Do you like to travel? Are you looking forward to a future when your leisure time will be measured in months, not seconds gained by cutting your 30-minute lunch “hour” short?
There are pitfalls particular to travelers when planning for retirement. This article will help you avoid them so you’ll be ready to retire and tackle the next chapter of your life with confidence.
Not Budgeting for Travel in Retirement
A retirement study published by Merrill Lynch reveals that 84% of retirees over the age of 50 have done “hardly any” planning for leisure activities for the next ten years. And 67% have not budgeted for travel in retirement.
The best retirement plan in the world is useless if it doesn’t include spending on travel in retirement. For the first several years, retirement-bliss is often filled with bucket list travel, which can be extremely expensive. Your new RV, a trip to the Galapagos Islands, and the two-week African safari won’t be cheap. Sure, your travel spending may decline after this initial period, but it tends to stay elevated for people who love to travel.
Failing to plan for travel will present you with two difficult choices. Either come up with the money from other places in your budget or miss out on the travel you love.
Why not build travel into your retirement budget in the first place? Your future self will thank you for it.
Not Acquiring the Right Health Care Insurance
Medicare will not cover you in an emergency when you’re traveling internationally, except for very limited circumstances. If you’re a traveler who plans on leaving the U.S. in retirement, you need to make sure you’re insured in another way.
Some Medigap policies and Medicare Advantage plans will cover you outside of the country, but not all. There are also time constraints to this coverage. For example, Medigap policies will only cover you for the first 60 days when traveling.
There is also travel insurance that can be purchased on a one-time or annual basis. A year-long policy may be less expensive, depending on how often you are traveling.
Some credit cards will also pay your emergency medical bills when traveling. Read the fine print carefully, but for travelers without an ongoing plan, this can be a good way to cover yourself without having to shop for a new policy each time you leave home.
As a traveler, it’s important to objectively analyze your needs and make an informed decision as you approach 65. How much is each insurance option? How much of your medical bills will each alternative pay? What is your exposure if you have a severe medical emergency? Are there time limits when traveling?
There are enrollment periods when signing up for the government plans, so if you decide to make a change, you might have to wait a while. This is another reason to prepare for the critical decision concerning health care well ahead of time.
Another concern is early retirement. Travelers that retire before 65 must find health care insurance before Medicare kicks in. Alternatives include the Health Insurance Marketplace, a spouse’s insurance, or a part-time job that provides the benefit.
Not Using the Right Credit Card
Finding the right credit card as a traveler can be a warm fuzzy feeling. You will earn miles or points, you will not have to pay foreign transaction fees, you will have access to airport lounges, and sign up bonuses can be tremendous – equivalent to a free flight or more.
Remember the medical insurance we discussed earlier? Some higher-end cards will not only cover you in case of a medical emergency when traveling, but also include rental car coverage, trip cancellation insurance, lost luggage reimbursement, and medical evacuation coverage.
Two credit cards with stellar benefits are the Chase Sapphire Reserve Card and the American Express Platinum Card. The Points Guy does an excellent job of explaining the benefits of each. Don’t be shell-shocked by the $500 plus annual fees, as most semi-frequent travelers will easily recoup the cost via attractive benefits such as a $300 annual travel credit and reimbursement of TSA pre-check fees.
If you’re using the wrong card, you could be missing out on thousands of dollars. That’s money you could spend on another trip!
Paying Too Much in Taxes
Raise your hand if you’d like to pay more in taxes. I didn’t think so.
Maxing out your retirement accounts is one of the best long-term, tax-saving moves you can make. If you work for a company that matches your contributions to a retirement plan, such as a 401k or 403b, make sure you’re at least investing enough money to capture the entire match. There are many additional tax-advantaged plans you may be eligible for, including an IRA, Roth IRA, SIMPLE, SEP IRA, etc. Use them to save aggressively.
Do you have access to a Health Savings Account (HSA)? Max it out, and try not to touch the funds until retirement. An HSA presents the opportunity for you to deposit money before tax and withdraw it tax-free. Pay for your current health care needs with after-tax cash instead.
People who love to travel don’t have to worry about what they are going to do in retirement, because…well, they love to travel. This can lead to early retirement and a prolonged period between a high-income career and the required minimum distributions that must be taken from retirement plans.
During this stretch, you may find yourself in a lower tax bracket when you retire, which presents the perfect opportunity to convert an IRA or a Rollover IRA into a Roth IRA. You’ll be taxed on the conversion, but this can be your chance to take advantage of a lower tax bracket. This money will grow and be distributed tax-free. It’s better to be taxed early, while in a low tax bracket, then wait until you are forced to take money when you may be pushed into a higher tax bracket. This maneuver can be complicated, so I recommend checking with a financial advisor to see if it’s a good fit for your situation. For do-it-yourselfers who want to dig into this topic, Kitces.com has detailed information on the conversion here.
Waiting Until Retirement to Travel
Waiting to travel can be the biggest mistake you make as a traveler when planning for retirement. If the COVID-19 pandemic has taught us anything, it’s – don’t wait until retirement to travel!
Few quotes hit home now, during our coronavirus-hellscape, more the one from motivational speaker Wayne Dyer – “Do it now. The future is promised to no one.”
(David Tuzzolino caveat: “You might want to wait until the pandemic dies down before “doing it now,” but I’m sure you get my point.”)
Don’t make the mistake of waiting until retirement to start checking items off your bucket list. Things change; you might not get the chance if you wait.
Your health can deteriorate rapidly, or new responsibilities can come along that make traveling problematic. Money issues may crop up.
If you love to travel, plan diligently, and create an extra-long list of retirement destinations, events, and experiences. However, the worst thing you can do is sacrifice the present by delaying your travel dreams for a tomorrow that may never come.
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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.