Many clients dream of travelling when they retire. But have they considered the cost of the trips they’re looking forward to? And do their travel plans fit their budget? You can help your clients plan for a travel-filled retirement, but you must ask some key questions.
“You first need to understand what an individual means by ‘travel’,” says Wanda Morris, chief advocacy and engagement officer with CARP (formerly the Canadian Association for Retired Persons) in Surrey, B.C. “Are we talking snowbirds, cruises, travel abroad or a vacation property?”
Finding out what type of travel your client has in mind is critical because each person’s retirement journey is different, Morris says. And those differences can be significant.
Whether your client’s idea of travel is a one-time trip around the world, an annual trek through Europe, a week at an all-inclusive resort in the Caribbean or family vacations at a nearby cottage, each type of travel has both cost considerations and social considerations.
Cost factors include transportation, accommodation, food, entertainment, travel insurance and health insurance. Each factor can be monetized and added to a retirement savings plan to be included later in a retirement budget.
Social factors include considerations such as whether seniors will travel alone or together. Seniors travelling alone need to be more safety-conscious because they don’t have a partner looking out for them. Morris recommends that you be aware of travel services catering specifically to seniors to help your clients find suitable travel packages.
For example, sightseeing while in a wheelchair has many challenges, from finding accessible accommodations to navigating cobblestone walkways, so planning the trip must account for these issues. The more aware you are of your clients’ health and mobility, the better equipped you will be to help them plan. And being able to refer seniors to reputable travel agents also can help improve client satisfaction, Morris says.
Another factor to consider is how long a client will be able to or even want to travel. Canadians can expect to live approximately 21 years after age 65 – 19 years for men and 22 for women – based on Statistics Canada’s life expectancy tables.
The rule of thumb is that seniors will have high quality of life for the first 10 years of retirement. The actual number of years of travel to fund can be adjusted, depending on each client’s retirement age, lifestyle and life expectancy.
“Some people are young at 85, while others are old at 60,” Morris says.
Says Audrey McFarlane, financial advisor with Edward Jones in Victoria: “Most people plan to travel until they’re 80, so that’s a good point [on which] to begin a conversation.”
Having an approximate travel timeline helps to identify how much money should be set aside and for how long.
The biggest pitfall seniors can make regarding retirement travel is failure to plan for it long before retirement begins. McFarlane begins discussing retirement planning, including travel, when her clients begin the saving phase of their lives, which typically is after age 25. This strategy gives McFarlane’s clients up to 40 years to build up their retirement travel fund.
“I always ask clients what’s on their bucket list, and we budget accordingly,” says Jeanette Brox, senior financial consultant with Investors Group Inc. in Toronto. “Most people know how much they need to sock away for travel.”
Equally important is identifying the source of the travel funds. Brox recommends that her clients have balanced financial plans that account for registered and non-registered investments, as well as any equity clients may have in their homes or other property.
Travel financing should be taken from a non-registered account to avoid having to pay withholding taxes. Borrowing also should be avoided, Brox says, especially for seniors on limited, fixed incomes.
When young clients begin to develop savings strategies, McFarlane says, they should include short- and long-term travel costs. McFarlane helps clients older than age 65 budget for their expenses in two categories: non-controllable, such as housing, health care and insurance; and controllable, which includes discretionary spending.
Travel usually is a controllable expense, although for a few clients travel is mandatory for them to be happy. McFarlane recommends including all controllable expenses in one “bucket” to provide retirees with spending flexibility.
For example, your clients could defer buying a new car for a year and spend more on travel. McFarlane discusses travel, including related insurance and a travel emergency fund, during her annual client reviews.
You should discuss the effects that stock market volatility may have on your clients’ travel plans as well, McFarlane adds. Having two to three years of living expenses in reserve in a non-registered account can help clients weather a bear market. Clients can reduce controllable expenses during a prolonged bear market and, when the next downturn occurs, these clients will know what to expect and be comfortable riding it out without having to forgo travel.