How Much Retirement Savings Can Your Bucket List Afford To Splurge On?
If you’ve spent decades — or even just a few years — saving for retirement, is it ever OK to spend a meaningful chunk of that nest egg on one unforgettable experience?
That question recently arose after Reuters highlighted a 28-year-old with a plan to spend $40,000 in savings on a bucket-list trip to follow England during the World Cup. While that story focused on a young traveler, it raises a broader question that’s relevant at almost any age: Should you dip into money earmarked for retirement to pay for a dream experience?
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Retirement Savings Are Meant for the Long Haul
For most people, retirement accounts like 401(k)s and IRAs are designed to stay invested for decades. Pulling money out early can come with significant costs, including taxes, withdrawal penalties and the loss of years (or even decades!) of compound growth — all of which are designed to keep retirement accounts untouched until an actual retirement.
Even if you avoid penalties, withdrawing retirement savings before retirement means those dollars no longer have the opportunity to grow. Ultimately, retirement savings exist to fund not just one memorable life experience, but potentially decades of living expenses.
But Life Is Still Meant To Be Lived (Even Before Retirement)
All that said, it’s important to allow room in your budget for you to live your life.
“Money that never gets used is its own kind of loss,” said Licensed Public Accountant (LPA) Ralph Estep Jr. “I've sat with plenty of people who spent decades being careful and then couldn't take the trip because their health, not their bank account, ran out first. The regret I see isn't usually the trips people took. It's the ones they kept postponing until ‘someday.’”
Saving, saving and more saving until you hit the age of 65 — while responsible — does run the risk of precluding actual bucket-list experiences. That’s why Estep suggests weaving bucket list goals into an overall budget.
“Give the bucket list a job the same way you’d give any dollar a job, earmark a specific, pre-decided ‘memory fund’ so the joy is planned instead of guilty or reckless,” Estep said. “The line I’d draw: Fund the experience from money set aside for exactly that, not from the principal generating your monthly income. Don’t spend the golden goose to buy the trip.”
The Bottom Line
As with all things in life, moderation and some compromise can lead to stable success — even with something as self-indulgent as a bucket list item. As Estep made clear, weaving a major expenditure like a bucket-list item into your retirement budget allows your finances to more easily absorb the big spending, rather than accidentally drain your savings by spending on a whim. Doing so allows your overall budget and savings to determine just how much you can splurge without breaking the bank.
As Estep said, “Do that and you get the best of both: you take the trip and you sleep fine when you get home, because you decided on it on purpose. Guardrails, not guilt.”
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
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