Travel Vs. Goal of Early Retirement, and Why I Pursue Both

Tax filing deadline is almost here, and this is your last chance to fund an IRA for year 2022. While travel is the primary focus of this blog and something I’m passionate about, it’s also important not to ignore the financial side of the equation. I’ve said many times that free travel is an illusion. It certainly can be deeply discounted if you play your cards right, but there are still many hidden costs to consider. There is an opportunity cost of foregoing cash back bonuses, not cashing out your flexible points etc. The bottom line is, you need to be careful not to let your “free” travel ruin you financially.

This is something I personally struggle with. How much is too much for a middle-class family like mine? If you saw what we have spent on travel last year, it looks ostentatious to the point of ridiculous. Yes, despite using miles and points to offset costs. I can’t say I regret any of the things we’ve done, as it was a truly epic travel year.

Nayara Tented Camp in Costa Rica

But it certainly has affected our  financial goals in a negative way. One of those goals is an early retirement for my husband. A few years ago I covered  this plan in detail, so won’t repeat myself here. Lots has happened since then, and the stock market  has really taken a beating. Despite that, I plan to stay the course. I’ve crunched the numbers, so we contribute a certain amount of money each year to my husband’s 401(k) to get us closer to our goal. Since it’s taken out of his paycheck automatically, we don’t really miss it. I don’t look at the balances more than a few times per year, and don’t obsess over market swings. We are in it for the long haul.

One of  the positive changes has been an adjustment to calculating interest rate in regards to 72 (t) rule.  I won’t go into details as it’s beyond the scope of this blog, but the bottom line is that it allows one to withdraw higher $ amounts when retiring before reaching 59 1/2 years of age. This is actually a game changer and may allow my husband to quit his job even earlier than planned. Emphasis on the word “may”.

Our plan may not materialize, and that’s OK. We are living in the present and don’t obsess over the future. That’s why I’m not willing to give up travel for an illusive goal of early retirement. But I admit, sometimes it’s hard to do both.

A roundabout way to take advantage of Saver’s Credit 

Saver’s Credit is a very nice retirement incentive for middle-class families and something I’ve mentioned a few times before. Even if you only qualify for 10% credit (maximum of $400 for a couple), it’s still a nice chunk of change. Plus, if you are contributing to a Traditional IRA, you will save money on taxes. If you are filing jointly with your spouse, your AGI (adjusted gross income) for 2022 can not be higher than $68k. In our case, it was $72k. So, the only way to artificially reduce it was to contribute to a Traditional IRA.

I wasn’t really planning on putting any more money in our retirement accounts. I felt we have already contributed plenty. Plus, we have our Japan trip lurking around the corner, which will cost a small fortune. Not to mention, all of my other travel plans this year. On top of it, last month my husband has decided to build a computer with my son. It was supposed to be their special project, something to bond over, I guess.

The only problem with this plan was the total cost of $4k for parts. What’s wrong with just playing ball in the backyard?! Anyway, my husband really wanted to do it, and I wasn’t about to throw a hissy fit and ruin the whole thing. So, despite the fact that we already have a bunch of perfectly good computers in our house (some vintage, as my husband refers to them), I went ahead and gave him my blessing.

However, at the time we only had access to $4k, just enough to cover the computer parts. We do have other savings, but it’s currently locked into I-Savings bonds, which I can’t get to until May at the earliest. Though I would really want to wait until July in order to lose less money via withdrawal penalty. So, it appeared we only had money for computer parts or extra contribution to an IRA, not both. And I really wanted to do both.

Fortunately, I was recently approved for Amex Blue Cash Preferred Morgan Stanley card and still needed to spend about $2,500 in order to get $400 bonus. I looked at the terms and lo and behold, the offer came with 0% on purchases for one year. That absolutely did not factor into my decision to apply for the card, but I’ve decided to take advantage of it. I simply put the computer parts on the card, with the idea of paying off the balance before the end of this year. Our current savings went towards funding an IRA in order to take advantage of Saver’s Credit. A win-win.

In case you are curious, I put the money into Wellington fund managed by Vanguard, though it’s not an investment advice.

Isn’t it kind of a dangerous strategy?

It certainly can be if you are not disciplined enough. I urge caution when it comes to 0% offers, unless you are absolutely certain that you will be able to pay your balance off before the incentive period runs out. Personally, I rarely take advantage of 0% on new purchases. Life is too unpredictable, and it’s important to live within your means. Some may also consider me insane for draining most of our savings right before a major trip. Normally, I wouldn’t do it, but an IRA is an investment in our future that will hopefully pay dividends. Plus, we got almost $1k refund as a result (10% Saver’s Credit, plus what we have saved on taxes). That money will go towards our Japan trip.

But the key to this rather aggressive spending strategy is the fact that we are otherwise debt-free. We have enough wiggle room in our monthly budget to absorb some potential unexpected costs. To put it simply, aside from occasional splurges, we try to live below our means. We have built a modest house 23 years ago ($64k mortgage) and still live in it. It has been paid off for the last 11 years.

I mostly have hand-me-down furniture and cheap clothes bought in Walmart or Goodwill. I also drive a mini-van that has almost 200k miles on it. We currently don’t have any car payments, and I hope to keep it that way as long as possible. When my kids complain about our ugly scratched-up van, I tell them we can get a new car as long as they are willing to give up our trips to Europe, Asia and Costa Rica. They always choose trips.

Where I do splurge is travel and, well, early retirement planning, I guess. While the former is way more fun and an instant gratification, I struggle to motivate myself when it comes to the latter. Hence, automatic deductions at my husband’s job. Basically, set it and forget it. It is so hard to lock that money in for a foreseeable future when there are so many places I want to explore right now. Plus, let’s face it, there is always a possibility that the stock market may crash like it did in 1929. But since my husband’s health has been steadily going downhill, I have to remind myself that his early retirement is just as important as our family trips. If it means flying in coach rather than paying huge fuel surcharges for ANA first class, so be it. I don’t try to keep up with the Joneses of the miles and points world. That’s a recipe for frustration. I focus on what brings  my family joy, even if it involves a few compromises along the way.

And of course, if my husband wants to occasionally build a computer, he certainly should be able to do it. After all, he goes along with my crazy travel schemes 99% of the time. Speaking of, my son lost interest in the whole computer- building thing pretty quickly. And while my husband was happy with the end result, it took a lot of time and energy. And he is already a super busy guy. He looks at me and goes: “Please don’t let me do this again!” Deal. But at least he got it out of his system.