Do Not Let Inflation Ruin Your Summer Plans, Retirees

Tell me if this sounds familiar: You are making your first summer vacation plans in what seems like an eternity, confirming dates with relatives and scrambling to book flights and lodging. You suddenly realize that this vacation will cost you more than you have ever paid.

It is not your imagination, I assure you. Almost everything has increased in price over the previous three years, from airlines to hotels to auto rentals. Inflation, an issue in many sectors of life, is especially severe in travel due to post-pandemic pent-up demand.

The overall cost of travel is up 18% over pre-pandemic levels, according to the NerdWallet Travel Price Index. People simply want to get out and explore the world. According to the U.S. State Department, this summer will likely be the busiest for American international travel.

Costs are even more significant in choosing what kind of summer plans seniors might enjoy because they live on a fixed budget. Despite rising travel costs, it is still possible to have a good summer. However, you may need to make a few concessions.

If you live on a fixed income, inflation reduces your purchasing power, making your money go further. However, that is one of many issues that retirees face. The stock market's recent drop of a year and a half. The S&P 500 is fallen around 8% since its peak in January 2022. Retirees have less money now than a year ago, yet expenditures have risen, posing a risky mix.

If you are starting retirement, you should carefully consider your withdrawals in a down market because timing is everything. Timing, also known as sequence of returns in financial planning jargon, influences not only your immediate portfolio but also how much money you will have in retirement.

This is why. When you dive into your portfolio while its value declines, you must sell more shares to make the same amount of cash as if the market were rising. By doing so, you deplete your savings faster and end up with fewer assets to generate profits during a recovery.

Furthermore, when the prices of the items you wish to buy rise, you will need even more money. If you continue to spend as usual, you may run out of money considerably sooner than someone who retires during a down market.

It should come as no surprise that many prefer to spend their retirement years traveling. According to the Transamerica Center for Retirement Studies, travel is the top retirement desire for 70% of U.S. workers.

However, given market realities and inflation, vacation budgets look substantially tighter this year. Your summer travel plans may need to be reworked.

Begin by accepting that you may need to postpone your most ambitious vacation plans. Perhaps you fantasized about taking your kids and their families to Disney World this year. However, given the new economic realities, better financial options might exist.

That does not mean it is absolutely out of the question. Markets and your portfolio will eventually recover, and you will have more money to deal with. How did I find out? Because that is always what happens following a slump. Markets eventually recover to former levels and beyond. Hold off on your holiday fantasies for the time being. Until then, limit your spending to protect your assets.

Once you have accepted that summer 2023 will not be the party you expected, start looking for creative methods to save.

Instead of a luxury resort, consider purchasing a season membership to a nearby water park to spend your afternoons with the grandchildren. Rather than ascending the Himalayas, purchase a $80 National Parks pass and get up close and personal with America's splendor. Put your Disney vacation on hold and instead see how many funnel cakes you can consume at local county fairs.

People set on getting on a plane and flying overseas can save money if they make a few sacrifices. Summer travel to Europe is expensive. However, waiting until the fall can result in huge savings. Travel to South America, where it is presently winter, is cheaper during the summer in the Northern Hemisphere.

Do you want to go on a cruise? Consider taking a repositioning cruise, which occurs after the season when cruise ships are transferred from one port to another. These journeys can be lengthy, crossing the Atlantic to Europe or passing through the Panama Canal. Furthermore, they only go one way. They are, nevertheless, inexpensive, costing roughly half the price of a conventional cruise.

The sacrifices you make this year are not permanent, and they will help you keep your purchasing power in retirement. When markets rebound, and withdrawals no longer deplete your savings, it is time to take that vacation you have planned.