(Read Part 1, Part 2, Part 3 and Part 4 about our finances, and our post about Obamacare, a big piece of the puzzle.)
By Tom Nichols
Year four of our financial adventure gyrated around the wealth effect. Boosted by investment gains since we became nomads, we traveled on growth income while our original nest egg was preserved. What could be sweeter?
We were cruising with the stock market winds at our backs in 2018, lulled into complacency by the wealth effect. After almost four years of early retirement, we felt more financially secure and, therefore, more relaxed about spending. Why not splurge a little, say travel without The Epic Van, or indulge in a few more restaurant outings?
For the first time since our working days, we flew again for pleasure, first to Mexico with Nate for a New Year’s 2018 vacation, and then to Illinois for a family reunion in July.
It turned out we had travel expenses for good times and bad. During a planned Epic Van visit to South Carolina, we wound up helping my sister, Ronda, deal with a medical crisis. We paid for Nate to fly out and visit while we helped move Ronda and her husband, Ray, to an independent living complex. Judy’s mom also had medical issues, which caused us to cut short our volunteer commitment at Big Sur. It also meant rerouting our plane tickets for the Illinois reunion from California to Phoenix, which cost us dearly.
We knew the mix of pleasure and emergency spending would break our original $60,000 a year budget or even blow our revised budget, which is $65,000 a year.
Bottom line: We spent $71,796 last year, which put us a bit above the median-income life we vowed to live in early retirement. For comparison, we spent $62,765 in 2015, $69,490 in 2016, and $66,024 in 2017.
As I have reported in each of the last four years, just about all our over-budget spending is on dining and entertainment. Record spending this year included plane tickets, hotel and car rentals, a handful of $150-plus meals and a few more hard-cover books.
Our monthly total skyrocketed to $1,130 a month. For comparison, we spent $550 a month in 2015, $740 a month in 2016, and $792 a month in 2017.
We budgeted $400 a month for dining and entertainment in our original budget, imagining we would be living and eating in remote campgrounds most of the time. But we’ve spent more days in towns visiting family and friends than expected, and when we do, we spend more money. When we do camp in remote spots for most of a month, we spend about $425 a month on dining and entertainment, only slightly above our initial $400 estimate.
Thankfully, just about every other spending category we set four years ago was more realistic.
The cost of operating The Epic Van (loan, fuel, vehicle and “house” repairs, insurance and license), was $1,695 a month in 2018. We budgeted $1,600 a month in our original $60,000 budget.
We will be spending more for RV insurance in 2019, up to about $200 a month in total, because of a speeding ticket issued on the way out of a lonely town in eastern Washington. If you travel backroads through hundreds of small towns each year, it will probably happen to you. We won’t be out of the penalty box for higher insurance rates until 2020.
We also hit a spending record, $500 a month, in health copays and deductibles for routine diagnostic tests (endoscopies, yea!). It is the only spending category completely beyond our control. Our Obamacare plan has a $6,500 annual deductible for each of us.
Phone costs, too, are going up. We replaced iPhones purchased in 2014, and are paying for them in installments.
Blogging expenses rose in 2018 because of a hack, which required professional help to clean and restore New American Nomads. Postage costs for mail forwarding and gift giving are higher than we estimated four years ago.
We’ve updated our budget grid to show spending in 2018 and four-year averages in all categories.
As 2019 begins, we are over the hump in our six-year early retirement financial adventure. We began life in The Epic Van as 59- and 58-year-olds. Judy, 63, is less than two years from getting steady income from a partial newspaper pension, based on about 15 years of employment at The Arizona Republic.
With my newspaper pension, also based on 15 years at The Republic, and Judy’s Social Security benefits starting in 2021, we will have additional income to buy a modest traditional dwelling again, if we choose or are forced to by health problems.
In 2018, our nest egg soared to new heights along with the S&P 500 index, which hit an all-time high. The index was up about 10 percent in October, before falling sharply. At year end, the S&P was down about 6 percent. The forecast for 2019 is for slower global growth and the possibility of recession in 2020.
So, how’s the nest egg holding up?
Well, as of Dec. 31, the nest egg, which had been holding steady for four years, was down about 8 percent. That includes the loss of our Obamacare subsidy for health care in 2017, which we found out about in 2018.
Letting Judy know about the “repayment of Premium Tax Credit,” was the least pleasant conversation of 2018. You can avoid my mistake by taking capital gains before you retire instead of taking them when you are eligible for Obamacare.
If you want to get deep in the weeds, I will describe the linkage between our retirement income sources and our Obamacare costs in my next post. Put simply: A couple must have less than $65,840 in adjusted gross income to avoid an expensive tax credit repayment.
Obviously, the wealth effect becomes the less-well-off effect when the stock market falls. We are scrapping our air travel plans and splurge restaurants this year and retreating to a $65,000 spending target.
As reported in year three, if you want to live on the road for $60,000 a year or less, limit your vehicle costs (loan, fuel, insurance, license and repair) to $1,250 a month, or 25 percent of your budget. Our Epic Van costs are 32 percent of our original budget.
You’re going to need three-quarters of your budget to pay for essentials, enjoy life on the road with old and new friends and see some attractions along the way. That is $3,750 a month for groceries, dining and entertainment, medical care, phone, household storage, clothing, blogging costs, camp fees, taxes and gifts.
Finally, a word of thanks to family and friends for your driveways and hospitality, which makes our middle-class nomadic life possible. Your material gifts are not included in my annual financial report, but they make our wandering life sweeter.
My everlasting thanks goes to Judy’s mom, Jeannine, who shelters us in winter with a bedroom, shares her kitchen and lends her Subaru to us for getting around Scottsdale when we are parked. We could not do it without her.
As we reflect on the cost/benefit ratio of our early retirement experience, we both declare success. Our travels have left us astronomically richer. Even if our nest egg were more deeply depleted, it would all be worth it.
|Expense category||Original budget||2018 monthly average||Four-year average|
|The Epic Van loan payment||612||612||612|
|Health insurance (includes dental)||620||154||559|
|Prescriptions procedures and copays||100||500||199|
|Phone-data (for 3)||285||344||314|
|* Excludes Obamacare premium tax credit repayment|
|* Full fee activated when in Scottsdale|
By Tom Nichols
(Read Part 1 about our finances here, and Part 2 here.)
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|