Planning a Large Family Vacation
Making Memories in Retirement to Last Their Lifetime
In this webinar, Dean Barber and Will Doty, CFP®, AIF®, discuss how many people’s number one desire in retirement is to spend time with their loved ones. So, why not plan a large family vacation into your retirement plan? Join Dean and Will as they break down how they were able to do just that for their clients.
Dean Barber: Hello everybody. I’m Dean Barber, Founder, and CEO of Modern Wealth Management, along with Will Doty, CERTIFIED FINANCIAL PLANNER™ here at Modern Wealth Management.
Today, we’re going to be talking about planning a large family vacation. Sometimes, it is the things you didn’t realize that you could do that you can, but you have to watch out to make sure that there are no unintended consequences. So, please stick around and enjoy this conversation with Will Doty and me as we talk about planning a large family vacation.
Will, you and I have worked together for a long time, and we have a ton of fun doing something rewarding, not only for us but also for our clients. One of those things is encouraging people to have life experiences and enjoy spending the money they worked so hard to accumulate. So, I want to start, Will, by just talking a little about the process we go through to help people determine a prioritization exercise.
Prioritizing Family in Your Financial Plan
Will Doty: Yeah, so the planning process itself, it’s an enlightening experience for most of our clients. Not only do they get the chance to voice their opinion about what they want, but a lot of times, they get to voice an opinion that they never have a chance to share with their spouse.
Dean Barber: Do you find it interesting as we go through that exercise sometimes that the husband will look at the wife and he’ll go, “I didn’t know that was important to you.” Or it’ll go the other way around, and you’re like, “Hey, you guys have been married for 35 years. You need to know that.”
Will Doty: Oh yeah, oh yeah. It sometimes feels a little bit like marriage counseling.
Dean Barber: Yeah.
Will Doty: But yeah, it’s a fantastic process, and they get to have an enlightening self-discovery about what it is that’s important to them for the golden years of their life.
Dean Barber: Right. When we do that prioritization exercise, the vast majority of the time, one of the things that’s always up near the top is spending time with people I care about.
Then you start that conversation, okay, well, who are you talking about? Is it just the spouse? Is that who you care about? No, that’s usually not it, right?
Will Doty: Yep.
Common Hesitations to Planning a Family Vacation
Dean Barber: Normally it is we’ve got kids, we’ve got grandkids, we’d love to see them more, we’d love to spend time with them more. Then we get into conversations about what’s in the way. What are some of the things you hear of what’s in the way?
Will Doty: Don’t have the time, really afraid to spend the money. If I spend the money now, is that going to put me in a bad place in the future? It’s a lot of concern.
Dean Barber: I hear a lot of times too, “Well, my kids are really busy with their careers, the grandkids are busy with sports and all kinds of their activities and things like that, so it’s tough to tie them down to get together.”
Will Doty: Yeah.
Dean Barber: So since that’s always at the top of the list, one of the things that I always ask, is do you think that if you would plan a nice family vacation and that you would pay for your children and your grandchildren to go on with you, the destination that you can decide on, you give them two years notice and here’s the plan, here’s where we’re going to go, here’s what we’re going to do. By the way, we’re paying for everything.
Do you think that your kids might take time off of work to do that? Do you think that the grandkids might say, “You know what? I can miss a week, or I can miss a couple of games, and I’m going to get to do this with grandma and grandpa.”
Will Doty: Oh yeah, without a doubt.
Dean Barber: They say, “Well, yeah, of course, they’d do that, but can we afford it?” Right?
Will Doty: Oh yeah, yep.
Paying for a Family Vacation
Dean Barber: Most people don’t think they can, Will because that rises typically up to the top of what they say is most important; spending time with people they care about. Okay, pick a vacation spot that you want to visit. Let’s hop online, let’s do some research, let’s really figure out what is going to cost, and then we’ll put it into your plan and see how it works.
The look and the feeling that people get when you say, “You know what? Here it is. Here are the dollars that we budgeted. Here’s every other year taking this planned family vacation. Here are locations that we picked out, here’s the information on the cost,” on and on and on and on. “Guess what? You can do it.”
Will Doty: Yep.
Dean Barber: You can do it. Sometimes you might have to say you can’t spend as much as what we did, so let’s alter the location, right?
Will Doty: Yeah.
Dean Barber: Or we might have to cut back on something else on the other side. So, in other words, sometimes there are some trade-offs, but the thing is we see so many people going through life so often not living their one best financial life, not doing the things that they want to do because they’re afraid. After all, they don’t have clarity on what’s okay to spend.
The Fun Part of Vacation Planning
Will Doty: Correct, we see that all the time. And, honestly, it’s a great pleasure for me to see them and see the reaction when you tell them, “Yeah, you can do this.”
Dean Barber: Yeah, right.
Will Doty: Just the relief that comes over their face. Yeah, it’s a fantastic experience.
Dean Barber: That’s why I say it’s a fun thing that we do. Then actually getting these clients that are sending us pictures through email or texting us the pictures of, “Here, I’m in this location, thanks for helping us make this thing happen.” It’s so much fun.
Will Doty: It is.
The Technical Side of Vacation Planning
Dean Barber: But there’s a technical side to it as well, Will.
Will Doty: There is.
Dean Barber: You’ve run into some scenarios where you had to think through how you’re going to get the money out, and maybe you don’t take it out all in the same year. So, talk a little about some of the technical aspects. I think you’ve got a particular story that you wanted to tell.
Will Doty: So yeah, Dean, a specific example that I can think of where knowing the technical side is essential has to do with Medicare.
Medicare Premiums and Vacation Planning?
Will Doty: So, I had a client situation a few years ago where they’d always had this big dream to take the entire family, kids, and grandkids to Disneyland. Well, you know as well as I do that’s a costly trip, right?
Dean Barber: Did you put a price tag on it?
Will Doty: We ended up spending about $30,000 to get everybody down there and get the experience that they wanted.
Dean Barber: Okay.
Will Doty: So, it’s a once in a lifetime kind of deal. Interestingly, though, they were also planning a kitchen remodel that was also pretty pricey. Because of those events aligning in the same year, they would have to take so much money out it cause an unintended consequence with their Medicare premiums that they weren’t aware of.
Dean Barber: Okay, let’s talk about the Medicare premiums and the rules on how that works. There’s this term called IRMAA; you can explain that. So, talk about Medicare premiums in general. I don’t know if you have the specific numbers in your head right now or if we want to ballpark those numbers. So, talk about how that works.
Will Doty: Sure. So with Medicare, a lot of people don’t know that it is income tested. So you used the acronym IRMAA, which stands for income-related monthly adjustment amount. So every single year, once you are above 65 and you’re on Medicare, your Medicare premiums in that year are deemed by your income two years prior.
A Kitchen Remodel, Disney World, and Saving on Medicare Premiums
Will Doty: So, for people here in 2021, your Medicare premiums this year are based on your tax return in 2019. There are different levels. So this client was about to breach the first level, and if we were looking at numbers for this year, it’s about $1,700 more than they would spend two years from now.
Dean Barber: Okay, $1700 for the whole year?
Will Doty: For the whole year for both people, yes.
Dean Barber: Right. So, $3,400.
Will Doty: No, not each, sorry. In totality.
Dean Barber: Okay.
Will Doty: So, just under two grand of additional Medicare expenses they were going to incur-
Dean Barber: Because they planned to take more money out to go on the family vacation and wanted to take more money out to do the kitchen remodel. But you solved this problem, right?
Will Doty: Yes. So, what we ended up doing is they were planning on doing both of these the following year that we sat down, so we ended up doing it and took the money out for the family trip the year prior.
Dean Barber: Okay.
Will Doty: So, then the year they went ahead and also did their kitchen remodel, took the trip, had all the money they wanted, and we didn’t affect their Medicare premiums. We kept them under that level.
Dean Barber: That’s pretty cool.
Will Doty: Yeah, it is. It was really cool. They had no clue. They had no idea that that was something that could happen.
The Right Plan Makes the Difference
Dean Barber: Yeah, and at the end of the day, $1,700 isn’t the end of the world, but, I mean, it’s still $1,700 that they didn’t need to spend. They didn’t have to spend that extra $1,700 on Medicare because they had a CERTIFIED FINANCIAL PLANNER™ that had already built out a financial plan and understood the underlying investment strategy and the actual financial planning strategies, right? Taxes, risk management, estate planning, the whole deal.
Will Doty: Exactly. Yeah, it paid off for them.
Dean Barber: Did they send you pictures from Disneyland?
Will Doty: They did, yes.
Dean Barber: Nice.
Will Doty: They had a great time.
Updating Your Vacation Goals within Your Financial Plan
Dean Barber: Yeah. We pride ourselves in helping our clients to live their one best financial life. So, I have one more quick example here of another thing that happens all the time. I want to tell you a specific story about how COVID impacted this couples’ retirement plan.
So Will, what happened here was I had worked with this couple that retired in 2018, okay? We’d worked together for seven years before that. I mean, we were getting into the details, and they want to travel. That was their big deal, right? “We want to make some trips for that first ten and maybe the first 15 years of our retirement because we know that once we get into our late 70s, early 80s, we may not have the energy to do the travel we wanted to do.”
Will Doty: Yep, very common.
Buying a Vacation Home Within Your Financial Plan
Dean Barber: So, we pinned down and did the research, and we had put together their 10 top trips that were in their heads. We priced them all out, built them into the plan, and got a chance to take their first big trip in 2018 when they retired. They took another big trip in 2019, and then the trip they were planning to take for 2020 and COVID hit. Many trips didn’t occur during that year.
Well, it just so happens that this couple has some family in Wisconsin, and so I get a phone call from them in the summer of 2020 saying, “Hey, we’d like to see if it’s possible in our plan that we could buy a second home in Wisconsin.
If we have to tone down the trips a little bit, we’d be willing to do that because we’ve got some family that we want to be close to there in Wisconsin, and we’ll be on a lake. So, this would be like almost a whole summertime vacation for us anyway.”
Will Doty: Nice.
Determining the Best Strategy for Buying a Vacation Home
Dean Barber: I said, “Okay, well, so we got the details together. How much is the house?” We looked at the property taxes each year, we looked at the cost of insurance each year, and then we had to decide how we would pay for the house.
We had to say, “Okay, we have cash. Should we pay cash for the home? Should we do 20% down to avoid PMI? Or 30% down, 40% down, 50% down? So, we began running all of these scenarios within their plan.
It didn’t take a long time, literally a couple of hours, since we already built the plan. We analyzed all of the different scenarios and determined that putting 30% down gave them the highest probability of success in achieving everything they wanted to do.
Will Doty: Nice, that’s awesome.
Dean Barber: So we were able to get the 30% to them, they got the down payment, financing, a house purchased and got to spend a good amount of the summer on a lake in Wisconsin near their family and got them out of that COVID thing.
Will Doty: Oh, I bet they loved that.
Do You Know If You Can Go On A Family Vacation?
Dean Barber: Yeah, they did. So, that was just a scenario where if people don’t have that plan built and can’t ask, “What if I did this? Or what if I did that? How could this impact my plan?” They simply don’t do it.
Will Doty: They have no clue what they’re able to do.
Dean Barber: Right, right. That’s why I say that’s some of the most fun things that we do.
Will Doty: Oh yeah, by far.
Dean Barber: Yep. Well, I think this has been good. Hopefully, everybody’s listened and got some insight here. If you take something away from this, it’s this. True wealth is defined by things that money can’t buy and that death can’t take away. So if that’s the truth, what experiences are you missing out on because you don’t have your plan put together or you haven’t asked? Is this possible?
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Investment advisory services offered through Modern Wealth Management, LLC, an SEC Registered Investment Adviser.
The views expressed represent the opinion of Modern Wealth Management an SEC Registered Investment Adviser. Information provided is for illustrative purposes only and does not constitute investment, tax, or legal advice. Modern Wealth Management does not accept any liability for the use of the information discussed. Consult with a qualified financial, legal, or tax professional prior to taking any action.