Similarly to a “comfortable lifestyle,” retirement increasingly means very different things for different people.
While the traditional view envisions people having a paid-off home and bringing down their expenses to a minimum in a place with better weather, rising life expectancy and the younger lifestyles that many older adults lead today, many to want to enjoy retirement exploring the world—something that would, if one also wants to stop working, require significantly higher savings.
Related: There is a new list of cities that are best for digital nomads
In a question to MarketWatch’s “Help Me Retire” column, one 77-year-old federal worker making $90,000 a year asked what kind of travel could be feasible by retiring with $700,000 in a Thrift Savings Plan (TSP) and $3,100 per month in Social Security payments while also not owning a home and wanting to move one’s permanent base from the West to the East Coast to be closer to family.
Retirement on the horizon? Here is how to also factor in that travel you want to do
“One guideline is the 4% rule, which states you withdraw 4% of your retirement account in the first year and then adjust for inflation accordingly every year thereafter,” Alessandra Malito, who is the journalist behind the “Help Me Retire” column, responds to the asker.
More on retirement:
- The average American faces one major 401(k) retirement dilemma
- How your mortgage is key to early retirement
- A few simple tasks can help you thrive in retirement
If the person retires on Jan. 1, that would result in $28,000 per year from savings and an additional $37,200 from Social Security — a total of over $65,000 that will either be a lot or very little depending on where one chooses to live (with the average price of renting a one-bedroom apartment in places like NYC currently at $3,902, the future retiree could spend over $46,000 on rent alone and have very little left even for basic expenses, or choose a much cheaper home base and then have a hefty chunk left over for trips.
“It wouldn’t hurt for you to get a head start on researching the market in the neighborhoods you’re considering,” Malito writes. “The real-estate game is still a tough one, and you may find inventory low and prices high. Having an idea of how much your new home will cost will lay the groundwork for the rest of your retirement budget.”
Related: Get the best cruise tips, deals, and news on the ships from our expert cruiser
‘Make a budget specifically for travel and try to estimate the cost’
The answer delves further into the common problem of not knowing what one will need in old age and when one can enjoy the fruit of years of saving without knowing how long one will live or what one will need as health declines. The advice of drawing a budget is relevant regardless of what one chooses — for travel, that best comes down to drawing out a specific category in the budget and seeing how long the money will stretch (or not) if one adds it.
“If you love to travel, make a budget line specifically for travel and try to estimate the cost of doing so,” Malito writes. “Now that you have all of that laid out: how does the budget look for you? This is a good moment to pause and reflect on your plans. You may find that you need to adjust your distribution from your TSP up or down, and when doing so, you can take longevity into account.”
