Many retirees dream of traveling in retirement. Maybe you’ve always dreamed of strolling along cobblestone streets in Europe, hiking in national parks without a time clock, or taking that long-awaited cruise across the Pacific. In fact, 70% of respondents aged 50 and above in AARP’s 2025 survey said they plan to travel in retirement.
In short, for many people, the dream is clear: travel more, explore more, live more. Even so, the question that nags at retired people and those nearing retirement is: How will I afford it?
In this situation, an annuity can help bridge the gap between your income aspirations and your budget. By investing a portion of your retirement nest egg in an annuity, you can convert some of your savings into a steady, predictable paycheck that can enable you to live the lifestyle you’ve always wanted.
In this post, we’ll explore how annuities work, why they’re uniquely suited for retirees with a passion for travel, and how you can design your retirement income strategy so the world truly becomes your playground.
The Retirement Travel Dilemma
There are two competing realities for many retirees when it comes to travel;
- Wanderlust is expensive. The cost of flights, hotels, meals, and excursions adds up. Even modest trips can be expensive, especially if you plan to travel frequently. This is likely why the average trip cost in 2025 is expected to be $7,249, a 24% increase from 2024.
- Savings are finite. When you retire, you no longer receive a regular paycheck, unlike during your working years. As you withdraw money from your portfolio, your balance decreases, creating a sense of anxiety.
There is often a conflict between the desire to create memories and the fear of overspending. Often, retirees skimp on trips they could afford because they play it too safe. Some people overspend early, then scale back as their finances become tighter.
Due to this push-and-pull, retirement may not be as joyful as it should be. As a result, having a reliable and steady income can make all the difference.
How Annuities Work (Without the Jargon)
In essence, an annuity is an agreement between you and an insurance company. In return for your investment, the company promises to pay you a return on your investment.
You can think of it as creating your own pension. Rather than relying on your employer, you create a personal paycheck.
For retirement travel purposes, two types of annuities stand out;
Immediate annuities: Income that starts now.
Ideally, an immediate annuity can be your ticket to guaranteed income upon retirement. Within a month or two after you pay the lump sum, the insurance company will send regular payments.
This can be a game-changer for retirees who are eager to hit the road. Imagine booking your flights and accommodations knowing you’ll receive a monthly pension check. It doesn’t matter if the market did well. There’s no need to second-guess whether or not you can afford that extra excursion in Italy.
Overall, immediate annuities allow you to plan your adventures confidently.
Deferred income annuities: Income that starts later.
You might benefit from an income deferred annuity if you plan to travel a few years from now. If you invest now, you can receive payments 5-10 years from now.
Why does this matter for travel? When the annuity finally starts paying out, it typically produces a larger income stream than if you started right away. Having a solid financial foundation will prepare you for longer, more ambitious trips, such as a month-long trek through Asia or a European river cruise.
In the end, annuities guarantee payments no matter how long you live. Investing alone can’t provide that level of security.
Why Travelers Should Care About Guarantees
If you want to plan a retirement full of trips, you need to have guarantees. Why?
- Protection from overspending. With an annuity, your income arrives in predictable monthly installments. The result is that you can plan trips without worrying that one expense will derail your entire financial plan.
- Peace of mind on the road. When you’re exploring Machu Picchu or sipping wine in Tuscany, you don’t want to worry about whether your investments dropped last week. Unlike the stock market, annuity income, specifically from a fixed annuity, is not influenced by market fluctuations.
- Longevity insurance. Life is unpredictable, and no one knows how long it will last. If you don’t plan, you might run out of money before you’ve exhausted your bucket-list destinations. With annuities, you’re guaranteed a lifetime income.
With annuities, you can focus more on experiencing new things and less on worrying about money.
A Tale of Two Retirees
Let’s consider two retirees with the same nest egg of $500,000 and a passion for travel.
- Linda keeps her money in a traditional investment portfolio. As a precaution against market downturns, she carefully withdraws 4% per year. However, whenever stocks dip, she cancels her dream trip to New Zealand “just in case.” Although she enjoys traveling, it leaves her feeling a little guilty after spending so much money.
- Carlos uses $250,000 to purchase an annuity that pays him $1,200 per month for life. No matter what the market does, that check will arrive. As a result of this guaranteed stream, Carlos can cover the costs of flights, hotels, and excursions. The other half of his portfolio is invested for growth. As long as his travel fund is replenished every month, he can travel with confidence.
Although they both started from the same point, their experiences differ dramatically. Linda is on defense. Playing offense, Carlos enjoys all the adventures he has without second-guessing himself.
Building Your Travel Budget Around an Annuity
One of the smartest ways to utilize annuity income is to invest it for discretionary expenses, such as travel. You can do that by following these steps:
Estimate your annual travel budget.
Determine how much you want to spend each year on trips. It could cover two international trips and several domestic getaways with $15,000.
Still, consider countries with favorable exchange rates or lower costs of living where your money will go farther. To maximize your budget, research flights and accommodations through Booking or Google Flights.
Translate that into monthly income.
Divide by 12. For $15,000, you would need about $1,250 per month in guaranteed travel funds.
However, this figure does not assume additional income or savings. In planning travel expenses, consider unexpected costs and changes in currency exchange rates. Having a buffer will ensure financial stability when traveling.
Choose the right annuity.
Using an online tool or working with a financial advisor, you can calculate how much income you’d need. Depending on your age and product choice, you might need $250,000–$300,000.
Layer other income sources.
In addition to your annuity, combine social security, pensions, and investment withdrawals. Your annuity income should then be set aside for travel.
With a bucket approach, necessities can be separated from lifestyle extras. Your basic needs are met, allowing you to fund your adventures with funds specifically designed for that purpose.
Consider alternative travel savings options.
For short-term trips, especially near-term ones, annuities are a poor choice since they’re long-term investments.
- High-yield savings account (HYSA). A high-yield savings account is a low-risk way to store money for short-term travel. Your funds remain liquid, and there’s no market volatility.
- Targeted investments. In addition to offering greater growth potential, index funds or exchange-traded funds (ETFs) may carry a higher risk than fixed annuities for longer-term travel goals.
- Travel-specific credit cards. Some travelers benefit from accumulating rewards points through a dedicated travel credit card.
- Systematic Investment Plan (SIP) or Recurring Deposit. This tool aims to invest a fixed amount in a travel fund regularly.
Addressing Common Concerns
Annuities aren’t perfect, and there are many questions about them. But, the following is how they specifically target retirees who want to travel more:
“What if I want flexibility?”
It’s possible to withdraw lump sums or periodic payments from some annuities. Others are more rigid. Depending on your needs, you may wish to consider variable or fixed indexed annuities with income riders.
Annuities, however, are designed to provide long-term income. There is a 10% IRS penalty for early withdrawals from a deferred annuity before age 5912. Other than that, withdrawals above the penalty-free allowance are steeply penalized during the surrender period (usually 5 to 10 years).
“Aren’t annuities expensive?”
In general, it depends on the type. Immediate fixed annuities typically have lower fees than variable annuities due to their simplified investment management.
The true expense often comes from misusing them. Early withdrawals reduce your account value and reduce future income payments. You should think of an annuity as a retirement “travel paycheck.”
“What about inflation?”
Inflation can lower the purchasing power of a fixed annuity. A cost-of-living adjustment increases your payment every year, but at a lower starting rate. Annuities can also be paired with growth-oriented investments (like a balanced portfolio) to cover rising costs.
“What if I die early?”
Typically, annuities allow beneficiaries to pass benefits on to heirs. When you share travel goals as part of your retirement plan with a partner or family members, the right payout option will ensure your money doesn’t disappear.
“How do taxes come into play?”
Annuity earnings withdrawn as ordinary income are taxed. When funding big trips, you should be aware that a large withdrawal could put you in a higher tax bracket. The best way to minimize tax burden while still providing reliable travel funds is to structure steady withdrawals over time.
When you understand the rules, annuities can be a valuable component of a retirement plan that balances security and freedom.
The Emotional Payoff
In addition to the numbers, an annuity tied to your travel budget also offers emotional benefits. After all, retirement should be about living, not worrying. The benefits of annuities include;
- Confidence to book trips without second-guessing.
- Freedom to enjoy experiences without financial guilt.
- Joy of focusing on the moment — whether that’s seeing the Northern Lights or playing with your grandchildren on the beach.
In the long run, saving should lead to a richer life, not just a larger account balance.
Final Thoughts
Retirement is an opportunity to create new chapters in your life, rather than worrying about money. You can fund your travel dreams with annuities if you use them wisely.
With an annuity, the promise isn’t just financial, but also experiential. It’s the freedom to travel more and worry less.
Image Credit: Leah Newhouse; Pexels
