Finances
This article was written by Kirk and has been published in Escapees Magazine, in 2005 and again in the Jan./Feb., 2010 issue. For information on Escapees RV Club, visit their site.
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Extended Warranties are the subject of heated debate in any gathering of RVers. Most have an opinion, but few understand them. Before you make the decision of what is best for you, it is important to understand what they are and what they do. An extended warranty is not a warranty at all, nor is it a service contract. A warranty is a guarantee of performance by the manufacturer, but even extended warranties sold by the RV dealers are not from the manufacturer. A service contract takes care of day to day maintenance, but extended warranties don’t. They are really health insurance plans for RVs. They are backed by an insurance underwriter. Most plans are run by a company that contracts to administer extended warranties for a fee and if you call, seldom do you speak to an employee of the company who sold the plan or one who works for the underwriter. Extended warranties work like health plans in most respects. Frequently there are two underwriters involved, one to pay small claims and another who pays only for catastrophic illness, or in our case catastrophic failures. Let’s look at how health insurance works. Each member of the plan or policy holder pays into the plan a fixed amount which goes into a big pool. (Keep in mind that some of us have health insurance that is paid mostly by our employer and what we pay is between 10% & 50% of the actual cost of coverage.) From this money all claims are paid and all operating costs and profits must come. Obviously for the company to survive, the average customer must pay significantly more than the amount paid out to him. Why is this ever a good deal? For a healthy person it isn’t, if you only consider cost versus return. We pay for protection against the possibility of a major medical expense. Insurance underwriters call this “spreading risk.” They know that one person in every “X” number of policy holders will have claims that exceed their premiums. Using that average, adding cost of administration and profits, premiums are determined. With an RV we have exactly the same situation. The underwriter knows from studies, the average cost of repairs for each year of life of any RV, adjusted by age (the same as health plans). They calculate what will be paid out per year on average, adjusting for administration expenses and profit margin, to determine price. That price is for a prepaid health policy on the RV. When you look at each RV individually, it will usually cost more for coverage than to pay out of pocket. Prices vary based upon the deductible and by levels of coverage, just as health insurance does. Like health plans, some extended warranties have limits of payment built into their contracts. Health plans with no payment limit cost significantly more, as do extended warranties. Cheap health plans do not pay much of a patient’s needs, and cheap extended warranties limit their risk by increasing the deductible and limiting things paid for. It is a business, nothing more. Many RV buyers, who would never consider getting the cheapest health insurance coverage, buy the cheapest extended warranty and are unhappy when a claim is rejected! It is important to read, and understand the contracts of extended warranties. Recently there have come from the underwriters, contracts that list what is not paid for, called exclusionary policies, and stating that they will pay for all other repairs. The other choice is called inclusionary and lists what will be covered. Understanding is vital. Always insist upon taking a blank contract home to read and study before buying. Don’t sign if you can't study it first. When you shop, compare prices and coverage, and like health plans, consider what the deductible is and what you must do to get repairs covered. As you would with a health plan, learn how they pay for covered repairs. Last, check the company with both the Better Business Bureau and with AM Best or one of the financial rating companies. There are very few plans that are really a scam, but cheap plans must show a profit and to do that they limit payment. Since cost of administration is about the same for all plans, the value per dollar paid tends to be best toward the higher end of the market. It is important to note that they are sold by commissioned sales persons and the ethical standards of the seller are just as important as with a car or an RV. Most non-dealer agents are actually brokers. Better plans cost more and price rises quickly with age of the RV. That is because plans do not pay for repairs covered by manufacturer’s warranty and major repairs become more common with age. Just as insurance companies charge more for older customers, an extended warranty will cost more for an older RV. At some point, most companies will not renew coverage on older RVs. Like any insurance, you can get a lower price with higher deductibles. Deductibles can range from as little as $25 to $1000, or more. Like health plans, some limit where customers can go for service and some have a maximum that they pay in the life of the contract. These are legitimate ways of limiting exposure and lowering cost. It is my observation that most happy customers of extended warranties bought the higher priced contracts, while the majority of unhappy customers have the lower priced ones. There are crooks in the extended warranty business, but most are not. It is true that the companies do pay large commissions to the F&I person at the dealerships, but few would be sold if they didn’t. It is also true that dealers find extended warranties to be very profitable since little expense is involved so return is high. Remember that in order for a company to be around to pay your claim if disaster strikes, they must be healthy and profitable. Should you buy an extended warranty? The answer should be the same for any insurance question. The way businesses determine whether or not to insure assets is to ask, “If we do not insure and the worst happens can our finances survive the cost?” If that answer is yes, they do not buy insurance. This is the way to evaluate an extended warranty. Statistically, you will probably not recover the cost of coverage. Like insurance policies, the purpose is not to save money, but to protect you from financial disaster. For some, the need to replace an engine or transmission would mean that we could no longer afford to travel. If so, you should purchase a quality contract to protect your future. Once you have concluded that you wish to buy an extended warranty on your RV, you need to evaluate the choices and choose which is best for your budget. As you shop, consider the costs associated with your RV. Clearly the financial risk is much higher for motor homes than it is for trailers of any kind, but with a trailer you need to apply that same principle to the tow truck. It may be that the sound choice is to cover only the tow truck, or to keep a larger deductible on one than on the other. A higher deductible has much the same effect as it does on house or car insurance so consider how much cash you keep on hand, making the deductible as high as your budget comfortably allows. For us, we were buying the RV to go on the road fulltime and were retiring early without access to our IRA's or 401K. Replacement of the refrigerator or a transmission would have been a major disaster. We chose to buy a plan covering as much as possible because we had the money at the time of purchase with both still working. Down the road five years was financial speculation so we chose to pay as much as we could up front. For us, an extended warranty from one of the higher priced companies was the answer, allowing us to hit the road knowing that we would not have repairs to worry about. While all repairs were happily paid, we only collected about ½ of the original purchase price in its seven year term. Even so, we feel that we made the correct choice because we slept well knowing that major repairs would have been covered. When our contract expired, we did renew it but with a much higher deductible because our financial future was no longer unknown. Today, we don’t have an extended warranty. Our RV is now 11 years old so the cost to renew would be much higher. We now have cash or accessible resources enough that we could pay for a new engine if need be. We have been on the road long enough that we know what our expenses are and that we have more than enough income to meet our needs. It is no longer a good business decision. When we purchased our previous motor home, we did not buy an extended warranty for it. Since it was three years old the price was much higher, though it had low mileage and little use. When we bought it we were both working and it was not our home. If it broke I could take time getting it repaired and probably do most repairs myself. Even in the worst case, we would not be deprived of our home or our lifestyle. To say that extended warranties are always a bad choice is as foolish as saying that they are always a good one. How many people do you know who have ever saved money by purchasing collision insurance for automobiles? If you add up premiums paid, then deduct your claims, you would probably be shocked to see what a poor return on investment insurance really is. For most people that is true of all insurance. We buy it for protection. The same should be true for an extended warranty. |
This is not an attempt to write a book on how to manage your personal affairs as a full-timer. There have already been quite a few of those written that cover the subject quite well. This is only an attempt to answer the questions as to how we have chosen to do things. We hope that this will be helpful to some of you as an example of some of the possible solutions. Feel free to drop us an This email address is being protected from spambots. You need JavaScript enabled to view it. you wish to ask for more information.
Banking
The need for access to your money as we travel is one of the problems that all full-time Rvers must find a solution to. For us, the answer is found with a brokerage account with Wells Fargo Advisors. Since the deregulation of the banking industry, brokerage firms are allowed to perform certain banking functions. Our account has our cash it and draws interest based upon the rate charged for margin loans in the firm. This one account also holds our IRAs and the bond fund that the funds from the sale of our house are invested in. The advantage of this is that we can check on any of it via the Internet, we can manage all of our assets with one e-mail or toll free call. It is also just a matter of one call to change the investments, move money from one place to another, or to withdraw funds from our account. Additionally, we have a debit card that is issued by the bank that our firm goes through which works just like any other debit card. For cash, we just use "cash back" when making a purchase with our debit card. Most major stores now offer this service. All Wal-Marts do this, as does Home Depot, Lowe's, major grocery stores, and many more. This way we do not have ATM charges for getting cash. It has been about five years since we last had use for an ATM. It is important to select a debit card that has a different number for each user, as that allows you to block one person's care if you have a problem, yet continue to use the card of the other person.
Credit Cards
We do carry two credit cards. We use a Master Card (our debit card is from Visa) and also an American Express card. We prefer the AmEx card as it gives us a 1% rebate on all things that we purchase, each year at the anniversary of our card. The Master Card is from Citi Bank and it is one that also has an annual rebate, but that one varies. At times they have things which are on special for a 5% rebate and also most fuel purchases have that rebate. With the present cost of fuel, 5% can often be as much as 15-20 cents per gallon. American Express is accepted at nearly all food and entertainment businesses but may not be at other types of business. In addition, by keeping two different cards, in the event that we should have any problems, we can block that and use the other. We track all credit card purchases on the computer just was we do our checking/debit card purchases and consider the money gone when the purchase is made. By doing this, we get the benefit of our money staying in our account for an extra month as well as the rebates, but pay no extra costs because we pay the listed balance at every billing date. We use only card with no annual fees and we also select only cards that have a different number for each user. This allows us to track who made all purchases and if a card should be lost, we are able to block it without blocking that care which is carried by the other person.
Paying Bills
We have gone to paying nearly all of our bills via the internet. Be sure that you use only secure sites but nearly all financial sites now have the extra security of site to user encryption. This is very important as it prevents hacking by anyone, including the host Wifi, if you are in an RV park. I do not use any Wifi that is totally without password protection for this type of service because it would be more possible for a hacker to violate it and get your information. We even pay our utilities for the home-base that we purchased Jan. 2011 by the internet. We have all of our insurance and things which are the same amount each month on auto-pay and those which vary we have on electronic statements and we control the payment. With our credit cards, we can go on-line as soon as the bill arrives and set the payment up to happen on the date due. I normally set ours up for the business day just prior to the due day. We still carry a checkbook and use that occasionally. I think that RV parks are the most common place that we now use checks and we typically use fewer than 15 checks per year.
Medicines
For us, this is a vital issue as Pam has asthma and need medication for that and several other issues on a daily basis. We have solved this by having all prescriptions sent to a mail order pharmacy. For one-time prescriptions, we get those at a local pharmacy just as you would if you were living in a site built house. We are now using Medicare, Part D for Pam's prescription coverage and I receive my medications through the VA with a cost of $9/month, for each medication. If you are using Medicare, be very sure that you understand the "donut hole" issue if you have many expensive medications as it can catch you by surprise!
Health Care
We carry a current copy of our medical histories with us in a fireproof box as we travel. There is a summary document with the results of our most recent physicals and tests. We do not carry the entire history any longer as in our first eight years on the road, never once has any doctor that we have seen shown even the slightest interest in it, beyond that most recent part. You do need enough history so that you or your spouse can fill in a detailed medical history when seeing an emergency physician or in an emergency. The detailed records just don't get used. Should the doctor you visit have need for such information, his office will contact your doctor, directly. When we need to see a doctor, we have found the emergency medical services to be excellent to fill our medical needs. We also each carry a list of all medications and dosages which each of us take. We keep each one on our person when out and about with each list having the patient's name at the top so that anyone looking would see which meds are for each of us.
On the occasions that we have sought medical help, the service has been excellent, and we then add the page of medical history that they give to us, to our histories that we carry. We return to Wylie, TX each year for our annual physicals and at that time we give a copy of the new items to our doctor there. For dental care, we have annual checks when in Ft. Worth, and then go to a local dentist for cleanings as we travel. Prior to starting our travels, we took time to make an appointment with our doctor and explained to him what we were going to do. Now that he understands our lifestyle he is very cooperative in prescribing by phone when minor medications are needed. When we had a family emergency and were not able to return to Ft. Worth for our annual physicals when due, he worked with our son's family doctor to get the needed blood work and check-up in order to extend Pam's prescriptions for another six months.
Since going on the road we have changed doctors because we don't often have reason to go to Ft. Worth but we do have children/grandchildren on the far side of the city. We chose doctors who involve the patients in their own care and health decisions. As we are now both on Medicare and are ten years older, we do have more medical needs. Like most who are now looking back at 65, we have had some additional medical needs so we shopped for doctors who would understand our lifestyle and still be interested in us. We also have chosen to stay with the standard Medicare coverage because it has no limits on services or payments when traveling, like some private plans do.
Since the advent of the new federal health bill our company Medicare supplement has been forced out due to what was called "excess coverage" so we are now on a Medigap plan that is federally approved, but fortunately my employer has underwrtten the cost of it. Medicare has a very helpful internet site that you should investigate. I was also fortunate enough to have been approved for my primary medical coverage and drugs by the VA so now get all medications from them. Although I do have a deductible from VA, it is only $15 for a doctor visit and $9/month for each prescription.
Mail service
For our mailing address, as well as our legal address for purposes of residency, we use the Escapees RV Club. The cost of mail forwarding is $85, $105, and $125 dollars, depending upon the level of service required. We chose the middle level, which meets our needs very well. It allows us to have our mail sent out to us once each week, or as needed. If we are traveling, we just call on a toll free line, or send an e-mail to let them know when we want our mail sent out and where to send it. When traveling we usually have it sent to general delivery to a postal office where we will be in a few days. If we are hosting at a park for a period, they will send it out automatically each week to our location, for however long that we wish. They will also accept packages from the delivery services as well as the postal service. If we are looking for a particular important item of mail, we can call and if it is there, we can choose to either have it sent immediately or they will open and read it to us if we wish. The service over the past 10 years has been outstanding!
Since we purchased our home-base in Jan. 2011, we now have a fixed address for some things. We use it for our voter registration and motor vehicle registrations and insurance. When we travel we put a postal forwarding order on our mail address to the Escapees address for the duration of the time that we will be gone. If you have a home base with an addres, such an order is only good for six months and must then be renewed.
Communication
We stay in touch primarily via the Internet and cell phones. In June of 2009 we dropped our portable internet dish from Starband and went with cellular data services from Verizon. This service is also available from AT&T and Sprint. We maintain e-mail addresses via this web site so that, if we change ISP services, we will keep the same e-mail address. We also carry a laptop computer (actually we each have one) which can access internet when wifi is available. We also have two cell phones, to make and receive calls. We have a "One Rate" plan from with no roaming or long distance charges, and roll over of unused minutes. After taxes the actual cost is about $70/month. At some Host Sites we also have a "land line" phone. We have our cellular modem connected to a wireless router so that we can now both be on the internet at the same time. That also allows us to provide service to our neighbor if they have a wireless ready computer, just by supplying them the pass code for our router. We us an "air card" from Verizon for internet.
To improve our communication when in remote areas where cellular signals are weak, we also have an outside antenna installed on the motorhome, a Wilson Repeater/Amplifier, and a flat panel antenna on the inside of the RV. There have been very few locations where this did not allow us cellular service, but it does happen.
Parking
We spend more than half of our time stopped at one location or another, volunteering in a public park, wildlife refuge or historic site in return for our site and utilities. It is very easy to find new places to spend some time as a park volunteer in nearly any location. And as you get experience it becomes even easier to do. Most sites provide a level pad with full hook-ups. Occasionally there is a telephone line to the site, but you usually have to pay the bill. Occasionally, propane is provided. In some parks there is a small stipend for such service, or there may be some extra work available for a small additional pay. We have found that the best source of leads for new locations to be the magazine, "Workamper News." For us, these volunteer positions not only provide a cost free place to stay, but they also fulfill the need to have a place to belong, a feeling of contributing, and we gain an instant social contact with the local community as soon as we arrive. Because of this we find that there is no need to belong to any of the camping associations like "Coast to Coast." We typically spend an occasional night in a parking lot; others parked at the home of friends or at the free locations that are provided by other members of the Escapees RV Club. When we do pay for a site, we first check Passport America (a half price group), the Escapees list of discount parks since they offer a 15%. We have discontinued membership in Good Sam because we rarely use their parks and the cost has continued to rise. We typically pay for a campsite less than 90 nights per year.
How much does it take?
This morning, Sept. 21, 2008 marked the passing of Gaylord Maxwell. It is with great sadness that I add this note to remember one of the greatest writers and supporters of the RV lifestyle of all time. Gaylord was 82 years old. He went from school teacher, to RV Dealer, to RV Magazine Editor and finally to Columnist. He was founder and lead the "Life on Wheels Conference" program.
The following article written by Gaylord Maxwell orginally appeared in Motorhome magazine June 2001 issue. It is reproduced here with permission from the author.
How much income do you need to be a full-timer? Undoubtedly, that is the question I am most frequently asked regarding living on the road. Younger people, particularly, are concerned about what kind of economic goals they should set to prepare for their future. Folks who are around retirement age are concerned about whether or not the fixed income that they have will be sufficient to maintain an acceptable standard of living. Obviously, these are legitimate concerns that must be addressed by every person who is considering taking to the road full-time.
So, how much does full-timing cost? My glib answer is: Whatever you've got. There is no specific amount that can be pinpointed as the right amount for full-timing or, for that matter, any mode of living. It's just fact of life that people live pretty much according to what their incomes will permit in terms of houses, vehicles and leisure-time activities..
People will do very much the same in the RV lifestyle as they did in "normal" life. The wealthier will have more expensive motorhomes, stay in fancier parks and indulge themselves in the way they live, while the poorer will have smaller, cheaper rigs, stay in less expensive parks and pinch pennies. Obviously, people who had high incomes during their working years will require more retirement income then people whose earnings were more modest. Both, however, will probably do well as full-timers because they will make what they do, where they go and what they spend fit their pocketbooks.
And it is a fact that, regardless of income, much of what people enjoy most about the full-time lifestyle does not depend on how much money you have. The reality is that the sun shines at exactly the same temperature on a poor fellow as it does on a rich fellow. Yellowstone National Park's famous views cannot be enjoyed any more by a rich man than they can by a poor man. The feeling of freedon that is enjoyed by most full-timers is no more intense for wealthy people than it is for those with less money. In short, full-timing is not a lifestyle that requires a definite amount of income for all participants. However, each individual who is preparing for it should have some definite ideas about how he expects to live and what the costs would be to support that plan.
Let's look at some economic realities that pertain to everyone who expects to be a full-timer. Above all, we should be aware of changing economic realities. About a dozen years ago, I did a study of full-timers' incomes to prepare for a seminar on full-timing. My figures showed that at that time the median income of those I surveyed was about $1500 a month. Many of today's retirees or near-retirees have incomes exceeding $5000 per month. I haven't seen any professional studies on this, but I would be willing to bet that the median income for recent full-timers has moved up to almost double what it was 12 years ago.
Whether or not those figures correspond favorable with those of the average retiree in all lifestyles, I don't know. But I'm sure that the recent influx of "boomers" has pushed the retirement-income median upward, and it quite likely will continue to go up. My point is that many of today's retirees have greater expectations for their retirement years than many of us in the previous generation, so they will need more income to live successfully as full-timers.
Add to the greater expectations factor the reality of increases in many costs associated with RVing. Motorhome prices, for example, have increased primarily because of two factors: diesel engines and more bells and whistles. Then there's the price of fuel, which has gone off the wall, and heaven knows where it will be next year. Campground fees are higher, partly due to the demand for more amenities and partly due to the higher operating costs that are being passed on to customers. Rising utility prices will undoubtedly drive prices up even further. (Utility costs affect homeowners even more.)
I suspect that a study of full-timers' incomes today would show that the median monthly income is in the $2,000-$2,500 range. I also suspect that in five years it will be $500 higher. That isn't to say that your income goal should by $3,000 per month for full-timing as of 2006, but that's quite likely where the median figure will by. However, even if it is that high, remember that one-half of all the folks on the road full-time will be making less - many much less - then that, and they will be all getting by just fine.
Despite the higher incomes of today's full-timers and the rising costs of some of the expenses associated with RVing, my original response to the question of how much full-timing will cost is still essentially the same: whatever you have.