Maximize Travel Rewards on a Fixed Income

Retirement may offer the opportunity for adventure, whether you want to hike in Acadia National Park or visit the Prado Museum in Spain. Traveling doesn’t have to be exorbitantly expensive either—retirees can take advantage of travel rewards to help lower the cost.

Key Takeaways

• Your points, rewards, and miles will accumulate each time you use your travel rewards credit card for qualifying everyday purchases.
• Qualifying for a card can require good to excellent credit.
• General travel rewards cards usually offer more redemption flexibility than airline or hotel cards.
• Compare annual fees, welcome offers, and rewards rates to find the best cards for your retirement needs.

Understanding Travel Rewards Programs

Travel rewards can come in a variety of shapes and sizes. With credit card rewards, you make purchases with your card, and get a fraction of the purchase value back in the form of rewards such as points or miles.

Credit cards work best for retirees and those who are living on fixed incomes, according to Jeff Powell, creator of Smoky Mountains Ventures and Smoky Mountains Ventures Custom Travel Planning. Taking advantage of these cards in retirement comes with some considerations though.

Your points, rewards, and miles will accumulate each time you use your credit card, and you can redeem them when you travel. You’ll generally earn in the neighborhood of one to three points or miles for each dollar spent, depending on the purchase category. You can apply those rewards to the cost of flights, accommodations, car rentals, and activities.

“Travel rewards programs can be a great way to stretch your retirement income if you understand how to use them strategically,” said Taylor Kovar, a certified financial planner and founder and CEO at 11 Financial.

Assessing Your Financial Situation

Travel rewards aren’t free. You have to spend and incur a balance to earn them, so beginning with a firm understanding and assessment of your personal finances is vital, as any interest you pay can wipe out the benefits of receiving rewards. Can pay off your credit card balance every month without incurring interest?

Qualifying for travel rewards cards typically requires that you have good to excellent credit too. You might consider a “starter” travel card if your credit score is less than stellar—these cards are typically more flexible, but their rewards aren’t as generous.

Beyond credit cards, look into senior discounts or consider traveling during offseason when rates for hotels and flights are typically cheaper.

Important

Your health is another important consideration. Your Medicare plan won’t cover you in an emergency on foreign soil. You’ll want to consider this when assessing the impact that travel can have on your financial situation.

Budgeting for Travel on a Fixed Income

Set up a travel budget for your excursion after you’ve determined how much you can comfortably spend. “It helps to set aside a small, consistent amount each month just like you would for any other goal,” Kovar says. “Look at your monthly cash flow and identify a reasonable amount that you can set aside for travel without sacrificing necessities.”

Now make an honest assessment of what you think your trip will cost you. Aim high. Maybe you think food and drink will cost you $300 after you use your travel rewards to cover accommodation and flight expenses. Budget at least $400, if not $500. You don’t want to come home wondering how you’re going to make that mortgage payment if you end up spending more than you anticipated.

After you’ve figure out what your budget for that expense is, divide that amount by the total number of months remaining until you take off. Add the figure to your monthly budget, and figure out a way to save that money. It might mean trimming other expenses, foregoing an anticipated purchase, or planning your trip for a later date so you can dedicate more months to saving.

“Adjust your timeline,” Powell says. “You may not be able to afford your dream trip this year, but you might be able to afford it one or two years from now.”

You have some options for trimming down that travel budget. “Stay at a hotel with a complimentary breakfast,” Powell says. “That can save up to $500 in meal expenses. Limit the number of souvenirs you purchase. Do you really need another coffee mug, two hats, and three T-shirts?” He also recommends doing the math: “It may be less expensive to drive than to fly.”

Choosing the Right Credit Card

You’ve budgeted and saved, and now you’re ready to take the plunge and have some fun. However, there may be an overwhelming number of credit card options.

Your first choice is among a hotel card, an airline card, or a general travel rewards card. You can only use the first two with the specific hotel chain or airline that offers them, so the latter might be better for you if you enjoy more flexibility. General rewards cards also sometimes throw in perks like free airport lounge access, travel credits, and various types of travel insurance.

Compare the various travel credit cards by looking at annual fees, welcome offers, rewards rates, and other perks.

Travel rewards card fees can range from $95 to nearly $700. A higher fee usually comes with higher reward rates and more travel-related perks.

“Look for one with a solid sign-up bonus, no foreign transaction fees, and strong earning potential in the categories where you already spend, like groceries or gas,” said Kovar.

Welcome offers typically require that you spend a certain amount in the first months after obtaining the card. These amounts can range from $500 to $8,000 or more, so if you want to earn the welcome bonus, make sure you don’toverextend your budget just to receive the welcome bonus.

Redeeming Rewards and Discounts for Maximum Value

Your final challenge will be redeeming those rewards and miles when travel time comes. The process for doing so can vary by card, but you typically have many choices. Plus, some of those choices could offer better bang for your buck.

“Redeeming rewards is where people often leave money on the table,” said Kovar. “Many retirees love the idea of booking travel at the last minute, but reward availability can be limited if you wait too long…keep in mind that some rewards programs come with annual fees, blackout dates, or point expirations.”

Typically, you must redeem your rewards through your card issuer’s portal. Some card issuers will offer you more favorable redemption values when you use your points or miles to purchase travel through the portal.

Additionally, if you’re interested in using your points or miles to cover the cost of flights or hotels, you can transfer those rewards to travel partners, like specific airlines or hotel chains.

You’ll want to carefully evaluate the differences in value when transferring to different partners. For example, you could use 75,000 points from a travel card to book a $1,500 flight through a particular airline, but another airline could offer a more paltry value, like an $800 flight instead.

Generally, cards also allow you to exchange your miles for cash or a statement credit. They may send you a check in the mail or reduce your card balance by the statement credit amount.

The Bottom Line

Using travel rewards can transform yawn-worthy retirement years into golden years, but you’ll want to keep some things in mind. The terms can vary significantly from card to card, so it’s imperative that you choose the right one for your budget, your income, and your goals. You don’t want to overspend just to earn more rewards. Use your rewards card to pay for purchases that you would have spent money on anyway.

Powell suggests charging utilities, groceries, dining out, insurance, gas, and medical expenses to your card, allowing you to earn points quickly. “Just be sure to pay off your credit card balance at the end of each month, or you’ll find yourself paying more in interest charges than you’re saving on travel,” he says.