Retire Earlier With An RV
The FIRE (financially independent, retire early) movement, where people try to save upwards of 50% of their income and retire as early as 10 years into their careers, steadily gained popularity since the late 2000s and early 2010s. There are many different flavors of FIRE – Lean FIRE, Fat FIRE, Coast FIRE, even Barista FIRE. In this article, we will examine whether it’s possible to pull of RV FIRE – and how it compares to more established flavors of FIRE’ing.
What is RV FIRE?
If you’re Googling around, scratching your head because the only results are this article and some old news about RVs catching fire, don’t worry! It just means you’ve caught the beginning of a new trend. Remember, when it comes to RV FIRE, you heard it here first, folks!
So what is RV Fire, and should you consider it? If normal Fire is relying upon the 4% rule and saving at least 25 times your estimated annual living expenses by aggressively saving, cutting expenses, and investing to retire by your 30s or 40s, RV FIRE is a targeted approach to drastically reducing one of the largest expenses one incurs over their lifetime: housing (and to lesser extent, transportation). It is also important to note that RV FIRE, COAST FIRE, and Barista FIRE are not mutually exclusive – we’re just swapping out the housing component, and most of the other practices still apply.
Let’s do the math. Suppose you’re a typical American, from a middle-class family, went to college, landed a decent job. You would be renting from around when you left to college at age 17 or 18, paying about $1000 to share an apartment. You might upgrade when you graduated, but had to pay more to get your own room, or live closer to the city where you got employed. And maybe, just maybe – you could save up enough so you could contemplate buying a place of your own by the time you were 27. By this point, you’d have paid about a decade’s worth of rent, and here we’re using a conservative estimate of $1000 a month even after graduation. That’s 10*12*$1000 = $120,000 of your hard earned cash, gone in exchange for a roof over your head. Seems like a lot, doesn’t it? Now imagine if you continued renting. That’s right, every decade you’d be essentially throwing down another hundred twenty thousand, with nothing to see for it. So you definitely want to buy a place of your own, as early as possible.
If you’ve been following the FIRE movement, nothing up to now should be new. You should already know that first time home buyer down payments range between 3-20%, but it’s a tradeoff between down payment now and interest paid later. But here’s the thing – why bother with buying an expensive piece of real estate that you’d have to pay to maintain and pay property taxes for up to the next three decades on at all, especially in a world where employers are moving toward a remote-working paradigm? The whole point of FIRE is to retire early, and to be financially sufficient to spend your time as you see fit. And we can all agree that most people, whether on vacation or in retirement, would like to travel. If you’re the jet-set type of traveler, good on you, except the economics of PLANE FIRE haven’t quite been worked out. But if you’re the type who might be satisfied with living next to the wilderness, with all the comforts of suburban living – RV FIRE might just be for you.
Let’s compare the math for living the typical FIRE life, with a monthly mortgage between $1500 and $2500. That’s 4% fixed interest rate, for a $300,000 house, paid off between 15 and 30 years. Let’s assume you raise a family, and want to take one two-week vacation every year – after all, like most companies, your employer gives you two weeks of PTO that doesn’t sadly doesn’t roll over. The math here doesn’t really change even if you LEAN, FAT, COAST, or BARISTA FIRE, although it will affect the amount you need to make every month. Those property taxes (the average of the US was 1.08% in 2015) mean every year, you’re paying $3000 just to keep your home. That’s on top of your mortgages and loan interest payments. In High Cost of Living areas like California or New York, you can expect to pay an even higher property tax rate on top of property values that are closer to 7 digits than $300,000, and every dollar of that tax means 25 more dollars you need to save, going by the 4% rule (which might not even be sufficient).
What if we could eliminate that $3000 a year tax from our FIRE calculations? Obviously if you just decided to not pay Uncle Sam you’re not going to be in a good place, even possibly getting your home slapped with tax liens and forfeited. At first glance, this is where RV FIRE comes in. Let’s dig a little deeper.
Owning an RV means buying the RV, paying for insurance, gas, maintenance, permits to park at RV parks and campsites, utilities, and storage. If you aren’t constantly traveling in your RV, you could negotiate for better rates on a long-term parking spot with storage and utilities at a campsite of your liking, as well as likely save on insurance, maintenance, and gas. For the sake of this article, let’s ignore those potential savings and go with the averages, much as we did when considering property taxes, rent, and down payments.
Buying an RV can cost as little as $10,000, and while there’s always ways to splurge, the upper limit is around $200,000 for a reasonable RV. The average new RV is $55,000 purchased MSRP, while a used RV can be had for around $35,000. That’s practically a house down payment to own an RV outright, with no mortgage and interest to worry about. This likely the biggest advantage that RV FIRE has over LEAN or traditional FIRE. Savings: $290,000 – $100,000 + Interest Payments (average of 4%, so $11,600 – $4000).
RV insurance for a motor home is between $500 and $1000 a year, and only $250 if a trailer, since for insurance purposes RVs are automobiles and not subject to home or flood insurance rates. Home insurance rates are slightly more expensive, averaging $1200 a year, but let’s call it a wash when you consider RVs have gas costs that houses don’t. (Although, if you had to commute to work, you’d easily run up at least $300 a month on transportation costs. That’s how much a monthly ticket on most train systems in California costs, and it’s not much better in other metropolitan areas.) This…doesn’t seem to be too much of a difference.
RV maintenance should cost no more than $100 a month, but keep in mind that RV maintenance issues can potentially pop up in batches, depending on the state of the RV you purchase. This expense is in the same ballpark as the HOA fees some houses are subject to. Yet another expense that’s a little difficult to compare without exact numbers.
You should set aside up to $2500 a year to rent a spot to park your RV, but hold on just a second. Didn’t we say property taxes in the US would average $3000 a year, assuming a $300,000 house? When you look at it like that, RV FIRE might start to lose its luster, because you’re still paying around the same as you would with a house. In other words, the biggest advantage of RV FIRE is not paying for a mortgage. A bit disappointing, right?
Well, don’t lose heart yet. If the average FIRE’er retires after working 10-15 years, saving 50% of their after-tax income to ensure they can withdraw 4% of their invested savings every year afterwards, how much does saving $104,000 to $301,600 speed up that process? This is essentially what RV FIRE promises. To figure this out, we’ll assume take-home income of $63,179 (the median US household income in 2018, the most up-to-date census information we have). The average federal and state income tax rate was about 24% that year, although it’s a tricky calculation because there are tax brackets and top earners routinely pay much higher taxes. So we’re looking at 50% * ($63,179 – 24% * $63,179) = $24,008.02 a year for an average American who wants to fire. The math checks out, since most FIRE’ers save $1-2 million over the course of working 10-20 years before FIRE’ing. In other words, by attempting RV FIRE, that hypothetical American can retire 4 years and 4 months to 12 and a half years earlier!
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