In 2020 I spoke with a client who had lost much of her mobility. I asked her if she were to go back ten years, what she would have done differently. Her answer was simple, yet wise:  “more.”  Perhaps it was the fact that she couldn’t do what she was once able to. Perhaps it was the fact that we were all stuck at home, and no one was able to do anything. But hip retirees know that their travel timeline and their life timeline are not the same. 

You should do the big trips up front. If you are on the fence about a trip, and your financial plan suggests it won’t jeopardize your long-term goals, it may be worth taking it. I would go so far as to say that you should be doing these things now if you are still working. My one caveat: Be cautious of throwing too many things into your first year of retirement. It’s hard to adjust to not having a routine. Frequent travel may compound that and become more stress than fun. 

To the point of this column, how do you financially plan for it? How do you make sure that a month-long adventure through the Tuscan hills doesn’t mean you have to cut back later in life? Or worse, run out of money if you end up needing long-term care? Even the savviest DIYers would have trouble modeling out some of this in Excel. So I think you need to use planning software to have a good shot at making sure you’ll be okay. Here are three ways to model it to make sure the spending is sustainable. 

Inflation-adjusted with a specific travel goal

This is the default for most planners and most planning software. You pick a monthly amount for living expenses and then you add specific goals that won’t go on forever or inflate at a different rate. This makes it easy to say, “I’d like to plan for $10,000 per month. Additionally, I’d like to have $25,000 per year for travel during the first ten years of retirement.” 

Here are some of the drawbacks. Inflation-adjusted spending, where the amount you spend increases every year regardless of market conditions, means that you can spend a smaller percentage of your nest egg every year than you would be able to if you were willing to be a bit more dynamic, based on market conditions. The other challenge with this approach is that if you’re spending $25,000 per year from years 1 to 10, it’s unlikely you’ll spend $0 in year 11. There are workarounds in the software we use: Plug in a negative inflation rate for travel or insert multiple travel goals. 

Spending Smile

Both the spending smile and spending stages, which are coming next, make sense if you think you’ll spend more early in retirement, like for travel, but don’t know enough to assign figures to each spending category. They are also both aligned with the idea of “go-go, slow-go, and no-go” stages of retirement. 

The spending smile is based on David Blanchett’s research. He found that in early retirement you’re typically spending about what you were pre-retirement. Commuting and kid-related expenses disappear (maybe!), but in this example travel goes up. In mid-retirement, you see expenses drop by 15 to 20%. In late retirement, the other side of that smile, spending can go up for things like long-term care. 

In the software we use, you can elect a “spending smile” as the spending strategy. This can be a shortcut for someone who is not ready to break their spending into actual categories yet but wants to make sure they have enough money. 

Spending Stages

Think of spending stages as a more customized version of the spending smile. The idea may be similar in that spending starts high, goes low, and then increases at the end. But you can adjust the timeline and spending for each stage. Let’s say you have a long career, so your travel phase may not be as long, but it is dramatic. That first stage will be more expensive than in the smile. In the same example, you have a Cadillac long-term-care policy, so your final stage may not come back up by as much. This is more customized than the smile but less than breaking out each goal individually. 

Going back to the first story I told. The biggest mistake I see people make is that they don’t take the trip because they’re not sure about the long-term financial impact. Sometimes that’s wise, but with the folks we are working with, there is usually a lot of room for travel. Planning it out may just give you the confidence to book the flight. Hopefully, I’ll see you in Tuscany!  

This article is provided for informational and educational purposes only and should not be construed as investment, tax, or legal advice, or as a recommendation regarding any particular strategy. Whether a Roth conversion is appropriate depends on an individual’s financial circumstances, tax situation, investment objectives, and applicable law. Tax laws are subject to change and their application may vary. Examples discussed are hypothetical and are intended solely to illustrate general planning concepts. They do not reflect the experience of any specific client or guarantee future results. Consult your financial, tax, and legal advisors before implementing any strategy.