Why Retirees Overspend on Travel in the First 5 Years — and How To Avoid It
Written by
John Csiszar
Edited by
Levi Leidy
Commitment to Our Readers
GOBankingRates' editorial team is committed to bringing you unbiased reviews and information. We use data-driven methodologies to evaluate financial products and services - our reviews and ratings are not influenced by advertisers. You can read more about our editorial guidelines and our products and services review methodology.
20 Years
Helping You Live Richer
Reviewed
by Experts
Trusted by
Millions of Readers
For many retirees, the day they stop clocking in at the office ushers in a new era of freedom. Financial planners often refer to these times as the “go-go years,” as retirees are generally at their healthiest, most active and most eager to spend some of the money they’ve spent a lifetime saving.
Given these conditions, it’s perhaps not surprising that some retirees overspend on travel in the first five years. But while some level of celebration is no doubt earned, without guardrails in place, the long-term financial security they worked so hard to build can rapidly vanish.
With that in mind, here’s a look at how to enjoy your “go-go years” without permanently shortening the life of your retirement portfolio.
What the Data Shows
Intuitively speaking, it makes sense that retirees spend more in the initial few years after leaving their jobs. In addition to the “pent-up” demand that now has time to be released, retirees often have the largest portfolio balances of their lives.
But it’s not just logic that supports this idea, it’s actual data.
Numerous sources, including the U.S. Bureau of Labor Statistics, show that households aged 65 to 74 spend significantly more than households aged 75 or older, including on travel and leisure. In other words, discretionary spending peaks early in retirement, during the go-go years, and then declines with age.
The Hidden Danger of Sequence of Returns
Spending too much money on travel — or anything — in your first few years of retirement could dramatically shorten the life of your nest egg. But there’s another danger that many retirees overlook completely, and it can be even more damaging than overspending. That risk is the sequence of your returns.
Imagine, for example, that you’re drawing down your account balance at a greater-than-average pace in your first few years of retirement. Meanwhile, your portfolio drops in value by 15% during those same years. This combination of factors will dramatically shorten how long your portfolio lasts.
In a hypothetical example described by Schwab, an investor with a $1 million portfolio earning 6% annual returns takes $50,000 annual withdrawals that increase by 2% per year. In one scenario, a 15% market sell-off occurs over years 10 and 11, while in the other, the 15% drop occurs during years one and two. The end results are striking. When the market sell-off occurs later in life, investors maintain a portfolio balance of roughly $400,000 after year 18. But when the market drops in the first two years, the portfolio is nearly depleted over the same time period.
How To Get Through the Go-Go Years Without Overspending
The best way to avoid wiping out your retirement portfolio prematurely is to create a separate travel bucket. If you can build up a savings or investment account with $50,000 to $100,000 in it — on top of your nest egg — then you should be able to enjoy plenty of travel without worrying about your retirement.
Of course, that’s not always a viable option for all retirees. Another strategy is to use a flexible withdrawal strategy. Under this method, you adjust your withdrawal rate based on how the market performs. Variable spending can significantly improve the durability of your retirement portfolio when compared with a more rigid withdrawal schedule.
Delaying major international travel until after Social Security benefits begin can also help. Guaranteed income reduces reliance on portfolio withdrawals and provides more room for discretionary spending.
A final method is to travel smarter, not smaller. Use the flexibility that retirement brings to travel mid-week or shoulder season. Use rewards programs to travel for free when possible, or at least to enhance your travel experience with additional perks. Prioritizing fewer but more meaningful trips can also be a way to reduce your costs without sacrificing your enjoyment.
The Bottom Line
The go-go years are real, and they deserve to be enjoyed. But retirement is not a sprint. Spending too aggressively in the first five years can create unnecessary stress later, when flexibility matters most.
By understanding sequence-of-returns risk and planning travel with intention, retirees can experience the world early while protecting their long-term financial security.
More From GOBankingRates
