Do you want to retire early with kids? I'm sorry, but it is nearly an impossible task. As a father of two children now, I look back and feel like retiring early without kids was a walk in the park in comparison. Retiring early with kids is at least three times harder than retiring without kids.
I've been writing about retiring early since 2009 (FIRE movement). It was hard enough for just my wife and I to retire early without kids. But retiring early with kids is a whole other level of difficulty.
Retiring early with kids has become especially difficult due to rapid inflation in education and healthcare costs. Further, interest rates came way down during the pandemic and a bear market hit in 2022. As a result, took a lot more capital to generate the same amount of risk-adjusted income. Now, interest rates are high, which means borrowing costs to buy and afford a home and other items is more costly.
Everybody can retire when their investment income is enough to cover their basic living expenses. Passive income is the key to making this happen. But when it comes to retiring early (before 60), there are different levels of difficulty.
Five years after I retired early in 2012, we had our first child. When our daughter was born in 2019, I declared that I failed at early retirement. The reason? I wanted to boost our net worth and earn even more passive income to take care of my growing family.
Easiest Way To Retire Early With Kids
The easiest way to retire early with kids is to have a working spouse. It sounds kind of funny. But if you have a working spouse, you have the option of staying at home to raise the kids.
But as any parent will attest, being a stay-at-home parent is one of the toughest jobs in the world! It's much harder than working 60+ hours a week in banking or in law. One look away could mean injury or disaster for your child. It's only after about age 5 when you can slowly start resting easier around your children as you are no longer afraid they'll hurt themselves.
Read, How To Convince Your Spouse To Work Longer So You Can Retire Earlier, to learn the secrets from several early retirees I interviewed who used this strategy.
Another Way To Retire Early With Kids
Another easy way to retire early with kids is to be willing to live in or near poverty in retirement.
Ironically, being willing to live like a monk is also one of the hardest ways to stay retired. You might start asking what's the point of retiring early if you can't live it up with your free time. Your kids also won't be able to experience every opportunity possible.
A much harder early retirement to achieve is one that maintains the same standard of living in retirement which you had while working. Without some budget sacrifices, this route to early retirement is difficult.
Nowadays, simple math suggest that it's hard to accumulate enough capital to sustain a middle-class lifestyle. Yet, just like proponents of the Roth IRA, there are plenty of misguided people who think their investment income will be higher than their average working income.
Once you have children, you suddenly realize that retiring early without children is like going for a walk in the park. It seems so easy, you wonder why more people don't get on board!
Let's take a look at the subjective and objective reasons why retiring early with children is nearly impossible. Then we can discuss some potential solutions.
Why It's So Hard To Retire Early With Kids
Besides the extra costs for raising children, the main reason why it's so hard to retire early with children is due to them sucking up all your remaining time and energy outside of work. It is exhausting raising kids because, for the first five years, they demand 100% of your attention when you are with them.
Losing money is one thing, but losing a lot of time and freedom is another. Time is more valuable than money.
Every early retiree with kids I know spent hours outside of their day jobs finding ways to make more money to save and invest more.
Examples of what they've done to earn supplemental retirement income include:
- Starting a blog
- Creating online products
- Driving for Uber and Lyft
- Coaching youth sports
- Pet sitting
- Consulting / freelancing
- Buying rental properties and managing them
- Actively managing an investment portfolio
- Going to business school part-time
I used to spend ~25 hours a week outside of full-time work writing on Financial Samurai. If I'd had adolescent children then, there is no way I'd have spent more than 5 hours a week writing. Being away from my kid for 50 – 60 hours a week would have made me feel even more guilty to work any longer at home.
Therefore, I would probably have devoted 70% of my time outside full-time work to my kids and wife, 20% with friends and playing sports, and the remaining 10% to Financial Samurai or personal naptime!
Even though not having children while I was working is one of my top retirement regrets, having children while working would have probably delayed my retirement by at least 10 years, if not 20 years. Having a goal to work until my kid graduates college would have definitely been a consideration.
It's Also Hard To Stay Retired Once Kids Come
The other reason why it's so hard to retire early with kids is that costs keep on going up. I've had used cars for a long time so I was shocked to see how expensive cars are today let alone groceries, healthcare, and tuition.
After we had a kid, our already onerous $1,620/month healthcare premiums jumped to $1,800/month after our son was born. In 2025, our healthcare premiums are over $2,400/month. We're talking almost $29,000 a year in healthcare premiums alone. This does not include our deductibles and co-pays. Each year our healthcare premiums continue to go up by at least another $75-150/month.
We could try and limit our household income to less than 400% of the Federal Poverty Limit ($83,000 for household of three) to get healthcare subsidies, but then we wouldn't have enough to comfortably live on. Besides, we would feel bad getting subsidies from the government when the purpose of the Affordable Care Act is to help those who are financially struggling.
In addition to higher healthcare premiums, we frequently have to pay for shoes, clothes, school and art supplies, toys, occasional babysitting help to keep our sanity, and school tuition. It all adds up.
Private Or Public School
We thought long and hard about sending our kids to public versus private grade school. The costs of private in high-income metros like San Francisco are pretty extreme, ranging from $30,000 – $50,000. The main problem with the SF public school system is that it is based on a lottery system for social engineering purposes.
Even if you pay $30,000 a year in SF property taxes, your child has no guarantee of getting into your neighborhood public school. You could end up with your 15th choice and have to drive 25 minutes across town.
Sure, to save money, we could say goodbye to our friends and network, move to a lower-cost area of the country, and start a new life in the heartland of America. But to move just to save on costs seems simplistic. We are also very invested in the SF Bay Area due to our property portfolio.
If there are good public schools in your area, the difference in cost can be enormous over the course of elementary through high school. The savings of going to public school vs private can literally reach $1 million depending on where you live.
Taking Action To Pay For My Kids' Education
As a result, I made some changes. Starting in 2018, I decided to become more entrepreneurial online to generate more income. The choice to enroll in a private language immersion school means we need to build our passive income.
Then once the pandemic hit in 2020, I decided to focus more on generating revenue on this site. I've used the pandemic to generate a lot more wealth and income. Alas, I'm burning out and plan to re-retire again under the Biden administration.
We ultimately started sending our son to a language immersion preschool in Fall 2021. The school lasts until the 8th grade. If he loves it, we'll keep him there. If not, we'll find another school.
With college estimated to cost $750,000 for four years starting in 2035, I'm considering giving up on early retirement and going back to work! Not only does it sound prudent to make more money now while both kids are school, work also gives me something to do.
Retiring Early With A Family On $200,000 A Year
Now let me share with you a realistic budget on how quickly $200,000 a year in investment income goes for a family of three. Please note that investment income is mostly taxed lower than earned income. In other words, you would need to earn 5 – 10% more in W2 wage income to match investment income.
As you can see from the budget, this family of three is only left with about $1,432 a year in cash flow. Although I've budgeted $3,000 a year for miscellaneous costs, emergencies happen all the time. I have no doubt this family will regularly have to dip into their principal if they have no other income sources.
If you want to retire early, FIRE before having kids. Then have them and enjoy a lot of time with them!
Retiring Early With Kids Requires A Lot Of Capital
A $650,000 mortgage sounds like a lot of debt to still carry as early retirees. However, their home is valued at $1.5 million for a loan-to-value ratio of only 43%. They have a 3.5% 30-year fixed mortgage which they are paying down extra principal each month.
If they hadn't bought a home back in 2005 for $930,000, they probably would still be renting and not building any home equity either. Owning your primary residence to eventually pay it off is generally a good idea.
Some may say the food budget of $1,800 a month for three is unreasonable. But we're talking spending $60 a day for three on breakfast, lunch, and dinner. That's $20 a day per person. It's hard to get a lunch for under $10 nowadays. Therefore, this family regularly eats in.
Sure, they could reduce their $9,600 annual vacation budget. But flying to Hawaii during nonpeak season will cost $1,650. Then lodging at $300/night will cost another $2,100 for a week. Then, of course, there is food and entertainment. A week in Hawaii for three could easily cost $5,000 – $6,000.
Although this early retirement couple could cut expenses by $5,000 – $10,000 a year and still be OK, there's one expected cost they can't cut. The cost of another child!
Having a second child will ruin this $200,000 a year retirement income-earning couple's budget. For one, they might need to buy a bigger house. They also might need to buy a newer, bigger, and safer car given even more is at stake when driving. Then, of course, there are all the monthly costs that go into raising a child, including childcare and preschool.
The only practical solutions to this financial quandary are to either not have a second child or not retire early.
Related: Why $5 Million Is Barely Enough To Retire Early With A Family
The Amount Of Money Needed To Retire Early With Kids
OK, despite the detailed budget, some of you still don't think $200,000 in investment income is necessary to raise one or two children in early retirement. Let's cut the investment income down to $100,000.
Based on various returns or withdrawal rates, here's how much capital you would need to generate $200,000 / $100,000 a year in investment income:
- At 1.5%: $13,333,333 / $6,666,666
- At 2%: $10,000,000 / $5,000,000
- At 3%: $6,666,666 / $3,333,333
- At 4%: $5,000,000 / $2,500,000
- At 5%: $4,000,000 / $2,000,000
- At 6%: $3,333,333 / $1,666,666
- At 7%: $2,857,142 / $1,428,571
- At 8%: $2,500,000 / $1,250,000
With the median net worth for Americans under $100,000, coming up with 13X – 135X the median net worth in order to retire early is not very realistic. Be realistic folks.
If you are retired, you likely have a much more conservative portfolio. Therefore, you've probably constructed a more conservative portfolio that might only generate closer to 4% or 5% a year, if you're lucky. Therefore, you would probably need closer to $2,000,000 – $5,000,000 in order to retire early with kids in America.
During bull markets, people tend to forget that stocks, bonds, and other risk-assets sometimes decline in value. It's prudent to lower your safe withdrawal rate in retirement.
How To Retire Early With Kids
Now that I've deflated your spirits, here are the only solutions I can think of if you still want to have your cake and eat it too:
- Make sure you pay yourself first, no matter what. Don't let your desire to provide the best of everything for your kids blow up your path to early retirement.
- Relocate to a lower cost of living area. Instead of living in a city where the median-priced home is over $1,000,000, relocate to one of the hundreds of great cities where the median home price is closer to the national median of $250,000. Before you relocate, it's best to take a visit first to see if you will feel comfortable and included. Relocating will be harder for some.
- Consider joining the military, foreign service, law enforcement, or any organization that provides a pension. If you join between 18 – 22, you can retire as early as 38 – 42 with a pension. Even if you work for 10 more years to get a bigger pension, you can still retire much earlier than 60.
- Send your kids to public grade school only. Unless your kid has a scholarship or you are rich (income at least 5X – 10X the annual cost of annual tuition), private school tuition is a huge financial drag. The amount you could spend on your kid once they're in private school is endless. You will forever be pressured by other parents and the school to spend and donate more.
- Make yourself feel better about not sending your kids to private school by selectively reading perspectives from parents who sent their kids to private school and regretted their decisions. Then read up about all the great Americans who went to public school and did just fine.
- Encourage your kids to help around the house more to not only save money but to also build their character as well. Making kids consistently work for what they think they deserve is one of the greatest life lessons. Also be sure to teach your kids the fundamentals of personal finance.
- Swallow your pride and start accepting healthcare subsidies intended for the financially struggling. To do so, you may have to rejigger your portfolio to produce less income and focus more on capital appreciation. To make yourself feel better about taking, look into all the ways other Americans have succeeded by taking advantage of the system. Also, tell yourself that you've already paid into the system while working.
- Accumulate generational wealth, which equals at least $5 million, if not $10+ million, depending on where you live.
More Tips On How To Retire Early With Kids
- Keep the fact that you're taking healthcare subsidies from the government a secret from your children. Otherwise, your children might grow up entitled and spoiled and decide to have you subsidize them as adults.
- Negotiate a severance. Given pensions are rare for early retirees, it's only logical to try and negotiate your own pension through a severance. There is no downside to trying given you plan on leaving anyway. Without my severance, I probably would have worked for at least five more years.
- If you're feeling the financial strains of early retirement, make your spouse go back to work. Even though having one working spouse and one stay at home parent is not considered being early retired, sometimes it's worth being selfish and delusional for your own sanity. Having a working spouse will solve the healthcare expense. A working spouse can also greatly reduce the amount of capital needed to produce early retirement income.
- If you don't wish to fool yourself into thinking you're retired while your spouse works, then take on some part-time work to supplement your income. I've found that working 20 hours a week is the optimal amount of time for intellectual stimulation. Earning an active income is rewarding if you can do so in moderation and with autonomy.
Don't Feel Like You Have To Retire Early ASAP
Although life is short, life is also very long. Don't feel like you have to retire early with kids just because you saw someone else retire early with kids. You're suffering from the classic “new car in your neighbor's driveway” envy syndrome.
Each year you delay retirement is one less year you have to pay for retirement and one more year you get to save for retirement.
Before negotiating a severance, consider taking it easier at your job for one year to see how things go. Take all your vacation days. Utilize the full hour for lunch. Get back to your boss a little later than normal. Leave right at 5 pm.
By grinding less hard, you just might start enjoying work more! Further, each additional year you work will add to your potential severance check when you finally walk away.
Having kids is worthwhile. But they will put a tremendous strain on your finances. Make sure you put your oxygen mask on first. My whole point of retiring early is to spend more time with my children. But man, it's been tough to stay retired given all the costs and responsibilities that come with being a dad!
If You Want To Retire Early With Kids
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Retiring early with kids is nearly possible, but it can be done with enough planning. And if you really want to retire early with kids, you may need to shoot for $10 million or more thanks to inflation!
This post contains references to products and services from one or more of our advertisers. When you click links on our site, we may earn a commission at no additional cost to you. Fundrise is also a sponsor of Financial Samurai and Financial Samurai is an investor in Fundrise. Thanks for your readership and support.
Build More Passive Income!
Finally, if you want to retire early with kids, you must focus on building as much passive income as possible. Our plan is to try to consistently generate $300,000 a year in passive income to provide for our two kids.
One of the ways we are doing so post-pandemic is by investing in real estate crowdfunding. Real estate should benefit investors as we enter an inflationary environment. Inflation acts as a tailwind for real estate values and whittles down the real cost of debt.
Real estate currently generates roughly $150,000 of our estimated $300,000 a year in passive income. My favorite real estate crowdfunding platform is Fundrise, the creator of the diversified private real estate funds. The platform invests primarily in the Sunbelt region where valuations are lower and yields are higher.
My other favorite platform is CrowdStreet. CrowdStreet focuses on individual deals in 18-hour cities. 18-hour cities tend to have faster growth rates, lower valuations, and higher yields than 24-hour cities. CrowdStreet has an incredible pipeline of offerings and occasionally offers speciality funds as well.
I've personally invested $953,000 in a real estate crowdfunding fund to earn passive income and diversify my holdings. Real estate and real estate crowdfunding account for the majority of our retirement income.
With commercial real estate prices declining almost as much as they did during the 2008 global financial crisis, I'm actively dollar-cost averaging now. Both Fundrise and CrowdStreet are long-time Financial Samurai sponsors and Financial Samurai is currently an investor in Fundrise.
How To Retire Early With Kids is a Financial Samurai original post. For more nuanced personal finance content, join 60,000+ others and sign up for the free Financial Samurai newsletter. Financial Samurai is one of the largest independently-owned personal finance sites that started in 2009.
between what their business appears to be worth on paper and the price they would actually like for the business. Now i know that sounds a little arbitrary, but this
I attended a good private preschool. As a result I sat in kindergarten bored out of my mind. The rest of school wasn’t much better. In grade school I had one teacher who let us self-pace and I completed the work for nine weeks in less than two weeks. Spend the remainder of the time reading, best year ever!
There needs to be online self-paced learning for kids who work well under these circumstances. It also needs to skip the endless monotony of repetition unless it is needed. I could have easily graduated high school by 12. A few students in each class year may flourish in this environment or may find it works for specific classes and it lowers the classroom size as an immediate affect.
From what I understand there are some home schools with online content which allows self-pacing. I don’t know how much of the needless repetition is involved or if they allow skipping of grades but they should. I recall at least 80% of what classroom time was spent on was review and repetition. Kids who don’t need this find it incredibly boring. I used to sneak books in and read while the teacher did the boring reviews. If I were caught I offered to stop doing it if I scored lower than an A on a test. At a certain point I stopped doing any homework unless it meant failing a class. The first day I’d always ask (if not told) how much of the grade was weighed on homework versus tests. Not everyone needs to do the homework (pointless repetition if you already know the topic).
It is ridiculously short sighted to assume one’s age dictates their ability to learn. And it is just as ridiculous to assume just because a child isn’t conventionally smart that they need remedial assistance on everything. It may be a different learning style or disinterest in the topic.
At 6 I made the decision to not have kids because I didn’t want to impose this same crap on an innocent human being.
May I ask what you ended up doing with your life after HS?
Being able to graduate by 12 is incredible!
Thx
My solution was to homeschool my own kids to avoid exactly this. I was bored out of my mind in public school. Now I have 9 kids and have homeschooled them. They progress at their own speed and it is really fun to be their mom and see them learn different things.
My three boys are blowing up my budget.
So hard to say no to out of school activities that they love and are available for them.
We want the best for them, to excel, and don’t want them left behind.
Currently, I find myself saying that these next 10-15 years my kids experiences are the higher priority, over retiring early.
I would agree. It’s hard for a parent to deprive their kids of every opportunity, if they can afford it. Therefore, we tend to spend and push back our retirement savings. It is only logical.
Make it count when it counts the most. We only have a limited time with our kids!
As somebody originally from a state where pre-school is free for all children, that $30k line item seems obscene. But now we live in Seattle and have to deal with it. Not sure the higher pay is really worth it.
Great article. I started saving for my kids college 529 plan before they were born. They were born around the depths of the Great Recession. Although nerve racking to have two more mouths to feed while seeing my net worth cut if half, I was done saving for their 529 in 8 years due the subsequent bull market. I have enough money for one kid to go to a public school and the other for private school. Sometimes in life you just have to pick your favorite. Haha.
I “retired” 6 years ago with a working spouse, so that works out great. My wife has to work until she’s 80, but I’m set. If she leaves me, I’m totally asking for alimony and child support; maybe then I could hire a kid chauffeur and homework tutor instead of working for free like an idiot. In the mean time, my retirement hobby of investing has grown our net worth faster than we ever did when I was on the corporate payroll.
I know most retirees use a fairly conservative rate of return (4%) because they want to make sure their nest egg lasts a life time. I’m a relatively young retiree with an even longer retirement to fund, but I have a very different attitude. I shoot for returns of 8% to 10% (in recent years, I’ve gotten double digits). I want to maximize my long-term returns and can bear the short-term volatility. I am willing to adjust my lifestyle as needed and even return to work in some capacity. Heck, I wasn’t supposed to retire this early anyway, so this is all a windfall.
Our living expenses per month in bay area was $4K/month, that was as recent as 2010 and when our kid was 7 years old. At 2019, our monthly expense is now $14K/month, a $10K per month increase. The breakdown looks like:
– $3K/month: education, even our kid goes to public school, we still pay for the tutors, extra donations, club sports, etc..
– $2K/month: travel peak seasons vs non-peak.
– $2K/month: food – teenagers eat like horse
– $2K/month: clothing, gas (driving kids to all the after-school programs, etc..)
Hey All, I’m a big fan, Sam. Thanks! I’ve raised my children while becoming FI through real estate flips but mainly through rehabbing undervalued homes in good areas and keeping as rentals. We did ok until college. Then the expenses of cars, insurance, health care for an unexpected autoimmune disease in one of our kids, and money spent on supporting young adult’s dreams are so much that it’s too stressful watching savings dwindle. My husband is going back to grad school to become a school counselor and I am going back to work as well. I am really proud of the fact that both of us got to spend a lot of time with our kids while they needed us developmentally. Now that they are both in college, it’s ok to go back to work or school at 53. We will be so bored when they leave that we needed to find other things to do with our lives. I’ve seen too many retired 70 and 80 people whose health and mind begin to slide after retiring and I don’t want to be one of them. We homeschooled our kids starting when they were born after reading Llewellyn’s “Teenage Liberation Handbook”. What a great ride! Both of our kids had phenomenal success in areas of interest and we got to spend so much time together and traveled the US and some of the world together. It’s bittersweet feeling now that it is over. Everything I have ever read about attaining happiness talks about the importance of meaning. Raising kids has been so meaningful to me and my husband. Now our kids go to a private university but we picked the city and bought a house there so our kids can live at home until they graduate. This saves us a lot of money. Sam’s numbers are a reality check for me bc sometimes I can’t believe how much we spend. So we did it! It was fabulous! Money was always a stress but somehow we did it. Now we are going back to work (or get more schooling then go back) and hope to work until we can help raise grandchildren or care to travel more . I hope to make enough to buy more rentals and have enough for both our children so when they raise kids they can at least have one stay at home parent —and have more to help the child is work becomes an issue bc of the autoimmune disease. Damn that disease. But what a great life we have had. We have been truly blessed . We worked at our rental house business with kids in tow so they learned quite a bit alongside. Again so worth it!!!!
My wife and I are 42 y/o and have 7 kids. We have been a single income family for the past 12 years which has been great for the kids. Current net worth is ~2.5mil. I have been able to consistently increase my earnings year over year and have always been a good saver but I have been a horrible investor. No real estate (been renting for 12 years while living overseas) and probably close to sub 2% total return on investment over the years – I had a negative net worth in 2010 after my portfolio blew up. Ever since then I have been overly pessimistic about the markets (overly hedged against down turns/ corrections) and gun shy about jumping back in (way too much cash earning ~2% in money markets). My goal is to figure out how to make the money we have managed to save work for us with limited risk (would like to target a 5-6% annual yield) and retire by the time my youngest goes to college in ~12 years or so. I am trying to patiently wait for a better entry point as I believe most valuations are too rich. My target is to get to 5-6mil, and then reduce risk (building out a portfolio that yields ~4%) in order to draw 3-4% annually while the portfolio still grows modestly over time for my kids and grandkids some day.
I would agree with some of the other commenters that having kids, especially a lot of kids is a huge motivator to trying to reach FIRE. Without that responsibility/pressure, I would probably be underperforming in a stagnant career. I have learned a lot about time management and prioritization from my large family. I would not trade it for anything.
Omg thats a mountain of money!
I m not sure if we are FI for you, but we dont actually have a ‘job’ and I m a fulltime at home mom for our three kids (11,10 and 4 y). Our kids are all three special need, so thats why we decided it was best to stay at home and not have a job to commute to. We have built up an income out of investment property and a few airbnb holiday homes. Here in our country in Europe property prices are ok and social security is awsome! School is very high quality in our country and its (almost) free.
I m sure not everyone would manage that but I just wanted to show its maybe easier to retire with kids when you live in some European countries.
I m very proud of us, for me, we re FI.
All people we know just go to work every day and they come home tired. We are the only ones with more than one property and our own airbnb business. I guess, when you really want something (we have wanted to be FI for years), and you have kids, you get inventive and eventually you will find a way that works for you.
Very thought provoking. I would love to see a poll on how many kids your readers have on average. I am probably on the frugal end of your readers, 5 kids on less than $100k in the midwest. Still, it’s not so hard as we started at around 40k with 2 kids. I’m not sure we would make it on the coast with me staying home to raise kids but it is an intentional decision and we are willing to make the sacrifices and it is a lot of fun, too! We are working at savings but won’t really be able to supercharge it until my youngest goes to preschool or kindergarten and I head back to work. We definetely haven’t mustered the energy up for any side hussles besides home improvement projects but hope to have a vacation rental in a few years. Thanks for all the motivation!
Sure. I have a 1,300+ person poll at the end of this article: Trophy Kids, Trophy Husbands, and Trophy Wives
The trying to retire early part is the killer, due to the amount of capital necessary to generate income. The raising children while working part is much easier, although not easy by any means.
No you guys are wrong. Yes it is hard to retire when you spend a lot of money and you don’t have it. But, that is thinking inside the box.
The world of opportunities are open to you but you got to look for them. Let me give you a picture so you understand my background.
My parents did not work or have any income. Basically their income was zero. They had no savings. They did not have a checking or saving account, or money under the mattress. We did not have a phone. We did not own a car or have a drivers license. We never ate steak or in a restaurant. There were two children. My brother and I; so we were a family of four.
We survived.
I started working when I was 10. Did good in school and got a free ride to a city college. I worked full time and went to school full time. Yes, it was hard, but I did not know better. My brother and I contributed to the family income which was very little. I borrow money from my grandfather now and then to buy groceries or pay the rent, which was always months behind.
We lived a good life because we did not know what it was to live rich.
We never got presents at Christmas time. Our clothes were hand me downs.
We ate peanut butter and jelly and drank plenty of milk. We were able to get old bread and food from the groceries for almost nothing or nothing. Our diet consists of the same food everyday.
My brother grew up and got a city job. He retired rich, with a six figure income and several million in stocks.
I became an engineer and made very good money. I have gone thru three marriages making my x-wives very rich.
My brother told me when I was divorcing my second wife and I gave her 1.5 million as a settlement, that if you need to you can get a used, beat up station waggon and live in it. You might have to move to a warmer climate. He is right and you are wrong.
Why didn’t your parents work?
What was your reason for getting divorced so many times?
Based on the criteria set out above, I’m not sure if I really retired early or not. But I did retire from the corporate world the week of my 54th birthday.
We have 4 kids, 3 count as “adolescent” according to the WHO definition (10-19); 2 are in college, 2 in high school (freshman, senior).
The reason I’m not sure I qualify as really early retired is my wife is several years younger than me and wants to keep working her corporate job for at least a few years, maybe 5, mainly to increase her eventual pension amount.
But we don’t really need her income. The average annual return of the deferred compensation I’ll get over the next decade, combined with passive/dividend income, will be more than double her annual income, and more than we need.
I’ve also started doing a bit of consulting, 8-10 hours a week. If that doesn’t dry up (although it may), it would also amount to double her annual income.
I guess I’m in a bit of an odd situation due to the long deferred comp payout, which for the most part is what we’ll be using for the next while.
Once that is gone I’ll be 64 and we’ll need to decide to what extent we want to start engaging withdrawals from after-tax, 401(k), and the old Roth accounts from before we income phased out (I’ve never done back-door Roths as some mention above). I’ll be continuing to invest extra income along the way and hopefully have significantly more passive income by then.
The biggest luxuries or financial freedom we have compared to the test case budget Sam set out above is that by being an “older early retiree” there are no $30K child care costs (maybe swapped for college costs, but we’ve been 529 budgeting these over the years), no mortgage with the house paid off several years early in a lower COL area (Southeastern US), and a much lower property tax (under $4K for a 4350 sq.ft. 5/4 house Zillow says is worth about $500K).
Also, even when the college kids were home for the summer, our food costs, including restaurants, are generally less than $800 a month, except for a month including a spring- or fall-break vacation week, when we eat out much more often and at generally more expensive restaurants.
We did usually average more than $9600 (closer to $12K) a year for the 2 “bigger” vacation (fall/spring break), mainly because we were renting large houses; that cost has dropped last year and this year because college vs. HS breaks don’t coincide, so with 4 of us on vacation the housing costs are starting to drop and we should be closer to $9K, or under. We also take a driving tour vacation for a week in the summer to visit family in other states but those costs are negligible.
Very good article. Our expenses are higher, primarily due to private school and a lot of travel. I struggle with sending our child to a private school but the wife takes the other side. We have good public schools in the area so that money could be going into retirement savings. Fortunately, we are blessed with good savings and jobs. We have considered FIRE so maybe that will be the catalyst to drop the private school.
To send your kids to private school while there are good public schools in your area must be a tough decision. I guess it depends on the cost as well since some private schools are only about $10,000 a year versus $35,000 and up.
I would send my boy to public school hands-down if we could get in to a good one.
One big thing though is that having kids motivates the hell out of you to go become retired!
I can’t imagine FIRE without kids. I would entertain myself for sure but I love spending time with my kids so it makes a few extra sacrifices worth it :)
I also thought retiring early was quite achievable…before I had kids. Now that I have them (and just one at that, can’t imagine how much harder it would be w/ 2-3), I’m realizing how much more you have to accumulate to retire early w/ a kid.
It’s not just the extra spend you incur on the kid. It’s also the fact that that spend will not be able to grow and compound over the years like investments will – once it’s spent, it’s gone. Since most people will have kids in their 20s and early 30s, but will live to their 70s and 80s, that’s a long time to not be compounding due to 2 decades of child expense “drag” every year during your young years.
I also think moving to a lower cost area isn’t entirely straightforward. Expenses do decline, but incomes also decline (though depending on your industry the two may not decline at the same rate, so you could still end up ahead if you are in a good industry). Yet something feels not right about having to uproot your life, solely bc of financial considerations, to move to a place you don’t necessarily even want to be when it comes to lifestyle.
That makes things like geo-arbitrage where you earn at HCOL rates but spend all the more important (but rare).
Andrew – We had our second last year and it’s exponentially harder on every level. $50K per year in child care expenses, no free time ever, broken sleep virtually every night, etc. I no longer am even considering early retirement because going to work is so much easier than being a 24 hour parent.
Sam mentioned how impossibly easy it looks now to early retire without kids and I agree and think about this often. Without kids, we could easily live in an affordable modest house in a great small to mid sized city and have no mortgage. We’d have so much free time and money we wouldn’t know what to do with it.
Ed, thanks for sharing this perspective. My wife and I have debated about having a 2nd kid. Two questions for you:
1. Given what you know now, would you have stuck with just 1 kid? Or potentially even no kids?
2. Even with 2, once the hardest first 7-8 years are over, wouldn’t things get a lot better? Expenses, education, etc, may still be challenging for sure, but at least free time, sleep, etc, should be more forgiving? Or is that not how you see it.
I discovered this website a couple of months ago and have become a huge fan and have probably read almost every old article now!
We have 3 kids now (9, 6 and 2) and I would definitely recommend having a 2nd child if your wife is healthy enough for it. Children are such a blessing, even though they are expensive, and we couldn’t imagine having only 1 or even 2 kids now.
I originally wanted 2 kids, then I was torn after 1 because I didn’t want to split our love between 2 kids, but it was one of the best decisions we ever made. Having a 3rd was a no brainer.
I also think having multiple kids is better for the kids themselves in some ways- they can play with each other and teach each other things instead of you having to occupy them all the time. This helps the parents too in some cases.
Once the kids are older you stay busy with activities, sports, helping with homework etc, but in the end you hopefully view your kids as the most important thing in your life and stay extra motivated to work hard and save lots of money.
My 2 cents.
Andrew – Our second was a surprise for us, so no, we would not have had second, at least not this close together (1 and 3). I wouldn’t recommend having #2 until your first is at least 3 years old.
I was complaining to my older brother about this the other day and he says it just gets worse. His entire weekend is spent shuttling the kids from soccer, to basketball, to baseball to kids birthday parties and the travel sports cost about $15K per year per child.
His oldest daughter is now a teenager and her shy/weird toddler behavior has manifested itself into full blown mental health problems. The two younger ones at best are selfish and disengaged when they are home.
Some problems fade as the kids grow older, but much more alarming issues emerge.
I discovered FiRE the year my oldest was born. One thing I can say to those considering having kids is be prepared to adjust your FIRE expectations. Our expenses grew from $125k to $175k through a combination of childcare (babysitters, nanny and preschool), higher health care costs and food (wow even the little ones eat a ton). What I’ve come to realize is this just is what it is, and I should have expected it. It’s still worth the trade off, just make sure you set your expectations, it will help you to enjoy them more (and there is plenty to enjoy!)
Hi there, really interesting post and kind of hits home to me.
While I don’t live in the USA I live in a city which is probably just has high cost (if not higher cost) than SF and have the joy of having twin toddlers.
Our (admittedly) comfortable spend is close to US$200k. Part of the very high spend is the cost of accomodation where we live, we pay US$5.5k a month for renting a 1,000 square foot apartment.
We don’t spend extravagantly (or so we think) and most of our spend goes towards rent or kids related stuff.
Another major cost as the kids get older is the cost of activities / various playgroups, pre-nurseries (whatever you want to call them) for the kids. These really do add up that is for sure!! They will hit 2 next year and we are debating whether to send them to 5 day a week (half day) nursery at a cost of US$17k a child!!! This will only go up as the children get older.
We do benefit by the fact that even though both of us work full time care is very cheap here (we have two full time helpers at a cost of US$20k a year).
Private healthcare isn’t too bad here, US$10k a year for wife and kids (I’m covered through work).
At present it does help that we both work full time and even with our crazy spend we are managing close to 50% savings rate.
If we do want to retire early we will either need a much higher net worth than we do or consider moving to either the UK (where I am from) or Canada (where the wife is from) and rely on the public system to get our spend down.
One side effect of high paying jobs though is that often the time with the kids can be limited due to the pressures of work. A consideration is trying to find a less demanding job but then the salary is lower, but hopefully in a year or two we may be at coast FIRE levels.
I know many people sometimes baulk at your numbers, but for me they do really hit home. Thanks again
We send our kid to a public school. It’s a great school in a wealthy area so there is a lot of support from the parents. We’re very happy with it. I didn’t consider sending our son to a private school at all. They’re not any better in this area. I also think our son needs to know a wide spectrum of kids. There are rich and poor kids at his school.
As for activities, I don’t think they are that expensive unless you get into the professional development area. Most kids are in the rec league and that’s not expensive. Our son has fun with sports, but he’s not gifted. It’s pretty cheap to enroll him in the local soccer and basketball leagues.
The only big expense I see on the horizon is college and health insurance. Other than that, it’s not that expensive to raise a kid. You could spend a lot if you want to.
Seeing that budget made my jaw drop. The cost of living in the Bay Area is just insane.
I make the same amount of money (~200k from online businesses) but my rent in Vietnam is only $600 for a brand new apartment 5 mins from the city center, and I pay $50 for a great local private health insurance.
With Internet there’s just no need to go to an office everyday. I’ve worked remotely since 2010 and it’s always worked out great. Live in a cheap area but get paid a Silicon Valley salary. Geo arbitration is the future folks!
Very cool. Where do your kids go to school and how is it like living in s Vietnam versus America?
Btw, we’re talking about $200,000 of retirement income not active income. Making $200,000 in active income is much easier.
Hi Sam. I plan to have kids within 2 years (Getting married in December with my Vietnamese girlfriend :).
They will go to school here in Vietnam first. I done the research and there are many great private schools here. And healthcare is good and cheap. However, when the kids reach their teens we may move to the States (Where I grew up) or Europe (where my mom is from). I haven’t planned that far yet (But I won’t move back to the Bay Area!)
I agree on the retirement income. However, I think the line for retirement has blurred. Personally I plan to keep working on my businesses as long as my energy permits. But I will ramp down around 60 and let the kids take over some part of it.
Love your blog BTW. Been a reader since 2013 :)
On living in Vietnam. I love it! I was just planning to be here a month but then I met my girlfriend…And now it’s been my base for almost 4 years.
I actually didn’t like Vietnam much in the beginning but the country and people grew on me. You do have to be a bit adventurous to live here, but most of the time you live in an expat bubble.
Pros:
– Dirt cheap and great value for your money
– Warm weather 12 months of the year
– Awesome food and beer (Many local microbreweries!)
– Friendly people (But tough!)
– Great expat community
– Beautiful nature and beaches
– Great entrepreneur scene (lots of biz opportunities in a fast growing economy with a lot of educated young people)
Cons:
– Traffic and pollution
– Corruption
Very cool. We only stopped at the airport on the way back from KL and Angor Wat in 2016. Wish we coulda got our visas to go explore.
I hear Saigon is the new Chiang Mai for digital nomads. Ahh… perhaps in another life. But will visit before I’m dead!
You are right about working in the military or for local, state, federal govt. I retired at 48 with 90% of my pay retired Lieutenant Deputy Sheriff if I had waited till 50 I would have received 100%. I choose to be stay at home dad. I also receive life time family medical. 2020 PPO rate of $413.00 a month for Family of 4. A huge deal with health care costs. My wife retired at 51, a she was higher rank than I she gets 100%. She went back to work for a different agency and retirement system. Because of her wanting to work we save 65% of total income pension and salary. It has allowed us to pay for oldest graduate school (paid out of state undergrad while working) and will be able to fund youngest College (private or public and any graduate or medical school.) We live in SF Bay Area. Not S.F. but near by Walnut Creek CA. So we got great public schools for free for our two kids.
Very cool. Both you guys hit the jackpot with the pensions for life.
Ah, the stories you must have as a Lt Deputy Sheriff!
Something I think about retiring early with kids, is how will it impact your children’s work ethic? Will they be inspired by their father for having worked so hard and carefully planned that he was able to retire early. Or, will they become less excited to work hard because they weren’t born yet or too young to have seen what it took to FIRE. Now, as you are a great example of, retiring early does not mean not working hard. So my fear of raising children with a low work ethic may be unfounded, yet it’s still something I worry about.
It’s a fear worth exploring for sure. The last thing we want are unmotivated kids who can’t stand on their own. It’s actually one of my biggest fears as I met two other 25-30 year old male sons still living at home in my neighborhood. The count is now up to eight.
I realized our children can see the work ethic and pride in anything we do, including cleaning up the house, pulling the weeds, staining the deck, re-grouting the toilet lining etc. People notice. So do something with great intent.
Thanks for sharing. I can relate to this one as I have a 9 month old son. It was so easy to save money prior to paying for childcare costs. Even with two working parents it is a struggle in SoCal…good thing they are worth all of the cost!
Indeed. It was only after I had my son did I realize why people who are financially struggling still decide to have more children.
Congrats on yours!
I’m 54 and have a 3.5 y.o. and a 3 month old… I also have USD 3 million in net worth and live in a somewhat expensive place (Australian city). If I had teenage children I think I would have more time… Luckily we got our older child into the local public school for preschool from February, but my wife is keen on private schools, even though I don’t think objectively that here they are much better than public ones. They aren’t selective, if you can pay and stay on the waiting list long enough you get in… Private school fees are only about USD 12k a year though. I had thought of retiring at 55, but I don’t think I will now – we are spending about USD 80k a year now and it looks like going up and investment returns don’t look like going up. So, I am working on developing my trading “business”. Goal is that when it reaches my salary – USD 120k per year – I’ll retire. I’m nearer USD 12k now :) My wife has been earning about USD 40k per year – we could give that up…
Sam
Healthcare is ridiculously expensive! Have you looked into Liberty Health Share? It’s a Christian based plan, it’s equivalent to a PPO with a $2250 deductible/ max out of pocket for only $499 a month! I’ve had it for 4yrs and love it.
I have liberty health share as well and largely agree with Jimmy Scott. Last year we had our first child and paid only a 1,500 deductible. It was amazing. What impressed me from the very beginning was you could get a person on the phone right away and they actually cared and tried to help you with whatever you were calling about. However over the past 6 months or so the service has gone downhill. They no longer try to pay claims within 60 days and sometimes it seems like it’s an absolute nightmare to get them to do their jobs. Still it’s better than I remember from Blue Cross Blue Shield so we are holding on and hoping things get better again.
Yes I agree, they are far from perfect. I figure if I’m gonna be unhappy with a provider I might as well only pay them $499/month vs $1700. I have yet to hit my deductible of $2250 in the four years, I pray I never have to.
I’ve heard of it, haven’t looked into it b/c I hear you have to “explain” how it works to a lot of providers? If that’s so, I just don’t have time to explain. I want my healthcare insurance to just work and not give me hassles.
Is it $499/month for an unlimited amount of people in the family? If so, that really is a great deal… if it works!
Related: Worth Getting A High Deductible Health Plan To Qualify For An HSA?
Sam
Yes, it’s $499 for my family of 4, no cap on number children.
As far as explaining it to providers, no it’s not necessary. I literally walk into an urgent care/ER or wherever, hand them my issuance card LHS gives you and tell them to send all billing info to their address. I then pay $50 similar to a co-pay (which counts towards the $2250), and see the doctor. They also give you a discount card to help lower RX costs.
Liberty Health Share then handles all the billing and actually negotiates the costs down for you. They then forward the balance to you for payment, if you haven’t hit your $2250 limit yet. If you have already hit your $2250, you don’t pay a dime.
I wish I would have joined with them 8yrs ago when a coworker told me about it.
Cool. Will check them out more! I’ll ask each provider I go to first whether they have heard of Liberty Healthshare and will accept or not first.
What are the biggest downsides you’ve experienced so far? thx
Your 1/10th rule for child education is a killer. It is very expensive out here in Thailand for private school. The public school alternative it pretty tough as it is learning by rote and not to question the teachers.
We just had a second child, a son, and what you say is very true- it puts you into overdrive. I’m underemployed with two part time full time jobs, LOL. It’s nice to have a six year old daughter and a newborn son- the family feels balanced although it’s much work for us all these several months.
-Mike
Congrats man!
Yeah, I would do private where you are in Thailand. Ok, not income = 10x tuition, but how about 5-10x tuition if one does not have scholarships.
The first year was the toughest – there is a refundable deposit required that is about $19K USD plus the first time registration fees of $9K and about $11K per semester of tuition. So the full year will be $50K but really ongoing tuition costs are $22K per year plus activities, lunches, etc. No scholarships available at this level. As a percentage of passive income for the year it’s about 40% in year one and then should drop to a more reasonable 20% in year two and beyond. But wait – with the second one in the picture we will have to repeat this in 5 years.
I ran an education scenario for both kids at private school plus looking at an ivy league education based on current rates plus 6% compounded per annum. I calculated this through 2042, when the baby will be done out of school and it works out to $2.7M at a mix of present and future dollars. That is hopefully the worst case situation but it is a lot of money right there. After that that lit a fire under my butt like nothing else. The investment portfolio will do some of the heavy lifting but I have to supplement it with my own efforts. Nevertheless I can say that having children is wonderful.
Really appreciate your good wishes and hope you get to enjoy a second one in the coming years.
-Mike
Whoah, $50K/year is a lot in Thailand.
The GDP / capita in Thailand is $6,600. It’s $59,600 in the U.S. Wouldn’t $50K/year in tuition be like $451K/year in tuition if we did purchasing power parity?!
$2.7 million… wow. I donno man. One of the problems with investing so much time and money into our children is our heightened expectations of what they should become.
Like one article I read while working in Manhattan said, “What If Little Johnny goes to Penn State instead of U Penn after 13 years of private school?”
Yes it is a lot of money but the demand for good schools exceeds the supply. There are a lot of rich people on Thailand who put a priority on education and it’s one of the best schools in the country. About 20+% of the students are going to top Ivy League schools in the USA.
We have it easy as expats, since the quotas for Thai’s is only 30% of the school population they are paying that plus another $70k donation money on top and there is a waiting list of people to pay that. A friend who is Thai got her parents to spring for this.
It’s really quite much.
-Mike
Gotcha. Check out this article.
https://www.yahoo.com/news/harvard-legacy-preferences-national-disgrace-103029150.html
I have a feeling in 12 to 15 years, there is going to be a big drop off in reputation for Ivy League schools and other private schools.
A couple of my “opinions” on this article:
ROTH IRAs are actually awesome – it should never be a decision to fund pre-tax investments or post-tax (ROTH) investments – the answer is to fund BOTH. I actually had a financial adviser try to tell me NOT to invest in a ROTH because taxes will be lower in retirement. I already max my 401K, the choice is between after tax investments and after tax ROTH investments – ROTHs are the clear winner.
Having 2 stay at home parents – I can see one parent leaving work to stay home, maybe. Both parents, I think that is a little extreme. I kept working when I had kids and I still attended every school event, parent teacher conference, sporting event, and coached all their teams.
Paying $30K per year for pre-school? OK, now your just being silly. 2 of my 3 kids are in college (public schools), and I pay around that for them which includes books, and room and board. $30K per year just for pre-school – they better be getting a degree at the end end of the year. We sent one of our 3 kids to montessori preschool which was a tiny fraction of $30K.
True, if you’ve maxed out your 401(k) you can consider diversifying your investments and taxable retirement pot with a Roth IRA. But I don’t think it’s a good idea if you’re above the 24% federal marginal income tax rate.
Is there nothing you would have done differently raising your kids?
I guess you’ll find out soon enough how well your kids will do in the real world. Please let us know after they’ve graduated college. It’ll be exciting! Good luck!
Just curious about the ROTH IRA – and why you think it is not a good idea above the 24% marginal income rate? I’m in the 37% marginal income rate. My 401K and my wife’s 401Ks are both maxed ($19K each). We are w2 employees so we can’t do solo 401ks or any other pre-tax investments. We get a decent match on our 401ks.
I invest between $70K and $170K in after tax accounts per year. The after tax accounts will be subject to capital gains tax at some point (long term either 15% or 20% depending how long I wait to cash out plus a possible 3.8% net investment tax). There is a lot of talk about raising capital gains tax rates.
I put $12K ($6K each) into an IRA and use a backdoor conversion to put it in a ROTH IRA each year. This money will be tax free (state and federal) when I take it out – assuming it is has been in for 5 years and I’m age 59.5.
Unfortunately, I can’t put much money in the ROTH, but it seems like a no-brainer to get tax free returns. Right now I have about $100K in ROTHs, and it should be at triple that by the time I am 60.
To pay 37% as a married couple, you’ve got to make over $600,000.
To generate $600,000 at a 4% rate requires $15,000,000 in capital. That’s hard for most Americans to accumulate, even with a $600,000 household income. Assuming tax rates stay the same, you’ve paid more in taxes than you needed to.
What is your current net worth now? And when do you plan to retire?
Definitely interested in how I could pay less taxes.
Last year’s income was around $800,000. In retirement, my goal is to live on $200,000 per year. I am 50, and want to retire at 55. Right now I have about $850K in after tax accounts, $100K in ROTH IRAs, and $2.6M in 401Ks/IRAs, $225K in deferred income, and enough college savings to get all 3 kids through school. Also have $800K in home equity and $360K in mortgage. Total investment value of about $3.8M.
My goal is to have the mortgage paid off and $5M in investments (not including paid off home) in 5 years. With some luck, that should generate $200K per year. Both my wife and I have maxed out our SS, so we should get the max when we decide to collect. Don’t have any other pensions, annuities, or passive investments (real estate, blogs, etc.) for income.
Just have to compare the effective tax rate at $200,000/yr vs the effective tax rate at $800,000/year.
Most people do not make more money in retirement than while working. Therefore, most people will pay a lower tax rate in retirement then while working.
Related: https://www.financialsamurai.com/how-to-pay-little-to-no-taxes-for-the-rest-of-your-life/
The effective tax rate now vs. retirement only makes a difference if I am converting pretax 401K/IRA (and paying current marginal rate) to post-tax account ROTH. I’m investing NEW money in a ROTH (which is already post tax). With a backdoor ROTH conversion, you contribute to a post-tax IRA and immediately convert to a post tax ROTH IRA – since there are no gains, it is not a taxable event.
Think of it this way – you have a choice of investing post tax money in an account that will eventually have to pay taxes on the capital gains and dividends, or an account that will never have to pay taxes on the gains or dividends.
Interesting sub-thread here. But this partL
“my wife and I have maxed out our SS, so we should get the max when we decide to collect”
caught my attention.
You mentioned retiring at 55, being 50 now. Based on your age, let’s say you start drawing SS at 67, after a 12 year lapse in W2 wages.
Don’t you think this will affect the amount of SS you can draw?