long as you’re guaranteed a full refund if you need to cancel. Make sure to read the fine print so that you completely understand the cancellation policy.

    Summary

    Studies have shown that the simple act of planning a trip can lift your spirits. So, don’t let the current pandemic stop you from dreaming about your future travels. Be proactive. Consider less-trendy destinations and increase your savings to fortify your travel budget against a more expensive travel-future. If you prepare now, when things clear, your biggest decision will be where to go on vacation, not how to afford it.

    Need some inspiration? Intrepid Travel has put together a wonderful list of 9 mind-blowing travel videos. Enjoy!


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    Financial Advisor David Tuzzolino

     

    David Tuzzolino, CFA, CFP®, is the Founder and CEO of PathBridge Financial, a firm that specializes in providing comprehensive financial planning and investment management services for clients that are nearing retirement and love to travel.

    How Much Do I Need to Retire (and Travel Like Royalty)?

    A white castle rises out of the forest, clouds in a blue sky

    A Simple Retirement Calculator

    One of the most common questions in planning for retirement is: “How Much Do I Need to Retire?” And since I specialize in working with travelers, travel always comes up. The question may be, how do I travel like royalty, a rock star, or just, well?

    The answer is incredibly simple: “It depends.”

    You can start with a quick-and-dirty analysis that won’t take you more than fifteen minutes. NerdWallet.com has a solid, basic retirement calculator here, but the following concepts will work with any calculator you use.

    The initial inputs are straightforward: age, income, current savings, and the amount you save every month. The retirement calculator then illustrates how much you will have at retirement compared to how much you will need to retire. Simple, and not a bad start, but there are ways to refine your results further.

    On the NerdWallet calculator, click “Optional.” Additional inputs appear.

    The first input, “Monthly retirement spending,” is automatically set to use 70% of your pre-retirement income. A common rule-of-thumb is you’ll spend approximately 70-80% of your pre-retirement income once you retire. However, I have found this number can be low, especially when working with clients who expect to travel extensively. Consider bumping this number up to 90-100% if you’re doing a quick calculation. If you’d like to refine this number, put together a detailed budget for retirement, keeping in mind the significant changes that can occur when you tackle your bucket list and medical expenses grow.

    The next input is “Other expected income.” This includes Social Security, pensions, annuities, and other income sources you may have in retirement.

    The default age of retirement is set to 67. Change this to your desired retirement age. Also, have some fun with it. Increase your age, lower it, and see how it affects the numbers. Your final number should be conservative, perhaps a few years before you’d like to retire. This will build in some extra cushion to your projections. Many people retire earlier than they expected due to layoffs, early retirement packages, or health issues.

    Life expectancy is automatically set to 95, a reasonable number. However, maybe you have a family where everyone sails past 100 in excellent health. You can always make adjustments, and the bigger the number, the more conservative your estimates will be.

    The “Investment rate of return” default is 6% pre-retirement and 5% after retirement. These rates of return assume your portfolio will become more conservative post-retirement. These are reasonable estimates, but you can adjust the pre-retirement return, either up or down, to see how your results change. Just be realistic and don’t stray too far to the upside.

    How does it look? Are you on track? If you are, fantastic!

    You’re not quite done, however. Play with the numbers and create some worst-case scenarios. What happens if you have to spend dramatically more than you anticipated? How do you look if your investment returns are lower than expected? If you are still on track to retire, try nudging down your retirement age. You may not want to retire early, but it’s nice to know the option exists.

    More Detail

    The quick-and-dirty option above is acceptable for some. However, if your life is a little more complicated or you want to get more granular, consider the information below.

    Expenses

    Let’s refine the “Monthly retirement spending” part of this model.

    Put together a detailed list of your expenditures. There are hundreds of budget spreadsheets online. Find one that does a good job of breaking out spending into categories that will help you organize your expenses. If you’d like the spreadsheet that I use with my clients, please send me an email at david@pathbridgefinancial.com. Double-check your spreadsheet with bank statements. Does the spreadsheet expense total equal what is coming out of your bank accounts? If not, figure out why and adjust.

    Next, focus on retirement. Make a copy of your spreadsheet and start reducing or eliminating expenses that might change once you’re retired. What commuting expenses will go away? Will you continue to need a second car? Will your mortgage be paid off? Do you have life insurance policies that you will no longer need?

    Unfortunately, not all expenses will decrease. Health care costs will grow as you age. Projections vary greatly, but a 65-year-old couple should expect to spend approximately $11,000 a year on health care in retirement. Fidelity Investments has a health care cost calculator that will take you about three minutes to fill out.

    Now, the good stuff. In retirement, travel and leisure often increases in frequency and duration. Dream vacations to exotic locations, the purchase of an RV or boat, a summer in Tuscany, the lake-cabin you’ve always dreamed about – let your mind wander. How much would you like to spend on travel? Go into as much detail as possible.

    How you like to travel will affect your travel budget. Do you prefer 5-star luxury resorts on the other side of the world and dining at Michelin-star restaurants?

    A chef uses tweezers to complete a fine dining meal

    Or do you find most of your vacations are within driving distance of your home where you stay with friends, and you pride yourself on scouring farmers’ markets to prepare home-cooked meals? Odds are you’re somewhere in the middle, but dive into your travel deeply and try to put together a realistic travel budget.

    It’s easy to get caught up in dreaming about once-in-a-lifetime trips, but there’s something that most people find even more important – family. You’re likely to have much more leisure time in retirement, which usually results in more family time. How many trips are you going to take to visit your loved ones? Grandchildren especially can be an irresistible draw. Don’t forget to add these trips to your retirement travel budget.

    Don’t hold back when estimating expenses. We’re talking about traveling like royalty here! Err on the high side, and don’t be afraid to include some extravagant extras. It’s better to reach, and save some extra money, then underestimate and not have enough. You can always reduce some expenses or eliminate some of those extras when the time comes. A key concept when planning for travel in retirement – be flexible.

    Income

    If you’re going to adjust the “Other expected income” amount in the calculator, keep in mind that this will increase income every year between retirement and death – a limitation of this model.

    In reality, there are ways to increase income for a portion of retirement, including part-time employment or renting out a home, but these are unlikely to last your entire lifetime. There are also one-time income sources that might make a huge difference, such as selling a house or an inheritance. If you are running into too many one-offs, consider consulting a financial advisor who has software that can accommodate any non-standard inputs. I discuss this later in the article.

    The Answer

    By now, you should have a reasonable answer to your question: “How Much Do I Need to Retire (and Travel Like Royalty)?”

    You should have a good idea of how much you need and how your current situation looks in comparison. Are you coming up short? The best way to address this is to save more if you can. Even a few hundred dollars each month can be meaningful if you adjust course early.

    If saving more is impossible, nudge your retirement age higher. Working an extra year or two might be the solution to your shortfall. Spending less in retirement will stretch your nest egg as well. Remember, being flexible is key.

    However, don’t be tempted to increase the investment rate of return just to meet your retirement goals. It’s conservative for a reason, and you should keep it that way. A balanced portfolio of stocks and bonds isn’t going to return 15% a year over the long-run, just because the calculator allows the input.

    retirement travel illustrated by a tablet and statements

    If you’re unsure of what rate of return to use, Vanguard has a website that illustrates the average investment return for stock/bond portfolios over 90+ years. There are no guarantees that the future will deliver the same results, but it’s an excellent place to start. Remember, it makes sense to be conservative.

    You May Need a Financial Advisor

    There are many reasons you may decide to contact a financial advisor. The most important reason – your question: “How Much Do I Need to Retire (and Travel Like Royalty)?” was not answered adequately using online resources. Also, consider the following:

    • Would you prefer more detail in your retirement projections?
    • Does your situation involve a level of complexity that an online calculator cannot handle?
    • Would you feel more comfortable talking through your important retirement decisions?

    If you answered yes to any of these questions, you might want to talk with a financial advisor. Where do you start? I recommend reading this article from the CFP Board: “Ten Questions to Ask Your Financial Advisor.” Or, if you’d prefer a little humor with your advisor search, please take a look at my article: “How to Spot a Terrible Financial Advisor You Can’t Trust.”

    Now that you’re armed with what to look for in a financial advisor, I recommend the following directories:

    Find a CFP® Professional

    The National Association of Personal Financial Advisors (NAPFA) Find an Advisor

    Summary

    The answer to the question, “How Much Do I Need to Retire (and Travel Like Royalty)?” is – it depends. It depends on your wants, needs, and resources. Whether you tackle this question with an online calculator or with a financial advisor, make sure you’re comfortable with the results and have a clear understanding of what it will take to achieve success.


    Enjoy what you just read? If so, you can subscribe to my newsletter below. You’ll also receive a PDF that shows you exactly what a comprehensive retirement plan for travelers looks like. Thanks for reading!

     

     
     
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    Financial Advisor David Tuzzolino

     

    David Tuzzolino, CFA, CFP®, is the Founder and CEO of PathBridge Financial, a firm that specializes in providing comprehensive financial planning and investment management services for clients that are nearing retirement and love to travel.

    Retirement Planning for People Who Love to Travel – Beware the Bucket List

    Beware the Bucket List - People run with the bulls, photo from above

    Failing to Plan for Travel Spending Later in Life Can Sink Your Retirement Plans

    The rule-of-thumb for spending in retirement is your expenses will drop to 80% of what they were pre-retirement. This number may be adequate for some retirees, but for travelers – it’s unacceptable.

    The Botswanan safari you’ve always dreamed of is expensive. The RV you’re going to use to explore the country will set you back a fair amount too. Plane tickets to visit the Cup of Noodles Museum in Japan – not cheap, and a little odd, but no one is judging you here. That bucket-list of travel experiences and destinations you want to conquer can significantly affect your budget. And according to Merrill Lynch, 67% of retirees age 50 and older have not budgeted for travel in retirement.  

    bucket list travel - safari where a giraffe stretches upward to eat leaves from a lone tree in the savanna

    As a traveler, you should expect an increase in travel-related expenses for at least the first several years of retirement as you work through your bucket list. You’ve been dreaming about the moment for many years, you’re feeling healthy, and the jump in leisure-time all will contribute to a jump in travel spending.

    How do you prepare for this new chapter in life? Create a retirement budget that includes all of these new, travel-related expenses. The earlier, the better, so you can make the necessary adjustments in your spending and saving habits along the way.

    Expenses That Will Decline

    Let’s start with the good news first. You have expenses during your working life that will likely go away or drop substantially when you retire.

    Your daily commute can include gasoline, parking, wear and tear on your car, and the cost of public transportation. These will disappear except as they relate to leisure.

    Your wardrobe will likely change, as well. Goodbye work clothes, hello loungewear! Yes, this may be an oversimplification, but you should be able to retire enough clothing to the point of actually being able to find something in your walk-in closet.

    College tuition for children and mortgage payments are additional expenses that can go away. Taxes should decrease given the drop in work-related income. In addition, there’s no need to save for retirement anymore, because you’re living it!

    Expenses That Will Increase

    Yes, spending will increase in certain areas of your life during retirement. Some of these expenditures you will welcome with open arms, and some you will grudgingly pay wearing a look of disgust.

    Travel expenses can jump dramatically in the first few years of retirement. However, there can be a considerable difference depending on your travel style. Flying in first-class while hop-scotching around the Pacific, staying in 5-star

    5 Star Resort in the South Pacific on many people's bucket list

    resorts, and dining at 3-star Michelin restaurants is one end of the spectrum. Driving a few states away to attend a barbecue with your family who put you up for the weekend will be less expensive.

    The cost of health care in retirement is what every red-blooded American fears. But preparing for these expenses ahead of time can ease the sting.

    Budgeting

    If you don’t currently have a budget, I highly recommend you put one together. It’s retirement planning 101 and is key to projecting when you’ll be able to retire.

    Your budget is likely to change dramatically, however, at retirement, especially if you’re a traveler. I recommend you put together a second budget, which will begin once you retire.

    Many expenses in your life will not change at all. However, for those that will, do your best to estimate the change, especially for items that will significantly affect your budget.  

    One expense that can drastically move up or down is housing. Paying off a mortgage or downsizing can bring down the cost substantially.

    Is relocation a consideration? What does the cost of living look like in the new location? Do you want to buy a vacation home, but keep your original home? Adjust your budget for the potentially significant changes. 

    Budgeting for Travel

    If you love to travel, this part should be fun. Let your mind run wild and think of all the adventures you’d like to have in retirement. Create a travel bucket-list that contains all of the events you’d like to attend, destinations you’d like to visit, and experiences you’d like to…well, experience.

    Do your best to estimate your travel costs accurately.  How many trips will you take per year? How long will they be? Will spending be extravagant or constrained?

    Also, ask yourself how your travel might change. As people age, they tend to value service, comfort, and safety more, and they are willing to pay extra for it. Staying in nicer hotels and traveling with higher-end tour groups can be the result. For all but the most intrepid retirees, gone are the days of solo backpacking through Europe and sleeping 10 to a room in hostel bunk beds.

    Travel in Style - a hostel room filled with bunk beds

    However, there are also changes in retirement that can reduce the cost of travel. The time-freedom that comes with retirement allows travelers to vacation during the off-season, book last-minute deals, and travel in a more deliberate way, such as taking a bus or train instead of an expensive flight.

    If you’re like me, you weren’t in a very good mood the day your first invitation to join AARP arrived in the mail. However, a benefit of being over 50 is discount offers start piling up. By the time you turn 65, discounts on airlines, hotels, restaurants, etc. are prevalent.

    Now that you’ve put some thought into retirement travel, include it in your budget. Be as accurate as you can, but don’t be afraid to err on the high side. It’s better to budget for a bucket-list trip and decide not to take it than the other way around.

    Here are some websites that will help you put together a budget and assist you with finding discounts:

    TripAdvisor – an excellent resource for trip planning and pricing flights, hotels, tours, and more.

    Kayak – another fantastic resource for pricing the major components of travel, includes one of the most flexible, user-friendly airfare search engines available.

    The Senior List – an extensive list of discounts on transportation, lodging, and dining for people 50+.

    Numbeo – if you’re trying to determine how expensive/inexpensive a city or country is, this website is includes the local cost of living index and the prices of everyday items.

    Winding Down

    A difficult part of budgeting far into the future is the many unknowns. One of the most important factors is health. I want to think I’ll still be the healthy, adventurous soul I am now when I’m 90. Unfortunately, this is unlikely to be the case.

    Travel spending tends to decline with health. Ask yourself – how healthy and active are/were your parents later in life? How about your grandparents?

    Studies show, on average, travel spending starts to decline as travelers enter their 80’s, so this is a good time to start lowering the travel component of your budget. Just don’t do it too rapidly, as many older retirees are still actively traveling. If you want to be conservative, don’t drop it at all.

    Summary

    Don’t be part of the two-thirds of Americans who fail to budget for travel in retirement. Instead, take a pro-active approach to plan your future and start saving early. The 80% rule-of-thumb may leave you ill-prepared for the active retirement many travelers desire, so try and budget for the large expenses later in life as accurately as possible and be conservative when making estimates. A little planning should ensure you’ll end up crossing off your bucket list in style.  


    Enjoy what you just read? If so, you can subscribe to my newsletter below. You’ll also receive a PDF that shows you exactly what a comprehensive retirement plan for travelers looks like. Thanks for reading!

     

     
     
  • *Privacy policy: your email address is safe, and you will never receive SPAM.

    Financial Advisor David Tuzzolino

     

    David Tuzzolino, CFA, CFP®, is the Founder and CEO of PathBridge Financial, a firm that specializes in providing comprehensive financial planning and investment management services for clients that are nearing retirement and love to travel.