Tuesday, February 19, 2013

Paying for Travel

Ah, yes, if we didn't have to worry about paying the bills, we could all travel a lot more. Obviously the best way to pay for travel is out of savings or by charging everything to a credit card and then paying the balance in full when it comes due.
If it is not possible to pay everything off at once, you are probably better off taking out a loan to pay the credit card bills, since credit cards tend to charge very high rates of interest, close to 20 per cent. The cheapest source of credit is usually a line of credit from a bank, or a margin loan against securities. With a margin loan, the interest is also likely to be tax deductible. Of course, if you take a large margin loan relative to the size of your portfolio, you may face margin calls if the market drops.
Retirement accounts are another possible source of funds. Most financial planners screech at the idea of withdrawing retirement money early, but I think it can make sense in some circumstances.(I am more familiar with Canadian than American retirement accounts, so these ideas may not apply to U.S. residents.)
In Canada, you can withdraw money without penalty from Registered Retirement Savings Plans at any age. The money withdrawn becomes taxable income, and tax will be witheld. However, if your other income is low or non-existent, you may be able to recover the witheld tax the following year.
Retirement accounts such as RRSPs are a good idea for many people, I believe. However, at some point before you reach age 72 they have to be cashed in and all the money withdrawn becomes taxable then. And with tax rates expected to rise in the forseeable future, you may end up being in a higher tax bracket in retirement than you were while working.
So the take away, I think, is even if you have to dip into savings or borrow a little, spend the money to travel while you are still energetic and in good health. Who knows what the future holds?


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