Travelling the world is one of the most popular pursuits in later life. But wandering across the globe has a price and it certainly doesn’t come cheap. So, if you really want to spend your retirement discovering the wonders of the world, it could be a good idea to start planning ahead. Here’s how you could turn this daydream into your retirement reality.
How much will you need to travel the world?
Well, giving an exact amount is a bit tricky. If you ask people who’ve embarked on this epic adventure, you’ll likely get different answers. Ultimately, the cost of your round-the-world trip will depend on the destinations you pick, the timing of your journeys, and the style of your travels. Now, say you’re planning on travelling between cheap and expensive locations for about a year, the amount you need may reach high figures.
In fact, it was said that you would need about £20,000 in 2018 to cover the costs of things like flights, hostels, touristic activities, and food.1 And with inflation increasing steadily since then, you could expect to pay even more if you were to go travelling today.
But here’s the trick, you may need to increase your budget over time because of inflation. What is inflation, you ask? Take your Freddo chocolate bar for example. Back in the 90s, you would have paid 10p to get one. Fast forward to 2020 and you'd pay 25p for the same tasty treat, and you could be paying 31p in 2025.2. This is inflation for you!
Every year, things get more expensive and if your pay doesn’t follow, you will not be able to afford as much as you could before. Now, let’s get back to our trip and imagine that you’re 30 and you plan on retiring at the age of 65 – that’s just 35 years from now! Needless to say, inflation will have a significant impact on your travelling budget.
Knowing that the UK government aims to keep inflation at 2% a year3, and assuming it’ll increase at this pace in the future, based on that first figure we gave you, then you may need around £29,600 to be able to bring your long-term goal to life by the year 20424.
This is almost double of what you need today to travel the world. It’s worth noting that inflation rates across the world differ, so while it may be 2% in the UK, it could be more or less than this elsewhere which may impact how much you’ll need to save.
Another thing to bear in mind is although the aim is to keep inflation at 2% per year, other factors can cause it to rise more than this. For example, as of the beginning of December 2022, the current rate of inflation is 11.1%.3
So, what do you need to do to travel the world in retirement?
Now that you’ve estimated how much you’ll need to travel the world, it’s time to look at all the options available to get there. The state pension will probably not be enough to help you turn your trip into reality. So, it may be worth having a look at your workplace pensions and seeing if there’s a chance that they could get you closer to your dream. If you’re still nowhere near achieving your long-term goal, it could be worth looking at other options.
If you want to plan ahead for your trip, opening a personal pension could help. Also known as Self-Invested Personal Pensions (or SIPPs), personal pensions allow you to save for your retirement goals.
When you pay into a personal pension, your money is invested in a large range of investments, including shares and bonds. Also, the good thing with personal pensions is that you’ll get a little boost in the form of tax relief. For each contribution you make, you’ll receive a 25% top up. This means that for every £1,000 investment, you’ll only need to contribute £800 as the government will kindly add £200 to your Plan.
The amount you can put in your personal pension is unlimited, but you’ll only get tax relief on £40,000, or the totality of your earnings (whichever is lower). This allowance is the combined contributions made by you and the government.
Going back to our round-the-world trip, if you start putting money in your personal pension when you’re 30, start with an initial investment of £50 and continue to contribute £50 a month, you could retire at the age of 65 with about £55,485 in your pot – more than enough to go travel around the globe5.
Obviously, the more you can put in your pension, the quicker you could potentially reach your goal. But remember, everything you put in a personal pension is locked away until your 55th birthday (though this will change to age 57 from April 20286), so you’ll need to be patient to enjoy your dream holiday. Once you turn 55, you’ll have the opportunity to withdraw up to 25% of your money as a tax-free lump sum. And that’s not all! You’ll still be able to pay into your personal pension until the age of 75, so it could be worth keeping up the good saving habits, even after your memorable trip.
If you want to get started, why not use a digital investment platform? With Wealthify, you can start with just £50 and choose the risk level that suits your needs. We’ll do the rest, from picking your investments to managing your Plan on an ongoing basis, so you can spend more time doing what you love.
Do you know how much you’ll need in your pension pot for your dream retirement? Our pension calculator could help give you a good idea of what you might need to save.
The tax treatment depends on your individual circumstances and may be subject to change in the future.
Please remember the value of your investments can go down as well as up, and you could get back less than invested.
4: Calculation based on the estimate of £20,000 increasing by 2% each year between 2018 and 2042.
5: This is the projected value for a Confident Plan (Medium Risk Plan). Includes tax relief. This is only a forecast and is not a reliable indicator of future performance. If markets perform worse, your return could be £36,113. If markets perform better, your return could be £90,125. Values correct as of 01/12/22.