Written by: Andrew Briesacher, Senior Wealth Manager
Retirement is often the season of life when travel moves from the “someday” list to the calendar. Whether it’s visiting grandchildren, taking the dream trip you’ve postponed for years, or exploring new destinations at a slower pace, travel can be one of retirement’s greatest rewards.
The key is ensuring those experiences fit comfortably within your overall retirement income plan. Thoughtful budgeting, tax-aware withdrawal strategies, and careful planning can help you enjoy meaningful vacations while preserving your long-term financial security.
After my wife Kelly and I took our daughters, Winnie and Zoey, on our recent vacation to Disney World (yes, we are still recovering), I got to thinking about what are the different ways to incorporate Retirement Income and Tax Efficient Strategies along with Travel Budget Efficiencies. Here are some ways that tie our Wheelhouse income philosophy to your regular travel planning.
Start with Your Retirement Income Plan
A vacation should be part of your retirement budget, not an unexpected expense that disrupts your financial goals. Before booking a trip, review your anticipated income for the year, including all of your mailbox money (social security and pensions), retirement income distributions (Traditional “Pre-Tax IRA’s and Roth IRA’s), investment incomes (dividends and interest) and Cash Savings.
Not all investments and retirement accounts are taxed the same way. Drawing vacation funds from already taxed savings instead of taking additional withdrawals from taxable retirement accounts may help manage taxable income. In some cases, you may benefit from using Roth assets, which can generally be withdrawn tax-free if IRS requirements are met. Many retirees have not built up enough in their Roth accounts for this to be the best option just yet.
The most appropriate withdrawal strategy depends on your overall income, tax bracket, and financial goals. You need to make sure you have a firm grasp on your financial plan and watch income tax brackets so that an inefficient retirement account withdrawal doesn’t push you unnecessarily through another tax bracket or Medicare IRMAA bracket causing extra cost at tax time or a down the road hike in Medicare premiums.
Knowing where your income is coming from can help you determine how much you can comfortably allocate toward travel without jeopardizing your long-term financial plan.
Use Required Minimum Distributions Thoughtfully
Beginning at the age of 73 for most current retirees, or age 75 for anyone born 1960 or later, retirees are required to take annual Required Minimum Distributions (RMDs) from certain tax-deferred retirement accounts. RMD’s can also be a useful tool for determining your vacation budget. As you’ve heard us say before at Wheelhouse, when Uncle Sam “requires” you to do something, its typically not going to be in your best interest; however, one benefit that can come is it forces thrifty retirees to spend some of their money on fun things like travel.
Coordinating travel expenses with your required withdrawals may help simplify your cash flow and reduce the need for unplanned withdrawals from other investment accounts.
Because RMD rules can change and every retiree’s tax situation is unique, it’s important to discuss distribution strategies with your financial advisor or tax professional.
Build Travel into Your Annual Spending Plan
Instead of paying for vacations with credit cards, create a dedicated annual travel budget. Many financial professionals recommend you treat travel as a planned lifestyle expense, just like housing, healthcare, or charitable giving.
Include estimated costs for:
- Transportation and Lodging
- Meals and Gratuity
- Entertainment, Excursions and Souvenirs
- Travel Insurance and other Emergency Expenses
Setting spending targets before you travel can help reduce financial stress and minimize the temptation to overspend while you’re away. It can also help to make sure you know how your Medicare and Health Insurance Coverage work while traveling, especially outside of your coverage area or outside of the U.S.
Ways for Retirees to Save and Take Advantage of Retirement Flexibility
Many travel providers offer discounts for older adults and one of retirement’s greatest financial advantages is the ability to travel when demand is lower.
Potential savings may include:
- Hotels, airlines, cruises and rental cars with senior rates or lower prices while traveling during offseasons
- Less crowded attractions and more availability for tours and other experiences
- Discounts/free admission days on museums and National/State parks
- Public transportation rates for seniors
- Restaurant discounts in off season or senior rate offers
- Focus on experiences instead of expenses – meaningful travel doesn’t have to come with a luxury price tag:
- Examples – scenic drives, local festivals, historical districts, walking tours and community events
Without work schedules to consider, retirees can often save significantly, simply by adjusting travel dates. Membership organizations may also provide travel discounts that help reduce overall vacation costs for seniors.
Always ask about available discounts and reduced rate times before booking.
Work with Your Financial Advisor
Travel is one of retirement’s greatest opportunities, but the most enjoyable trips are the ones that fit comfortably within a well-designed financial plan. Vacation planning is most effective when it’s part of a comprehensive retirement income strategy. After all, retirement isn’t just about building wealth, it’s about using it wisely to support the life you’ve worked so hard to enjoy.
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