To toasty workaholics, nothing sounds better than leaving the rat race for a permanent vacation. And, the earlier the better. Right now, you are just clicks away from countless stories of people in their 20s, 30s, 40s and 50s who have made the break and hit the road. Some are working, but many others have decided to eliminate that four-letter word from their vocabulary.
As enticing as these stories are, fulltime RVing isn't the ticket to an early retirement. The real solution is to put your investments to work for you. The sad truth is that most Americans are underprepared for retirement at any age.
According to the Bureau of Labor Statistics, less than one-third of American workers are offered a pension. For some of those folks, early retirement is a well-funded (and hard-earned) reality. Most American workers, however, are on their own when it comes to funding retirement. According to the Employee Benefit Research Institute, more than half of American workers have saved less than $50,000 for retirement. A recent Wells Fargo survey reveals that the average middle-class American thinks he or she needs $300,000 to fund retirement, but has saved only $20,000. Such underfunded nest eggs keep the idea of an early retirement just a dream.
Let’s say an aspiring wannabe fulltiming couple has managed to amass the $300,000 they think they need for retirement by their 40th birthday. Will that be enough to retire early and fund this dream lifestyle?
The answer to that question depends on a variety of factors. How is that money invested? Will the investment portfolio be supplemented by any earned income? How long are they planning to live the fulltime RVing life?
Let’s say our hypothetical pension-less pair wants nothing more than to stop working and live their fulltiming dream. At age 40, Social Security benefits are at least 22 years away. So, it’s up to their portfolio to cover their fulltiming expenses.
There are two key questions about their nest egg. First, how much is invested in qualified retirement accounts? These monies are subject to a 10% penalty plus tax if they are withdrawn before age 59 1/2. Second, what percentage of their retirement funds are invested in stocks vs. fixed income securities? The answer has a significant impact on the risk and return of the portfolio over time.
Let’s say our “wannabe” couple has half of their nest egg available to them before they turn 59 1/2. Because they will depend on this $150,000 to provide their income, they invest it conservatively - in the bond market - while their qualified accounts, which they won't touch for nearly 20 years, remain invested in the stock market.
These wannabes are average Americans, so their annual expense budget is average, too. They’ve budgeted $3,200 per month, or $38,400 per year. We'll use the most recent annual returns of the Barclays Capital US Aggregate Bond Index to calculate the return of this hypothetical bond portfolio. To keep things simple, we won’t factor in inflation.
So, how long might these investments fund their fulltime RVing lifestyle?
| | Starting | Withdrawal | Balance | Return | Gain |
| Year 1 | $150,000 | $38,400 | $111,600 | 4.33% | $4,832 |
| Year 2 | $116,432 | $38,400 | $78,032 | 6.97% | $5,439 |
| Year 3 | $83,471 | $38,400 | $45,071 | 5.24% | $2,362 |
| Year 4 | $47,433 | $38,400 | $9,033 | 5.93% | $536 |
| Year 5 | $9,569 | | | 6.54% | |
In this example, their “accessible” investments are gone in Year 5. And, how has their stock portfolio performed? Of course, nobody can predict those results. But, let’s take a look at what would have happened to their stock portfolio over the last five years, using the performance of the S&P 500 index, including dividends, from Jan. 1, 2006 through Dec. 31, 2010.
| | Starting | Withdrawal | Return | Gain |
| Year 1 | $150,000 | $0 | 15.74% | $23,610 |
| Year 2 | $173,610 | $0 | 5.46% | $9,479 |
| Year 3 | $183,089 | $0 | -37.22 | -$68,146 |
| Year 4 | $114,943 | $0 | 27.11% | $31,161 |
| Year 5 | $146,104 | $0 | 14.32% | $20,922 |
| Year 6 | $167,027 |
After five years, this hypothetical retirement nest egg is worth $167,000. Our 40-year-old couple is now 45 years old and can’t touch that money without some penalty for nearly 15 years.
No worries. You see, they planned for this. After enjoying four years of work-free bliss, they’ll just go back to work. Can you imagine if this was the year they planned to make that move, with an unemployment rate hovering around 10% nationwide, and even higher in some parts of the country?
Of course, workcamping is a possibility. Our couple could work for their site at a park or campground and maybe earn an hourly wage on top of that. Let’s say they find a camp hosting job for $10 an hour, a site and utilities.
Sounds good, huh?
If a site and utilities are worth, say, $700 a month, our hypothetical couple needs to earn another $2,500 each month. That's about 30 hours each, every week of the year. And, we haven't even talked about taxes. It might not be quite fulltime work, but it's close enough.
This may be a perfectly workable solution, pardon the pun. And, of course, there are many other ways for fulltime RVers to earn income. But, the point here is that if you need to work fulltime on the road, (Not that there's anything wrong with that!) this lifestyle does not exactly add up to an early retirement. Does it?
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12 comments:
Love your work you've put into the stats. If your job will cost you your life with stress, it would be good to do changes, either another job or on the road. Good job.
I guess it depends on what you mean by early retirement & if said couple is willing to let their skills go for 4-5 years before they re-enter the job market. Early 'retirement' can also mean only working 6-9 months out of the year instead of the standard 12. Of course we hope to be able to tell you how to do that (successfully) in a few years. ;-) For now we are in the planning stages. Love reading your posts and look forward to more myths!
Excellent write up. There are a lot of "wannabes" who need to think this thru. But for some it is go now or never. They have been laid off and can't find new jobs anyway.
I've seen some really old beat up RVs in Santa Cruz. They boondocks where ever they can and get along on who knows what.
We don't need to sell the house to go full time. But it would be a drag having it sit here. It is really not suitable for a rental.
Don't really have a comment on this post since I wasn't anywhere near 40 when I went fulltime. :)
Although I could make a few comments about those 40 something early retirees that expect others to support their lifestyle.
In my plan, we will start with a 10K reserve fund for repairs and will add a fixed amount to it every month.
Reading blogs for a year has tight me that it's not if but when the repairs are needed and they are never cheap.
I also plan on starting with a good extended warrantee.
that's taught not tight. How I hate the auto correct feature! I've tried to turn it off several times and it always comes back on!
we consider ourselves very fortunate as I am one of the few who has a full pension at 55..but jobs on the road are in our long term plan!
you wouldn't believe my spreadsheet that i used to determine when i could retire...
We are also very fortunate in that Harry will be retiring with a pension before we hit the road. We would not be thinking about fulltiming if we did not have a source of income - I know a lot of people do, but that's just us. Also, I am lucky that this means I will be "retiring" in my 40s, because I am just a little younger than my husband. :)
Would I be able to purchase a spreadsheet over this material?
Wow-that was a lot of work. This was way beyond my scribbling on a piece of paper.
Being in year five, I think it is too late to "do the math", but it will be very helpful to those who are nearly ready to hit the road (or think they are) :)
This is an outstanding piece of work -- it is a dose of reality that any potential full timers should give serious consideration. By the way, I am a practicing Certifed Financial Planner.
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