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Plan your children’s destination wedding without derailing your retirement plans

Dec 10, 2019 | RBC Wealth Management


Luxury destination weddings can create lasting memories, but they also present special challenges for planning, especially when it comes to finances.

bride and groom holding hands on wedding day

When it comes to planning for nuptials, change is definitely in the air. Destination weddings are no longer just for paparazzi-shy movie stars or A-List celebrities, and are increasing in popularity with couples. However, such events present some unique financial challenges, even for high-net-worth individuals.

In 2017, one-in-four couples opted to go to distant locales for their wedding ceremony and celebration. That's up from one-in-five in 2008, according to wedding magazine The Knot. That trend fits with the broader decline in popularity of traditional weddings at religious institutions and those requiring formal attire.

"Kids are getting married later and they have their own ideas about how they want to do that," says Angie O'Leary, head of wealth planning at RBC Wealth Management-U.S. "They're choosing destination weddings."

These young couples want to build an experience around their wedding and that means having friends and family around them at the ceremony, she says.

If your children want a destination wedding, it's important to include that goal in your wealth planning, says Christine Gehring, a wealth planning consultant at RBC Wealth Management-U.S.

“When we do financial planning, we have clients articulate as many goals as possible," she says. “If they have children, we ask if they will pay for a child's wedding."

Cost considerations for destination weddings

Weddings of any type can be costly, but destination weddings have the potential to be more so. “The costs can definitely add up," says Gehring.

That's in part because the logistics of a destination wedding are far more complex than those of a hometown event. For instance, a traditional marriage celebration might mean holding a rehearsal dinner for the immediate family, followed by the ceremony and a reception held somewhere like a country club, Gehring says. In other words, the family or couple can usually expect to pay for only a few events. The whole thing starts and ends within a couple of days.

But for a destination wedding, people will likely want, or need, to stay at the distant location for a longer period because of the travel involved. That, in turn, could mean you need to lay on more entertainment for your guests. “You're now possibly paying for three or four events," says Gehring. “When you have a number of people traveling a long way, you'll want to include them in a lot, if not all, of the events." That can include inviting every guest to the rehearsal dinner, plus having a welcoming cocktail party, as well as the after-ceremony reception.

In practice, determining the actual cost for a destination wedding requires pricing each part of the event separately.

The cost of travel

In addition to the costs associated with the actual wedding events, it's also important to consider the cost of travel - both financial and otherwise - when planning a destination wedding. For example, remote locations may exclude some people from attending your event. That may be because they don't have a vacation allocation that allows them enough time away from work. Or, they just may not have the finances to afford the travel or accommodations associated with the wedding.

“You have to accept there'll be people who you want to invite who don't have the means to come to the wedding," Gehring says. “If you have relatives who you want to come, and they aren't as prosperous, then do you feel responsible for getting them there?"

In other words, parents may end up paying for some of the guests to attend.

Paying for a wedding overseas

After tallying the potential costs of such an event, the next question is how to pay for it. “If you are a high-net-worth individual, you can afford it," says Fred Rose, head of credit and liquidity solutions at RBC Wealth Management-U.S. But specific financing choices still need to be made. “Either pay cash or you're going to borrow," says Rose.

Those people with after-tax cash income may be able to cover the cost out of their current resources. However, sometimes available cash comes in larger chunks rather than in a steady stream. For example, a profit share or bonus may be paid just once a year. “Maybe you would rather not liquidate assets today, but you know you have money coming in a few months," says Rose. “That's absolutely where you'd use an asset-backed loan."

One commonly used type of asset-backed loan is known as a securities-based line of credit. That's where you borrow against the value of your portfolio of financial securities, such as stocks. Typically, the maximum loan size would be 50-70 percent of the market value of the assets, Rose says. The cost of borrowing this way tends to be low with an interest rate slightly higher than the Libor (the London Interbank Offered Rate).

Think flexibility when financing big ticket weddings

Using a securities-based loan allows you to access cash immediately and remain invested in the market. It's a sort of have-your-wedding-cake-and-eat-it-too scenario, which can be mapped out in your wealth plan ahead of time.

“Maybe you borrow at four percent and capture eight percent in the market," says Rose. In other words, a temporary loan of this type could allow your long-term capital to remain invested without interruption ahead of the big day.


Wealth planning