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Travel plays an important role in retirement planning

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Their first trip after retiring, Sam and Rachel were excited to take their bucket list trip to Yellowstone National Park. They were going to drive and their route, stops, site-seeing and accommodations were all planned. What they didn't realize was how much more it cost to stay inside the park rather than outside, but with Sam's back issues they had to eliminate the car ride time going in and out of the park each day. They also had the extra cost of food, since there was no refrigerator in the room and they always had to eat out. They did their own short hikes and site-seeing, but also decided to take guided tours and horseback rides once they got to the park.

They loved their trip taking in the beauty and grandeur of Yellowstone. It did not disappoint and they were so glad they went. However, if they would have done a little more planning for the trip, their budget would have been less like a geyser and they could have minimized or eliminated the eruption of their travel budget.

When you ask people who are still in the workforce what they plan to do when they retire, a majority of them will mention some kind of travel. According to a 2018 AARP study, Boomers anticipated taking four to five leisure trips in 2018, with each Boomer expecting to spend a total of about $6,395 and bucket list trips at the top of their lists.

Expected vs actual

Will that expected amount be an actual amount? Probably not. Based on a 2017 LIMRA Secure Institute Retirement study, Retirement Spending: Experience Versus Expectations, one quarter of retirees spend more than expected on travel, vacations, dining out, and other discretionary goods and services, with 45 percent of all retirees specifically noting travel costs were more than they expected.

Higher incomes travel more

Retirees with higher household incomes are much more likely than those with lower incomes to say they will travel and take a vacation (for example, 80 percent of retirees with household incomes of $150,000 or more, compared with 27 percent of retirees with incomes of $35,000 to $49,999). Wealthier retirees are also more likely to point to travel and vacation as reasons for spending more than anticipated, according to the LIMRA study.

The connection between wealth level, travel and retirement plans

Formal written retirement plans are also associated with travel and vacations since they are strongly tied to wealth levels. Retirees with a formal written retirement plan are more likely than those without a plan to say they traveled more than expected, which then contributed to higher than expected discretionary expenses (62 percent with a formal written plan, 48 percent with an informal retirement plan, and 28 percent without a plan).

Help make their retirement travel dreams happen

As a financial professional, you can show clients that planning for their retirement is not only about money, but also what they want from their next phase in life. With planning, you can help them go to the places they want. It's important, for example, to create estimated budgets for their trips and then incorporate them into their overall retirement plan.

Many travelers just think of the obvious items when planning for travel, such as main transportation, accommodations and food. However, you can remind them of potential budget-busters that include other transportation (taxis, Uber, metro transportation), activities (tours, site-seeing, museums), shopping and service tips. Some travel agents suggest a 20 percent cushion in a travel budget to help absorb unexpected costs. Knowing that they are going to spend more on travel than they planned, you can help them have a more realistic idea of how much money they will need to make those bucket list trips a reality.