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Dave Patterson and Erin Preston, a father-daughter team of Certified Financial Planner® licensees, provide thoughts and suggestions on a broad collection of personal finance topics.  Information provided in this BLOG is intended to be of a general nature and may not be appropriate for all situations.  Readers should consult with their own financial advisors before relying on any information contained herein.

Thursday, April 15, 2010

Don’t Underestimate Retirement Travel Expenses

During a recent, long-planned overseas trip I was shocked at how expensive everything seemed to be. I thought about why this might be. My wife says that I’m in a time warp when it comes to prices. I don’t like shopping, so when I do go I’m always amazed at what things cost. That could be part of the problem. Or, maybe it’s just the effect of the drop in the value of the dollar over the last couple of years. We’ve done most of our travel in the U.S. the last two years, so we haven’t experienced the dollar decline until now. Then again, maybe it’s a result of creeping inflation. Certainly that would explain at least part of the increased cost – though there have been great deals on cruises, with the world economies all suffering the last couple of years. Most likely, it’s a combination of the items noted and perhaps something else I haven’t thought about.

The point of all this is that travel in the future will most assuredly cost significantly more than today. With the extremely high U.S budget deficits on the horizon, the dollar will continue to be under pressure. Airplane fuel expenses and labor costs will certainly continue to rise as well.

With the economies of China and India on the rise, we will likely see the standard of living in those countries increase substantially. This will lead to more travel for their more affluent citizens, just as it has for Japanese citizens in the past. This will potentially increase demand for foreign travel and a corresponding increase in travel expenses.

It’s likely therefore, that any retirement travel expenses you are contemplating could be increasing at a rate that exceeds the rate of inflation you might normally assume for your retirement years. We encourage you to plan for higher expenses than you might otherwise anticipate.

Consider too, taking your overseas trips in your early retirement years when they will be less expensive and when you are physically better able to survive a 24-hour plane trip, physically demanding excursions and the pressures of coping with different cultures.

Another factor that supports the argument for taking your overseas trips early in your retirement years is the cost of trip insurance. For expensive trips, it makes sense to take out trip insurance to cover the cost of cancellations, delays, lost luggage, medical problems, etc. Trip insurance becomes very costly as you age though, since the likelihood of medical problems is increased.

There are a number of ways to reduce travel costs. You can stay at hostels and B&B’s, or book last minute reservations. Many airlines offer special rates to seniors. Find a compatible companion or couple to travel with and share the costs of renting a car or villa for a week. Consider planning your own trip - it’s amazing what you can do on your own at a reasonable cost. Utilize the Internet to search out all sorts of ways to save.

One thing is perfectly clear – the cost of travel will continue to rise, especially overseas travel. Expect travel costs to increase faster than many other items in your retirement budget. Plan to take your long overseas trips early in your retirement and seek out ways to cut the costs without sacrificing comfort.


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