Retirement Expense Chronicles: Lessons Learned from the First 36 Months
Three years into our post-W-2 early retirement, we’ve had time to get a handle on what our semi-nomadic lifestyle costs are. Many expenses were similar to what we expected, but we did discover some financial surprises. We had heard of the phrase “the retirement spending smile” and now also experienced this phenomenon.
Here, we’re sharing our story in case you are just entering early retirement with some concern about budget creep. We compare our anticipated expenses in year three of early retirement to those of year one in retirement.
Spoiler alert: this isn’t a tale of woe! We’ve been able to manage these extra expenses in our early retirement and still travel internationally for more than six months per year, thanks to savings in other budget categories.
About Us
Darren and I left corporate careers in our late 40s after 20+ years each in agriculture science. We are semi-nomadic. We travel most of the year and maintain a small home (Workingman’s American Foursquare-style) in the Great Plains of the United States. We spend most of our travel time thru-hiking in Europe and winters in the Caribbean and Central America.
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Housing Expenses
In year one of early retirement, we were living in Wilmington, NC. We liked the area and wanted to buy a condo or ranch house in the Mayfaire area. As we lived there longer, we found it was an excellent community for older people (e.g., conventional retirees) and college students. While it had great weather and a better cost of living than the Raleigh/Durham metro area where we had previously lived, it wasn’t a good fit for our desired lifestyle—active international travel in our 40s and 50s.
Pre-retirement, we had used retirement planning software (NewRetirement Planner Plus) to earmark $350,000 for a home at “some time in the future.” On a trip to the Great Plains in 2022, we found a for-sale-by-owner house near some farmland we had purchased in 2007. While the place needed some work, it was structurally sound. A fiber internet line ran by the house. It is on the edge of a small town with unobstructed views of a river. Within eight days, we owned a $47,500 Workingman’s Foursquare-style home built in 1905. Rehabilitating the home has cost another $50,000.
What we unveiled in the process is that there’s a small contingent of other Americans embracing the Cheap Old House subculture— purchasing 100+ year old homes under $150,000 and renovating them, rather than spending $350,000+ on a newer home.
Learning Experience
We planned to be nomadic early in our retirement. When we set out, we soon came to realize that living nomadically for decades is quite rare. After nine months on the road, we observed that nomadic early retirees often purchase or rent a small property to come back to as a place to reset, plan future travel, or even as a place to recuperate after an injury or illness. We’re happy to have a small home base to return to in between travels, and that home base is between our families near the Interstate 70 corridor.
However, we’re still quite different than most Americans. We decided not to have a home be a large part of our net worth. We observed in the last years of our W-2 life that many Americans live “house-rich and life-experience poor.” Having a big home no longer aligned with our values. We’ve decided to “buy utility and rent luxury” at this phase of our lives and unknowingly become part of a Cheap Old House “cult”.
If you’re interested in learning more about cheap old houses, check out this new book on the lifestyle.
Tax Expenses
Taxes in retirement are our most significant expense each year, as it was while we were working. During the last decade of our W-2 careers, we were spending over $100,000 a year on income taxes. In year one of early retirement, we learned a lot about taxes and how to more proactively manage how much tax we pay and when. We still continue to learn about taxes in year three. In a nutshell, we changed our mindset on taxes from a transactional relationship to a strategic mindset.
In year one of early retirement, we were North Carolina residents whose state income tax was around 5%. As semi-nomadic early retirees, we strategically transitioned our domicile to a state with no state income tax. In early retirement, we’ve been able to choose our tax rate each year based on how much we withdraw from accounts. One year we chose to max out the 22% tax bracket with Roth conversions. Now we focus on maxing out the 12% tax bracket keeping our tax bill to about $10,000 per year.
Learning Experience
We no longer think about tax preparation as a transaction in which we simply pay whatever amount it happens to be at the end of the year. We’ve learned that having an accountant who thinks strategically about tax planning is worth hundreds of thousands of dollars in lifetime tax savings.
Instead of managing our taxes each year to save on just this year’s taxes, we make strategic decisions on Roth conversions, our 72(t), pension timing, social security timing, and passive income. We’re optimizing for our lifetime tax bill, not the bill due next April.
Medical Expenses
We entered retirement as many do—departing a sedentary lifestyle for an active retirement. We never had broken bones, lacerations, or significant health events. In year one of early retirement, we focused on losing weight, overall fitness, and getting better sleep.
We had done a lot of reading on health insurance in early retirement, and the overwhelming advice was that health insurance is too expensive, so you should keep working. We also heard that health insurance premiums will rise significantly.
We found, to our surprise, that health insurance premiums were not so scary. In fact, they are about what we paid as our portion of health insurance premiums when employed at a multinational company. In 2021, we were on an ACA Bronze plan, which cost about $200 per month for two people. In 2022, we switched to a Cigna Global Gold International plan (six months overseas/six months in the US), and our premium went to $525 per month per two people. In 2023, we kept the same international plan, and the premium is $575 per month.
In addition to spending a bit more for premiums, we also experienced increased spending towards our deductibles. We intentionally chose plans that have a high deductible so that we can continue to contribute to our HSA plans in early retirement. In our second and third years, we’ve spent about $7000 on various healthcare expenses.
And no, these increases in health expenses are not due to any chronic aging illness. We’re simply more active in early retirement and are spending more money to prevent chronic diseases associated with aging. The treatment plans for injury and preventing diseases for active adults often incur costs in physical therapy or further testing. People living a sedentary and non-traveling lifestyle are often treated with prescription medications. By being active and proactive, our costs increase over the status quo of taking a pill.
Learning Experience
Being an active person in your 40s and 50s can result in having surprise medical expenses due to strains and sprains and taking preventative measures to prevent disease. Since we are using high deductible, HSA-eligible accounts, we plan on having at least $7000 per year in medical expenses due to minor injuries that happen in an active lifestyle and paying for additional tests that will help us improve our healthspan and reduce the likelihood that we will get some diseases.
We’ve learned that healthcare in the United States is focused on treating existing diseases and not on prevention. Healthcare here in the States also focuses on maintaining a lifetime, not healthspan. We see this dramatically while thru-hiking in Europe where people in their seventies and eighties are hiking, biking, and moving livestock to new pastures—being active despite their advanced years. This travel has really opened our eyes to what an active later life can be.
In a nutshell, working toward a healthier lifestyle may cost more than sitting safely inside an office cubicle and a suburban home.
To learn more about increasing your healthspan, we highly recommend this audiobook by Dr. Peter Attia.
Travel Expenses
Travel is a significant portion of our expenses as planned. Much of our travel is slow, meaning we spend more time than the typical 7-10 days that most Americans do. Our trips are generally two to four months at a time, with thru-hiking trips to Europe and monthly rentals in the Caribbean.
As Covid restrictions eased and people began to travel more, we saw many news stories showcasing a significant increase in travel costs. While some locations did increase in price due to inflation, we’ve not noticed a significant cost increase in the places we go.
We do work to be mindful of travel expenses. However, we’re not focusing on credit card hacking or traveling to “cheap” places just to save money. By being mindful of spending while traveling, you too likely can go to where you want when you want by planning ahead.
Learning Experience
“Travel inflation” will vary by season and experience. If you’re trying to rent a car in peak season, rent a hotel in the United States, or go out to eat for all your meals, then yes, travel expenses have increased for you in the past few years.
By traveling in the shoulder season (avoiding summer and holiday travel), we’ve been able to keep on budget. We’ve learned over the years (and in early retirement) not to travel when families travel, as this is the most expensive time. When it’s back to school time in late August, that means back to Europe for savvy travelers.
Moving Expenses
A common assumption in retirement is that a person or couple will stay in the home where they were located for their most recent job, but about 40% of Americans plan to move after quitting their last job.
In year one of early retirement, we moved to Wilmington, North Carolina. In year two, we moved our belongings to North Central Kansas. I’m sure moving twice caused a lot of confusion for friends and family, but we’re now used to being weird people doing unconventional things.
I think a lot of people do want to move in retirement but are afraid to make a mistake in moving to the wrong location for them. Alternatively, a lot of people are nostalgic about thier houses. But we’ve come to learn that nostalgia robs us of the present.
We’re really glad we downsized and moved. And who knows, there could be more moves in our future.
Learning Experience
Don’t view moving more than once in retirement as a failure.
Remember, you are no longer employed. You will not be getting a performance review on this.
Auto Expenses
In year one of early retirement, we budgeted for one automobile every five years at an expense of $40,000 every five years. The assumption was that we would each drive our automobile for 10 years and plan to spend $40,000 every five years to replace one aging vehicle.
After the first year of retirement, we were surprised to learn we could easily get by with one automobile, even though most retired people we know maintain two vehicles. We also learned that renting a vehicle overseas is unnecessary if we travel outside of the US for half the year. Most places we travel have robust train and bus transportation. If we travel to a remote location without a bus or train, we can often rent a car for a month from a local using cash.
Learning Experience
When you’re used to being a two-car household, imagining life as a single-car household can be challenging. But one less vehicle per household can save hundreds of thousands of dollars over a 30 or 50-year retirement.
Also, the American default is to rent a car when traveling. One can often rely on buses and trains when traveling outside the U.S. for a fraction of the cost. We overestimated how much we would spend on automobiles and car rentals in retirement.
Clothing Expenses
In year one of early retirement, we still had a closet full of “work clothes.” Getting rid of work clothes was an important part of downsizing for our storage unit. Since we didn’t have any expensive hobbies that demanded an upscale wardrobe (e.g. no country club memberships, social clubs, or cruises), we found that we didn’t need nice executive or formal clothes anymore.
We did however have an uptick in clothing expenses at year two of retirement. We became passionate about thru-hiking and purchased items for an active, casual lifestyle that included outdoor gear like hiking shoes, backpacks, merino wool shirts, and Kuhl hiking pants.
Learning Experience
That “business wardrobe” you invested in during your working years may become worthless in your new life. Rather than regret those purchases, sell them at a consignment store or donate it all to a college campus career center where they’ll be put to use by people who need those types of clothes now.
If your early retirement includes a wardrobe for horseback riding, biking, hiking, camping, or other active pursuits, account for that new cost and to replace some items as they wear out.
Hobby Expenses
It’s common that hobbies willl take up some of the time that work took up earlier in life. With more free time, your hobby expenses will likely increase, especially in the first few years of retirement.
We found that the largest increase in hobby expense was fixing up our 1000 sq ft small house. We decided to take on almost all the renovation work ourselves mainly because we enjoy the process of renovating a house.
While we’ve spent more on this project in tools than we expected, we are still spending over 50% less on renovation than if we had outsourced it.
Learning Experience
In addition to materials, we spent about $600 on tools for our bathroom remodel. However, we spent 25% of what others spent on similar bathroom remodels. According to Forbes, the average bathroom renovation in the US is between $10,000 and $30,000.
Food Expenses
As our retirement coincided with COVID-19, we stopped going out to eat. We didn't get into the ordering-in food craze. During the pandemic, we focused on making our kitchen the best restaurant in town.
In year two, we saw a lot of buzz on food inflation. We anticipated increasing food costs, but they didn't change much as we mostly cook at home. Our grocery expenses have remained consistent between the first year of early retirement and our third year. We moved to a lower-cost-of-living area in year two, so we’ve been purchasing more fresh vegetables and salads versus frozen items.
We were spoiled with extraordinary dining experiences on travels in year one. As a result, we’d rather spend our dining-out budget overseas. When traveling in the US, we don’t stop at fast food or fast-casual restaurants and prefer to grab a salad or a sandwich from a grocery store. Did we mention we each lost about 40 pounds in early retirement simply by not eating out in the US?
Learning Experience
We still cook at home over 90% of the time in early retirement. When we go out to eat, it’s in Europe or the Caribbean, where the dining costs are much more reasonable and transparent, there’s a focus on food quality, and the dining experience is quieter and less rushed. Our food expenses have remained fairly flat from year one to year three of early retirement.
Upgrade Expenses
Living off a combination of dividends, passive income from websites, and selling stocks and bonds is a little scary initially. We’ve been able to stay in the 4% rule for spending. Even though there was a significant dip in the market in 2021 and 2022, and we no longer had W-2 income, our net worth is still more than when I quit my corporate career in 2020.
We’ve dramatically decreased fixed living expenses by
Moving away from a high-cost-of-living area
No longer having costs associated with maintaining a career identity and commuting
Domiciling in a state without state income tax
Staying within the 4% rule in our withdrawals
Now that we have a couple of years under our belts, we don’t mind upgrading a couple of purchases each year. Some upgrades included purchasing better tile and fixtures for our bathroom, getting a personal trainer for a few months to learn how to build our core strength for backpacking, and buying business-class seat upgrades for overnight flights to Europe.
Learning Experience
Our net worth has changed little over three years of retirement despite not having a regular paycheck. I’ve come to realize that we’ve also got fewer years of healthspan and active travel in front of us as we age. So we are spending more on upgrades to improve our travel experience, like sleeping in private rooms when we thru-hike and paying for business class on overnight flights.
We may spend a little more in our kitchen remodel on higher-quality components as we plan to continue to cook at home in retirement. We’ll still be doing all the remodel work ourselves, including tile installation, electrical, cabinet build, and installation of devices like a range hood and garbage disposal.
In Conclusion
If you were expecting to read about a financial train wreck in early retirement or complaints about rising prices, we hope we disappointed you.
We’ve found that early retirement can have unexpected expenses, but also unexpected savings, and you learn to adjust. These unexpected expenses come up as you reconstruct the map of yourself, the world, and your role in it. You’ll find the confidence you need in the process of recovering your personal authority in your transition to retirement.
In a nutshell, our experience with expenses in the first three years of early retirement has included the following:
We joined two unique subcultures—the Financial Independence Retire Early (FIRE) subculture and the Cheap Old House subculture.
We paid little attention to taxes before early retirement, but now we pay much attention to taxes. We’re strategic, not transactional, in our tax planning. While making quarterly tax payments is startling initially, it becomes routine, and we can control our income variables.
We have relatively flat health insurance premiums but an increase in health care spending in alignment with a new, active lifestyle.
We adapt our travel schedule and plans to avoid as many other travelers as possible.
We moved twice in early retirement. This wasn’t planned, but it didn’t stop us from adapting to new information and executing new plans.
We learned we don’t need two automobiles in early retirement. This significantly cut our expenses.
If your hobbies or clothing needs change significantly in early retirement, expect to spend more in your first few years.
We value high-quality fresh food and don’t hesitate to spend on groceries and a few nice restaurants.
By cutting spending on things we don’t value, we can upgrade on a few things we do, such as travel upgrades, while still sticking to the 4% rule.
