For many retirees, traveling is one of the activities at the very top of the bucket list. The majority of Americans only get to travel once a year, and oftentimes, the length of that annual vacation only lasts for two weeks at most. Having said that, it’s no wonder why many retirees want to travel the world after they are freed from employment.
But here’s the common predicament that a lot of retirees have: how do you finance travel after retirement?
This article will show you how.
What to Do Before Retirement
Ample financial preparation is the key to living out your travel dreams after retirement. Saving money specifically for retirement is a given, but it’s often a lot harder than it looks. That said, here are a few tips to jumpstart your travel funds before you go into retirement:
Set up a separate fund
If you want to take traveling seriously after you retire, it’s best to have a separate savings account for it. This way, you can monitor your fund’s progress and adjust your savings strategy as needed. For example, if you want to have at least $10,000 in your travel funds before you retire, you can divide that amount by the number of paychecks you have left before retirement and save accordingly.
Make a list of places you want to visit
Write down all your dream destinations in one list. Then, separate them into categories e.g. places you must visit before you die, and places that you want to visit but are okay with not prioritizing. You can further sharpen that list by ranking each destination by priority level, with the places you absolutely must visit at least once at the very top of the list.
Doing this makes it easier to make travel plans and prepare your travel funds before and after you retire. Of course, your list can be flexible; maybe you want to visit Bali during retirement, but maybe you want to deprioritize that destination and go somewhere else when you’re actually retired. Nevertheless, it certainly helps to have a list to base your decisions and plans on.
Calculate your future income and expenses
Estimate how much you’ll be making from pensions, government benefits, and other sources of income after you retire. Do the same for expenses; how much you expect to spend every month on necessities, savings, insurance, and other important costs. After you have rough numbers, figure out how you’ll be fitting travel expenses into the equation.
If you expect to get $3,500 every month during retirement and your future expenses should be around $2,500, you have $1,000 for miscellaneous expenses (including travel). You plan to travel every six months and spend around $5,000 for each trip. Assuming that there are no unexpected expenses, you have to save around $830 every month to be able to take bi-annual trips with that kind of budget.
Travel is not the only large expense you’ll be making during retirement, so it pays to plan a budget that can accommodate the lifestyle you want in the future. Of course, the example above is an idealistic situation where no unexpected expenses come your way, which brings us to our next point;
Prepare for emergencies
Many employers eliminate health insurance coverage for employees after they retire. Some pass on more costs to retirees. Either way, there is a likely possibility that retirement will disrupt your insurance coverage to some degree.
Take note: you likely have the option of continuing coverage from your employer for at least 18 months after you retire thanks to the Consolidated Omnibus Budget Reconciliation Act (COBRA).
If you lose your employer-sponsored health insurance coverage after retirement, you can apply for Medicare, Medicaid, or private individual/family health plans. Medical expenses in the U.S. are often financially debilitating, which is why it is extremely important to have at least some form of health insurance coverage after you retire and lose your employer-sponsored benefits.
However, insurance may not cover all your medical expenses. At one point or another, you may be faced with out-of-pocket costs that go up to the thousands. For this reason, it is also imperative that you have an emergency fund that will help your finances remain relatively stable if ever you have a medical bill to pay.
What do these things have to do with traveling? Simply put, large medical expenses can put all your plans to a standstill if you find yourself unprepared for them. The same goes for any other unexpected expense, like car and home repairs or transportation for an unexpected event. Having the funds to pay for these emergencies can turn roadblocks into minor hiccups, helping you stay on track with your travel plans and–more importantly–keep your finances in good shape.
What to Do After Retirement
Maybe you couldn’t save enough money for traveling before you retired. Or perhaps the thought of traveling didn’t really occur to you until you are already in retirement. Either way, there are still plenty of things you can do to finance travel while you are already well into retirement:
Raise income or reduce expenses
If your current income is not enough to support the globetrotter lifestyle that you want, you have two options: raise your income or reduce your expenses–or both!
Raising income during retirement is often easier said than done, but definitely possible. Many retirees get part-time jobs or freelance to supplement their income. Others choose to access their home equity through a reverse mortgage or home equity loans. Some retirees also sell off assets to build a comfortable life for themselves after retirement. Doing a combination of these strategies can help you raise your income by a substantial amount, but it all depends on your capabilities, assets, lifestyle, and other factors.
On the other side of the coin, you can reduce your expenses to increase your cash flow. But just like raising income, reducing your expenses can require a lot of sacrifices along the way. To start, eliminate the most unnecessary costs that you can live without, such as unused streaming subscriptions or daily five-dollar coffees. Once you get rid of these things, you can start nitpicking your budget to see what you can take out to make more room for traveling expenses.
Consider becoming a landlord
If you’re going to be traveling for extended periods of time, why not rent out your house to short-term tenants while you’re not home? Or if you have extra rooms in the house, perhaps you can consider renting them out or using them as Airbnbs? Aside from bringing in extra income, renting out your home (or parts of your home) helps keep it secure and well-maintained while you are traveling.
While it sounds counterintuitive, staying longer in one place can be less expensive than taking short trips. For example, monthly stays at hotels, inns, Airbnbs, and other rental properties are cheaper by the day than, say, two-week stays. You also have more time for sightseeing, experiences, and other common tourist activities, which means that there is less pressure to spend more money to fit everything you want to do in a limited amount of time.
Long-term travel also makes way for better travel deals. For instance, you won’t choose to pay for a $100 plane ride over a $20 bus ride because you aren’t pressed for time. Entertainment also tends to be cheaper when you have more leeway between activities because you aren’t trying to do everything all at once.
Staying longer while traveling is a great choice especially if you are a retiree, mainly because you don’t have a job to get back to. You have more freedom to plan your trip, which also comes with better control over your budget.
Consider getting a reverse mortgage
We’ve mentioned accessing home equity as a means to increase your retirement income. In this section, we will discuss reverse mortgages further as it is one of the most efficient ways to access your home equity if you are a retiree.
A reverse mortgage is a type of loan that uses your home as collateral and gives you access to your home equity. Unlike home equity loans and HELOCs, a reverse mortgage does not become due until the last borrower dies, moves away, or cannot comply with loan obligations (paying insurance, taxes, and maintenance). If you are still paying off your mortgage, it also eliminates your monthly mortgage payments forever, allowing you full access to your income while you stay in your own home.
South River Mortgage is Here to Help
If you plan to make traveling a major part of your retirement, consider getting a reverse mortgage to supplement your travel funds and get rid of your monthly mortgage payments. Talk to our reverse mortgage experts at (844) 230-6679 or by email at firstname.lastname@example.org today to learn more about how you can live the life you want by accessing your home equity.