Retirement is the moment in our lives when we think we’ll finally take those bucket-list travel trips of a lifetime. But ironically, when we have the time and a bit of savings, a recent study suggests that we might actually spend far less on travel in retirement than we expect to—the good news being, that we might actually need less money to retire.
Economists often talk about the ideal of consumption smoothing to financially plan in the best way. That’s where we spend and borrow lots when we are young, earn and pay it off when we are middle aged (when we are living through our peak earning potential), and save enough to retire and live in older age on our savings.
The problem is that it’s tricky to work out how much money we might need. We don’t know future interest and bank rates, how our households and its needs might change and most importantly, we don’t know how long we will live. So how can we know how much money we will need? Some economists suggest that we decrease our budget a little bit each year in order to prepare but if we live even slightly longer than we planned for there is a real risk of financial hardship.
However, for everyone thinking about travel in retirement, there is some good news from a recent study by economists Susann Rohwedder, Michael Hurd and Péter Hudomiet of the RAND Corporation in Santa Monica, California. They worked on data from a mail survey from an ongoing Health and Retirement Survey being run by the University of Michigan and funded by the National Institute on Ageing and the Social Security Administration. The latter is a longitudinal study that regularly surveys 20,000 Americans across the country.
The data suggests that people actually need less money in retirement for holidays than they think. This may be due to all sorts of personal reasons but it seems that people are spending less in their 80s than in their 50s because they want to, not because they can’t.
Undeniably, people’s interest in activities will change as they age and people report that they get less satisfaction out of travel, for instance, as they get older. And unsurprisingly, this is more true if we are in poorer health.
It might just be, therefore, that just as we have the time and a bit of money to go traveling, we might not want to.