Stashing away $1 million for retirement has long been the goal that savers were encouraged to shoot for. And for some Americans, the ideal retirement involves seeing the world from the deck of a cruise ship. The coronavirus pandemic, however, has both impacted many pre-retirees' ability to save and invest and raised questions about the viability of a cruise-ship retirement.

Key Takeaways

  • Saving $1 million for retirement is a common goal, but one that many Americans are unprepared to reach.
  • Mounting childcare costs are increasingly a barrier to retirement savings for many working parents.
  • Rising healthcare costs and longer life expectancies can impact how far your retirement savings are able to stretch as you age.
  • It's possible to retire aboard a cruise ship with less than $1 million in the bank, but the coronavirus pandemic could make that more difficult.

Averages of Age and Savings

While $1 million is an often-touted target among financial experts, many Americans have a long way to go to reach that goal.

According to a December 2019 report from the Economic Policy Institute (EPI), the average retirement savings of working-age families, defined as those between the ages of 32 and 61 (or one year short of 62, the age Social Security marks as early retirement) is $120,809. However, the median number, or those smack in the middle, is just $7,800. For those who are near retirement age, or between 55 and 61, the median was $21,000.

The coronavirus pandemic has created new obstacles to saving more money for retirement, including high unemployment rates and increased childcare costs for working parents with children who are distance-learning from home. For instance, an E*TRADE Financial survey found that 46% of parents said paying for childcare was a barrier to saving for retirement, up 6% since before the pandemic.

While Social Security benefits can help supplement 401(k) savings or an Individual Retirement Account, those benefits may only go so far. Even if you're able to save $1 million for retirement, it may not be enough if you live in a more expensive area or encounter rising healthcare costs. According to Fidelity, the average couple retiring in 2020 will need approximately $295,000 to cover medical costs in retirement.

Important

Long-term care expenses for nursing home stays could add more than $100,000 per year to healthcare costs in retirement.

Moving to a lower-cost area or downsizing your home are both options for managing retirement on a smaller nest egg. But there's another option that may be more tempting if you're looking for a little adventure along with some savings. With careful planning, you could enjoy retirement on a cruise ship full-time with a lot less than $1 million in the bank.

Retiring on a Cruise Ship for Less Than $1 Million

For occasional travelers, cruising may be all about living it up in luxury. If you’re planning to spend all of your time at sea once you retire, however, you have to weigh the options carefully.

For instance, one option is purchasing permanent quarters aboard a residential cruise ship. Depending on the ship, however, this may not come cheap. The World, for example, is a private residential ship that launched in 2002. The ship offers studio, one-, two- and three-bedroom residences with prices that begin at more than $500,000. That doesn’t include annual ship fees, which can run into the thousands. 

If you’ve got less than $1 million set aside for retirement, booking individual cruises is, needless to say, the cheaper (and more realistic) way to go. That could mean jumping ship once a month or even more often if you can't find a way to book lots of long cruises. But if you’re only traveling with the necessities, you may get good at these transfers. It does, however, take extraordinarily careful planning. And you'll likely need some kind of land-based permanent address.

In terms of what you’ll spend, it all comes down to how you book and which lines you’re cruising with. Princess Cruise Lines, for example, offers last-minute deals from less than $100 a day per person. Booking back-to-back cruises at low rates could help keep your retirement spending under $40,000 a year, which can help your retirement dollars go further.

When comparing daily fare rates, be sure to check what's included. Drinks, gratuities, and internet access, for example, may not be included unless you also purchase an add-on package which increases your daily costs.

Is Cruising More Affordable Than Assisted Living?

Living on a cruise ship means you'll need to be reasonably healthy and not in need of the kind of care you get in assisted living. But it does offer a useful financial comparison. When you have limited financial resources, assisted living could drain your savings much faster than you’d like—and much faster than living on cruise ships. The national monthly median cost of assisted living is $4,051 or $48,612 annually, according to Genworth Financial. That’s approximately $133 and change on a daily basis. 

Living on a cruise ship could let you hang on to more of your savings. To keep the cost of cruising lower than the cost of assisted living, you’d just need your average daily spending to be below that $133 cutoff. 

How much money would you need to make that work? Let’s say you’ve reached full retirement age and you’re receiving Social Security benefits. As of September 2020, the average monthly benefit was $1,452, according to the Social Security Administration (SSA). That’s $17,424 for the year, so you'd still need another $31,188 to make up the difference.

That means you'd need a big enough portfolio to be able to withdraw at least $2,599 a month. If you anticipate spending 20 years in retirement and adhere to a conservative investment strategy, you could make cruise-ship living work with savings of $640,000, give or take a few thousand. You’d be able to withdraw $2,599 a month the first year in retirement, with subsequent withdrawals adjusted for inflation.

That income, together with your Social Security benefits, could be enough to keep you afloat. In fact, you're unlikely to spend that whole 20 years at sea. In your older years, you will likely need to make other plans.

These figures don't account for inflationary changes. If inflation rises, that could shrink the purchasing power of your investment portfolio, requiring you to save more money to make up the difference.

Is Cruise-Ship Retirement Possible in the COVID-19 Era?

The coronavirus pandemic may have thrown a wrench in the idea of cruise-ship retirement plans, at least for the near future. Cruise lines shut down for most of 2020 to minimize the spread of the virus. The fall season saw a number of cruise lines announce plans to reopen for cruising by the winter months, but there are still uncertainties to consider.

For example, if you were to retire to a cruise ship, you might be concerned about how the cruise line is managing health and safety conditions. While cruises lines are implementing cleaning protocols and numerous companies are working toward a coronavirus vaccine, there are still health risks that can't be ignored. After all, ships were one of the first places that the virus began to spread.

If you were to contract coronavirus aboard a cruise ship, you'd also have to consider what type of healthcare you'd be able to receive. And if you're asked to leave the ship for quarantine purposes or have to be transported to a hospital, that could create new financial issues if you have to pay for temporary lodgings or extended medical treatment.

If you're already planning a cruise ship retirement and have prepaid but are now reconsidering, you may be wondering whether you can get some of that money back. If you purchased quarters aboard a cruise ship, for instance, you could try to sell it but that may be difficult if you're unable to find a willing buyer. The cruise ship may require you to continue paying annual fees until the residence sells, even if you aren't using it. Those are good reasons to read the fine print carefully before purchasing a permanent residence aboard a cruise ship.

The Bottom Line

The previous example illustrates how it would be possible to cruise full-time in retirement even if you have less than $1 million saved. The other comparison you need to make, of course, is how cruising compares with a land-based retirement in your current home or somewhere else, including abroad.

If you stay healthy, you could spend 15 years traveling the world, if you're able to plan the ship-to-ship transfers and perhaps some breaks on land. The planning part may be the most exhausting aspect of this kind of ocean adventure.

But there are other caveats. For one thing, our financial example assumes you’re traveling solo. If you’re married, you have your spouse’s Social Security benefits and other retirement income to take into account, as well as what another person adds to your travel costs. Usually, traveling as a duo is cheaper, but not always.

Besides that, you have to factor in how you’ll manage your healthcare costs while you’re traveling. Medicare won’t cover you overseas, and most traditional health insurance policies only offer limited coverage.

If you have to purchase travel insurance or pay for medical care out-of-pocket when you reach a port of call, that could add significantly to the total cost. And that's just the beginning of a long list of real-world issues, such as where you'll get your mail (and your Social Security check), how you'll handle taxes, what your legal residency is and more. You'll need the advice of an attorney or accountant and a financial planner. 

And of course, you'll need to think about where concerns over COVID-19 fit into the picture. If you're over 65 and have a pre-existing health condition, for example, you may be taking more of a risk by planning a cruise-ship retirement than someone in good health who's retiring at 55. In addition to talking with your financial advisor, you may also want to discuss the potential health implications with your doctor.

The key takeaway? Before packing your bags—or renting out the house—to embark on a cruise-ship retirement, make sure you’ve got all your bases covered.