By Tom Nichols
Get in the mood for our discussion of early-retirement finances by watching Albert Brooks in "Lost in America," explaining the Nest Egg Principle to Julie Hagerty.
New American Nomads is based on the proposition that early retirement is possible for many of us under 65. My mission is to inspire you to take up wandering, but my fiduciary duty is to report how much money it takes, at least for us.
About three years ago, Judy and I left our jobs, sold our house, bought the Epic Van and tapped our retirement nest egg to travel across America. We were 59, and 58, respectively.
When Judy showed me blogs about full-time RVers while we were still employed, they were heavy on where to find beautiful camp sites and how to customize your dream travel vehicle. Frustratingly, they were vague about the cost of travel life without a house. Of the blogs I studied, most focused on retirees who were work camping or boondocking, often in fixed locations, hustling to make ends meet. Others described glamorous travel by those with enough wealth in retirement to afford RV travel for several months a year while returning to their house or homes.
There wasn’t much information about middle-income retirees who want to live mostly on wheels. That’s why I decided to write about our money adventure, allotting $60,000 a year, a median U.S. household income, and see how far we could go.
We’ve learned our budget was slightly unrealistic, but no so much to alter our plans. We will keep rolling for as many years as our health, and that of our family, permit it. It’s a good thing, because a U-turn at this point probably is undoable, until we’re 66. We can’t walk back into our old jobs or home.
Specifically, we spent $62,765 in 2015, $69,490 in 2016, and are projected to spend $65,000 for 2018.
That’s an average of $65,752 a year, which is about 10 percent over our budget. You might cringe at that budget gap, but I am relieved. I worried that traveling 20,000 miles for about nine months a year might burn much more cash, based on our spending patterns during work life. If we could not keep spending under $75,000, a five percent withdrawal rate from the nest egg, I’d consider our Epic Van idea a bust. We’ve kept it to 4.3 percent for our first three years of travel.
I’m doubly relieved because we began our retirement in 2015 as sustained growth in stock indexes, which rebounded in 2008, continues. Unfortunately, market growth isn’t a given, especially short term.
For us, Investment gains nearly offset our withdrawals during our first three years of travel. The total value of our assets (60 percent stocks, 25 percent bonds and 15 percent cash) is less than one percent lower than when we took off in the Epic Van three years ago.
Adjusting for the Consumer Price Index, 0.7 percent in 2015, 2.1 percent in 2016 and about 1.7 percent so far this year, the purchasing power of our nest egg has been further reduced.
Nevertheless, we are beneficiaries of bull markets and low inflation. Not all retirees get off to such a pleasant three-year start. Think of those who began their retirement in 2006 or 2007, just before the Great Recession began.
Finally, I’m triply relieved because our son Nate landed a full-time job with health insurance benefits this year and has his own apartment in Phoenix. He’s out of the spare bedroom at his grandmother’s place, freeing it up for us this holiday season.
A look at our spending categories during 2016 and 2017 shows little change, with the exception of ballooning dining and entertainment spending. We budgeted $400 a month, but spent $550 in year one, $740 in year two and $792 in year three.
Our projected budget was $50 a day budget for groceries, dining, entertainment, camp fees and laundry. In year one we spent $57 a day. Lower grocery spending in year two offset our rising dining-entertainment costs, keeping our daily spending at $57 a day. In year three, dining-entertainment and a rising grocery bill pushed our daily outflow to $63 a day. Our camping and laundry fees have been within budget.
Fortunately, we’re spending a bit less than expected on our Epic Van costs, thanks to lower than estimated diesel fuel costs. Income taxes are lower than expected. Our cell-phone spending is lower in year three because of Verizon’s new data plan. Blogging costs a bit more than expected but you diehard followers are worth it. Clothing expenses were a bit higher in year three because of the rain gear we bought in Northern California.
During our work lives, we spent a $1,000 a month on dining and entertainment. In retrospect, it was unrealistic to try to cut it by 60 percent, to $400 a month.
Sharing food and conversation with new and old friends is one of our biggest joys in our nomadic life! We now have more time and inclination to visit with folks. Plus, it takes some money to visit a new museum, fair or cultural event, our primary source of entertainment.
To stay true to our credo of “minimum home, maximum life’” the New American Nomads should have budgeted a bit more on the life and a bit less for the home.
We budgeted $1,600 a month on our vehicle, about one-third of our $5,000 monthly budget. If we committed $1,200 on our vehicle, or about one-fourth of our $5,000 monthly budget, we would have a extra $400 a month to spend on dining and entertainment.
The budget lesson is clear. Limit the cost of your camping rig to 25 percent of your monthly budget so you can maximize your social and travel life and come closer to making your budget.
We found it takes $65,752 a year to live our early retirement dream instead of $60,000. So what should we do?
We could volunteer at parks for five or six months a year or work camp for pay, spend more time at inexpensive camps in the West closer to Arizona, or stay put in Scottsdale, where we spend about $1,000 a month less than we do on the road.
Yes, we could find a way a trim $5,000 more out of our annual budget, but to do so would begin to undermine or goal as nomads: exploring, socializing and learning something along the way.
We’re spending less than half of our pre-retirement income, even though we are over budget, and having triple the fun living slowly and more simply. If our nest egg is substantially reduced in the next three or four years because of economic calamity or disability, we will have to reduce our ambitions for sticks-and-bricks housing after 66.
Living in a small space is transformative. Judy and I are forever weaned from a big, fancy living space. A cabin, apartment or condominium of 1,000 square feet will suit us perfectly when we decide to settle down.
By then, we both qualify for “full retirement” under Social Security. We will have defined benefit income, we call them “half pensions,” based on about 15 years of employment for each of us. (We do risk losing half of the Social Security income if one of us dies, but our pension will go to our spouse if either of us dies.)
Still, we believe our premise for early retirement is sound. You can enjoy a middle-class life on the road if you are willing to dump the overhead costs of a traditional house for a few years.
|Expense category||Budgeted amount||2015 monthly average||2016 monthly average||2017 monthly average|
|The Epic Van loan payment||615||612||612||612Diesel-propane||500||416||394||399Van maintenance||250||33||378||266Van insurance||120||121||150||134Van license||115||194||109||100Subtotal||1600||1376||1643||1511|
|*||*||*||*||*Health insurance (includes dental)||720||721||716||645Prescriptions and copays||0||100||144||53Household storage||265||265||267||270Phone-data (for 3)||285||310||370||235Subtotal||1270||1396||1497||1203|
|Income taxes||200||173||128||100Clothing||100||113||159||229Haircuts-Personal care||50||43||97||84Mailing||50||35||95||45Charity||100||110||162||121Health club*||50||104||86||98Blogging costs||50||37||158||105Misc||30||23||47||18Subtotal||630||638||932||800|
By Tom Nichols
Paying for health insurance for our family of three was my biggest worry after Judy and I quit our middle-class jobs, gave up our employer-subsidized coverage, and hit the road in The Epic Van.
Thanks to Obamacare, health care has been affordable during our first three years of early retirement.
When I began running the numbers for our projected 60K retirement budget two years ago, I couldn’t help thinking that the assumptions in it were delusional. Judy, meanwhile, was characteristically confident we could travel full time in The Epic Van and live on $5,000 a month.
She’s way ahead of me in visualizing blue skies in any new venture. I enjoy riding along, but worry more about a catastrophic storm ahead.
It would be easy to underestimate our annual retirement spending by many thousands of dollars. Imagining living on less than half of our 150K pre-retirement income is easy, but did we have the commitment to do it? Would I be slinking back to the workplace in my mid-60s, scrambling to salvage a nest egg squandered?
It turns out my worries were overblown, and Judy seems to be right about early retirement and going nomad, as she was about other big ventures like getting married (1982), publishing a newspaper (1989), starting a family (1994) and taking a family sabbatical (2000).
Touring America for nine-plus months on a 60K annual budget is doable. We spent $5,119 a month last year, coming within about 2 percent of our target of $5,000. Lower than estimated fuel costs, vehicle maintenance and taxes, along with more than two months of cheaper, stationary living with Judy’s mom in Arizona, helped us nearly reach our 60K target.
On the positive side of our assumptions, we expected to spend about $500 a month on diesel fuel and pay about $3.50 a gallon. We spent $416 a month, paid closer to $3 a gallon and traveled about 15,000 miles.
On the negative side, we aimed for $50 a day in daily living costs that include groceries, restaurants, bars, camp fees and laundry. In nine-plus months of travel we spent $57 a day, about 14 percent over budget.
Our 3,200 mile detour in July from Glacier National Park to a family reunion in Illinois, and back to the Rockies, was our biggest budget breaker of the year. We spent $72 a day in July on groceries, dining and entertainment when our son Nate flew to Chicago to join us.
We had lots of fun, but our monthly budget deficit was rising with the summer heat. On Aug. 1, we knew a mid-course budget correction was necessary. It was time to redouble our efforts to meet our $50 a day spending target.
After trial and error during our first seven months on the road, we resolved to follow the “New American Nomad principles” for limiting grocery, dining, entertainment and camp spending:
On a chilly final day of September, we toasted success in meeting our $50 a day budget for the month, as we gazed at grassy dunes and slate surf n’ sky from a bar overlooking the Trail of Discovery in Long Beach, Washington. We had reduced our daily spending from $72 in July, to $48 a day, while thoroughly enjoying the Pacific Northwest. We were spending less than we did earlier in the year, but enjoying our wandering ways even more.
We begin our second year in the Epic Van with more confidence we can follow the “four percent rule” for withdrawing retirement assets and yet enjoy a rich nomadic life on about 60K a year. It may take a few extra thousand dollars occasionally to pay for unexpected events in early retirement, but we don’t obsess over four percent. We can accept a five percent drawdown if necessary. We call it an emergency fund.
If we spend beyond the five percent withdrawal threshold, I guess Judy will have to go back to work. (“Dream on,” she said.)
|Expense category||Budgeted amount||Average monthly spending|
|The Epic Van loan payment||615||612Diesel-propane||500||416Van maintenance||250||33Van insurance||120||121Van license||115||194Subtotal||1600||1376|
|*||*||*Health insurance||720||721Prescriptions and copays||0||100Household storage||265||265Phone-data (for 3)||285||310Subtotal||1270||1396|
|Taxes||200||173Clothing||100||113Haircuts-Personal care||50||43Mailing||50||35Charity||100||110Health club*||50||104Blogging costs||50||37Misc||30||23Subtotal||630||638|
By Tom Nichols
(Part 2 in a series. Read part 1 here.)
I once lived the $150,000-a-year life in Scottsdale, Arizona.
Loved it for the food, family vacations and health club. Never cared about fancy cars, nightlife or fashion. Always viewed a house as a financial asset, nothing more or less.
These are the weaknesses and strengths I brought to the game of changing my ways and living full time in a fancy van on $60,000 a year, or less than half of what we used to spend.
By Tom Nichols
You’re probably wondering how a couple of 50-somethings are paying for their touring lifestyle. Sure looks like they’re having a good time in early retirement, but they’re probably headed for financial disaster in a few years!
After all, any financial planner will tell you that your retirement spending must be based on a 30-35-year horizon as life expectancies are hitting 85 and beyond. We agree. You’ll also be told to replace at least 70 percent of your pre-retirement income to enjoy a respectable Boomer life. On that one we respectfully disagree.