Retirement means financial changes. As a CPA, the author stresses the importance of planning, budgeting, and working longer. He cites working while RVing as one way to get started sooner.
Are You Ready?
by Martin Shenkman and Judy Justice
Are you ready? We're not talking about the AC/DC song from their Razors Edgealbum, were talking about are you ready for retirement? Or perhaps RV-irement?
When talking about RVing all the warm fuzzy thoughts run through our minds. The mountains to see, the ocean breezes to feel, the desert to experience, the history to explore and events to enjoy.
Yet, when it comes to time put those dreams to reality, the little thing called "money" comes up. Even if you think you have plenty of money to go around during retirement, the question of "what is how much money to spend?" still comes into play. It really isn't "play." For most of us, this is quite serious because our futures depend on it.
If you're one of the lucky ones who think you have enough money to get by during retirement, don't rely on that assumption without doing your homework. Most financial homework starts with a budget. Thinking you're OK and will get by can be quite dangerous if your assumptions prove incorrect.
The most important time to do the analysis is when you're about to switch gears. This might be making the decision to try full time RV'ing, or perhaps quitting your primary 9-5 job and focusing solely on a hobby or sideline business you want to make a full time occupation, or retiring.
Most of us tend to be too optimistic when heading off into a new direction. The most dangerous time to make mistaken assumptions about your financial security is at these major life inflection points.
A modest change now, before you quit your main job, accept retirement, or make another major life decision, might make all the difference in you being able to make it to the financial finish line. If your budget numbers don't work, sometimes a modest change now can make all the difference.
The time value of money has often been called the eighth wonder of the world. Save a small amount today, or perhaps every month for the next year, and let it grow (compound) for many years, and the numbers you'll have down the road are often staggering compared to what sounds like a modest initial amount saved. This is because the compounding works its magic slowly over time.
What does this mean to you?
A significant issue to consider is, will you realize, or perhaps could you modify your plans in order to realize, a cost savings from RV'ing? There are so many variations as to how one can RV, and how RV'ing affects your lifestyle, and hence your wallet.
Generalizations are dangerous. Some of the key considerations include:
• Will you really become a full timer and actually sell your house? Most people are like the Tareyton smokers in the old commercial who'd "rather fight than switch." Giving up bricks and motor is a tough emotional move for many.
• Will you RV but retain your house and hence all the expenses of maintaining a house?
• Perhaps you'll RV a substantial portion of the time and scale down to a smaller house or even from a house to a condo and slash expenses.
Depending on your specific retirement plans, you might be able to realize a cost savings if you cross the line between living in a traditional home and being a full-time RVer. When many people make the switch (sell your traditional home and go full-time RVing), expenditures drop. The savings can potentially be substantial. Fuel and vehicle maintenance may increase, but have you ever really added up the costs of running a home? Not just the obvious costs like insurance and utilities, but all the ancillary costs (repairs, painting, garden).
One of the bigger costs of running a traditional home may be the least obvious --- your time. The time to rake leaves, clean gutters and so on could be time you could devote to your RV business making money.
Instead of making a retirement plan decision based on your "gut," put pencil to paper (or today it's more like put mouse to Excel) and look at the real details. If you use (and if you don't you should) a check writing financial software (like Quicken) it's easy to estimate what your current costs and income (really cash flow) are. Put these into an Excel or another spreadsheet program. Add in anticipated Social Security, pension, or retirement benefits if you're fortunate enough to have them, IRA mandatory distributions, etc. Project the figures out over time. Add in some increased costs for health care, other retirement activities and other special situations (e.g., weddings for children). How do the numbers look? Inflation adjusts them. How do they look now?
Do what the planners call "sensitivity analysis." If you assumed your retirement costs would increase 3% per year, see what happens at 3.5%. Did you allow for replacement of assets? Your truck, trailer, and other items will have to be refurbished or replaced at some time. Have you factored that into the analysis? Do you have long term care insurance? Will you? Tweak the numbers and see if things still can work out.
Remember, if you look at your expenses (e.g. on Quicken or by flipping through your check register) for the past year, your ongoing expenses should for the most part be identifiable. But looking at a year of actual expenses won't reflect the need once every 5-10 years (your call) to replace your tow vehicle and/or RV. You'll need to estimate and factor into your budget something for these less frequent, but often substantial costs.
Before heading off down any major new life/financial path, if the numbers aren't comfortable enough, consider modest changes now that may compound their benefits for years to come:
• Working an extra year (or as long as required for your numbers to work) before accepting retirement.
• Waiting for a larger Social Security benefit instead of starting your benefits earlier.
• Keep your existing RV instead of upgrading to a larger or more luxurious model at considerable expense today.
• Start a side business instead of retiring fully (e.g. work as a part time consultant doing what you did before).
Planning can make a huge difference. If it will take you a few years to build your business into one that makes some profit, starting earlier before you really need the money or have depleted your savings, can make it much easier to meet your cash flow/budget needs for the long term.
• Work part time at RV parks or during certain holiday or peak season periods and use the earnings and/or facilities you receive to offset expenses.
Often some minor changes can make your financial future secure. Do the math. Make the right decision. However disappointing or unpleasant to have to alter your plans, it is always much easier to make the changes today, than in 10-years. If you retire tomorrow and realize you'll be short on money in 10 years, will you be able to get a meaningful job if you have not been working for 10 years?
Working party time on line, doing some consulting for the company you're retiring from, or for some key clients (if you don't have a covenant not to compete with your former employer) may be a natural if you begin right away. Similarly, if you can work peak summer months of July and August to avoid paying park and hookup fees, that modest savings for a number of years may be all it takes to keep your numbers on track.
Finally, remember that budgeting, investing, and financial decision making are all part of an ongoing process. It's not a one shot deal. Once you've done the tough work, revisit, monitor, and modify your spending or earnings as you go to stay on track.
Martin M. Shenkman, CPA, Esq. sponsors a free legal website LawEasy.com.
Martin is an RVer with a special cause. He is an avid fundraiser for the National Multiple Sclerosis Society and The Michael J. Fox Foundation For Parkinson's Research. Besides RV business tax and legal information, he will share some of his RVing and fundraising experiences with us.
Judy Justice has an MBA in Management and an MBA in Financial Management. She teaches online and operates a business with her husband while RV'ing.
Caution: This article and other columns can never substitute for professional legal, tax, and accounting guidance. These columns can provide only broad general advice, which may not apply to your situation. The rules differ substantially from state to state. Tax, business, and other laws change rapidly over time so there can be no assurance that the information in this column is current. The best approach is to review the ideas in this article with your own CPA and attorney. The application of general tax and legal principles to some of the unique facts presented by RV working is particularly complex and there is little specific law providing guidance to rely upon.