Planning for Vacations and One-off Expenses

Written by: Andrew Briesacher, CRPC® – Wealth Manager

With summer vacations in full swing, now is a perfect time talk about planning for these types of expenditures in retirement.

It is important to discuss how you plan financially for expenditures like vacations or one-off expenses in retirement. Many times, when we are meeting with current clients and prospective clients, we hear about the trips they would like to take, and new projects they plan to do to their house or vacation home. After hearing about these plans, we often ask, “how do you typically pay for these types of trips or one-off projects?”

A few of the typical responses we hear are, “well I use my overtime pay for projects” or “my year-end bonus usually covers our vacation expenses.” Both are certainly fine ways to spend extra income, but we need to factor this in when planning, because there are no bonuses or overtime pay in retirement.

We also often get asked headliner questions such as “how much money do I need to retire?”; and we argue that while this number is important, knowing your monthly expenditures are equally, if not more important. Someone can have $10M saved for retirement, but if they have extravagant taste and spend $1M per year on their Ferrari collection, then they are not going to have a long or successful retirement. We typically say that a healthy long-term withdrawal rate should be around 4%; however, every situation is different and at times this number may be higher or lower.

Typically, we will lean on you, the prospect or client, to give us your estimated monthly expenses to understand how much you need to live comfortably, that being said, if there are additional things like home renovations or vacations that you would like to embark on, we would need to make sure to factor those into the plan as well. You may have heard us say in the past that the Monthly Expenditure figure is one that we, unfortunately, cannot come up with for you, but we can offer resources to help you determine or find that number when needed.

For example, if you and your family have trouble arriving at an honest expense number, we have budget worksheets to help you dive deeper and in more detail into your expenses and where your money is spent. It is imperative to keep in mind when completing these worksheets or exercises, that the purpose is not for us to judge where you spend your money, it is 100% your decision what things bring value to your life. That being said, it is important that we make sure the numbers are correct, because the purpose of retirement is living comfortably in it and we don’t want you to feel like you are pinching pennies.

If you have questions about your current retirement plan and how it will fair against your estimated monthly expenses and expenditures, don’t hesitate to reach out to our team.