Many Americans hope to travel in their golden years, enjoying the sights, scents and sounds they either didn’t have time or couldn’t afford to experience when they were younger.
However, worries about the high cost of travel could prevent those dreams from coming true.
Nearly two thirds (63 percent) of Americans aged 50 and older say travel is an important retirement goal, according to a recent poll by RBC Wealth Management-U.S. Yet more than half worry that the high cost of travel could derail their travel plans.
Conducted last fall by Ipsos on behalf of RBC Wealth Management, the poll included 1,256 Americans age 50-plus.
“You see more people wanting to live an active lifestyle and travel abroad in retirement,” says Griffin Geisler, senior manager of retirement income planning for RBC Wealth Management in Minneapolis. “But cost is always a concern.”
Many of the 75 million Baby Boomers – people born between 1946 and 1964 – are retired or will retire in the next 15 years. And many of them travel – especially as people are living longer and more active lives.
The RBC Wealth Management’s survey results reflect what AARP data shows: that travel makes the top 10 list of people aged 50-plus, regardless of whether they’ve retired yet.
While some people in recent years have focused their adventures closer to home because of the economic downturn and global threats, others want to experience different cultures, Geisler says. And as more people have children studying or living abroad and families expand across borders, international travel stretches into retirement, he says.
An AARP survey found that an overwhelming 99 percent of Boomers plan to take at least one trip this year. On average, each will take more than five trips, with four out of 10 people traveling to a foreign locale like Mexico, the Caribbean and the British Isles.
The RBC Wealth Management survey showed a similar result: 75 percent of people 50-plus with household incomes greater than $50,000 rated travel as important, compared with 50 percent of people with incomes below $50,000.
Defraying travel costs
An international trip typically lasts three times longer and costs up to five times higher than a domestic trip. The average cost of an international trip was $3,251 in 2013, according to recent data available from consumer finance website ValuePenguin.
But growth of the sharing economy, which centers on app-based, on-demand services like Uber transportation and Airbnb home rentals, is helping some Boomers better manage travel costs.
The sharing economy first took root with millennials. But now Boomers account for nearly a quarter of more than 22 million sharing consumers in the U.S., according to a report from the University of Maryland’s Center for Excellence in Service. In addition to using shared services, Boomers also provide such services.
Patty David, senior research advisor for AARP, sees people 50-plus becoming more active in the sharing economy because it’s an easy way to boost retirement savings or add to retirement income. Boomers are becoming Uber drivers or renting out their vacation homes either to create a secondary income stream or to boost their discretionary income, observers say. Uber reports that nearly a quarter of its drivers are aged 50-plus.
On the consumer side, Boomers are staying at Airbnb properties instead of hotels and riding in Uber cars instead of traditional taxis to reduce the cost of travel. Airbnb apartment rentals cost 21 percent less than a hotel in a major U.S. city and an Airbnb room in someone’s home costs 50 percent less than a hotel in major U.S. cities, according to Priceonomics Inc.
People may have a ski chalet in another state that they only use a few weeks a year, and renting it “takes pressure off of the cost of maintaining that property or to provide discretionary income,” says Geisler. “We’re seeing fewer people who want the costs of a vacation home, especially as prices have gone down in some markets and no one in the family wants it.”
Other obstacles to travel
In addition to the cost of travel, more than half of Americans (52 percent) are worried about safety, the RBC Wealth Management survey found. Those concerns were greater for older Americans (age 55 and older) and those with children.
Health is another major concern. Nearly a third of Americans (31 percent) said their health or a loved one’s health could prevent them from traveling. They also worry about health issues that may arise while traveling, with 21 percent saying the cost of travel or medical insurance is a burden, and 15 percent worried about insurance coverage if they get sick or injured.
Typically, Medicare does not cover health care or supplies someone might get while traveling abroad. Most Medicare supplemental insurance plans provide foreign travel emergency coverage, but they usually come with a deductible, restrictions and a lifetime limit.
“Health and insurance are really big issues,” notes Geisler. “I would recommend anyone aged 65-plus who’s traveling aboard to have some type of travel insurance.”
For people aged 65 and older, health is the No. 1 concern when considering travel, says AARP’s David. For people aged 50 to 64, health is No. 3, after cost and family obligations, she says.
Other reasons can also sidetrack travel plans. RBC Wealth Management’s survey found that 21 percent of Americans prefer to spend their money on goals other than travel. Ten percent don’t want to miss time with family or a family milestone. Eight percent say unfavorable foreign exchange rates could inhibit international travel.
However, 13 percent of those surveyed said nothing would get in the way of their travel plans.
A new retirement planning tool
People should start thinking about their goals at least 10 years to 15 years before retirement, Geisler recommends. And the earlier you can start saving money toward those goals, the greater impact it can have, due to the power of compounded interest over time.
RBC Wealth Management has rolled out a new goal-based retirement planning tool – called RBC WealthPlan – that enables clients to discuss and prioritize long-term goals with their advisors.
“It’s more than just looking at assets, and having returns higher or lower than a benchmark,” Geisler says. It helps pre-retirees determine what’s most important to them by prompting them to think “What do I really want out of retirement? Do I trade off major home improvements to take a major trip every other year? Is there a major party to plan?”
It’s important for couples to talk about goals early on to ensure that spouses or partners are on the same page. One person may expect an active retirement, but the other person wants to spend more time at home.
“There are two finite resources: time and money,” says Geisler. “When you have less time, you tend to have more discretionary capital.” The key is often finding balance between the two.