Retiring at 40 ,with 2 kids... is this possible without sacrificing too much?

[anxiousplanner]

Husband (31m) and I (28F) will be trying for our first baby soon. Plan is to have 2 kids, fairly close in age.

Recently I've become a little 'obsessed' with the idea of financial independence/retiring early. A huge part of me feels like there is more to life than working, having children and retiring at 67 (or even 55, which still feels depressing). Hanging on to this idea currently gives me hope, but I'm aware that I'm just looking for a way to escape.

Husband and I are in a good financial position with relatively well paid jobs for our age, and I feel like as we are still fairly young we have options, but struggling to know what the right thing to do (for us and future family) is.

Financial details:
Household gross income c£100k (Husband earns £55-60k, I earn £50k)
Salary net of tax/NI & pension & rail fair is £5400/month

£160k mortgage on a 3 bedroom semi in SE of England
Mortgage is 30 year term, £600/month payment
Other monthly bills (incl gym £120, council tax £150, tv £70, phone/internet £60 , mobiles £60, insurance/adhoc £40, gas&elect £90, credit card £400

So total monthly commitments is £1,590

Petrol & groceries about £400-600

So total outgoings including food is currently c£2200

Leaving £3,200 as disposable income/savings

Husband and I are agreed that we are not going to chase having a bigger house/car/keeping up with the Jones' if it means that we get to have some freedom when we're relatively young and have the energy to travel when we retire.

If I assume that having a child/children will cost about an additional £500- £700 per month, then that leaves £2500 to save every month.

If we decide not to send them to private school in the next 10 years, then a saving of £2500 per month would give me about £650k of cash by the time I'm 40 (7% stock market rate).

If we were to retire at 40, and withdraw 4% of this year on year then we would have about £26k of interest income = c£2200/month which is our current expenses and standard of living.

Basically.... what do you think of this life plan? Am I missing anything here? Will our kids be missing out a lot if they don't go to private school (as we could afford to send them there but then would not have savings). Planning on bringing them up with learning the value of money, so don't want to give them everything.

Right now I just feel like I'm at a crossroads, and whatever path I take now will determine my future, and it's a little scary but also exciting if I can pull off early retirement. I just want to know how I can balance everything to get the best of both worlds (realising that I am in this very fortunate position I don't want to waste it).

Any thoughts on what you would do if you were in my position would be great, and any advice or insights on things I may have missed would be appreciated.

Definitely don't send your children to private school.

I'm concerned that you want to retire at 40. That is very young. Isn't there something you'd like to do - maybe a change in career? You're both earning twice the national average income - do you both dislike your jobs? Is there anything you think you'd like to do?

You will be retiring just when your children are in their teens. You won't be able to travel for long periods. How would you spend your days?

I would buy another house which I'd rent out, too. If you could pay it off before you retire, you'd have a regular income.

No idea, but I admire your plans.

Good luck.

I'd love to be able to be at home more often with my husband. He would love to be able to do a PHD, and I want to be able to do some volunteer work like helping the homeless. I've also wanted to learn new languages, learn how to cook different dishes, be home to help kids with homework, exercise more, spend more time with other family etc.

When I mean retire at 40, I mean retire out of the rat race/needing a pay check. I'm sure I'll pick up something else, but it will be on my terms, and something that I would actually enjoy rather than selling my soul in a corporate job :)

To be fair I have done all those things while working - they are not incompatible with work!

I think you’re underestimating your costs.

There’s nothing in your calculations for clothes, boilers breaking, car repairs, holidays and childcare is generally more then you’ve budgeted for too. University etc will need to be afforded.

Plus why retire at 40. You won’t be able to travel much then due to school terms.

If you can do it. Do it! But you might get very, very bored!
Not everyone works to get money. It gives a structure to the day, month, year.
Good luck..

I've not read all your accounting but if you don't work for 50 years assuming one of you lives to 90, which i s not unlikely, you will need at least £3M in the bank to give a modest income. do the maths. £30K a year for 50 years and you will pay tax on your income so to live on £30K you need to have more than that.

We are going to retire in our mid-late 60s with a pot of around £1.5M and consider we'll be okay but not exactly the same amount to spend as we have now.

If you need full time childcare in the SE, then that will be a lot more than you've estimated.

Do you honestly think that you can live for 50 yrs on £650K? Crazy.Have you factored in inflation? What do you think your £650K would be worth by the time you reach 80? Nothing, You're mad. Seriously.

I would suggest having the children and then making an informed decision further down the road. Realistically you won’t want to miss out on your DCs early years by working long hours to save for very early retirement, so you will need to think about reducing to part-time work for a time if you are able to, so your income will be reduced and you will also incur childcare costs (substantial childcare costs, like £6-8k pa for 2 children attending 8am-6pm 3 days a week). A more realistic mindset might therefore be downsizing your work rather than ‘retirement’?

LilybearPad I take your point about not having anything for holidays/adhoc things and clothes etc. I was thinking that the £500-£700 per month budgeted above would kind of cover 'child costs & luxuries' but appreciate it might be lowballing it.

The numbers don't take into account any salary increases, which husband and I expect to have a couple of in the next 10 years - which should help cover or offset some of these costs.

Luckily we have a set of parents close by, who have offered to do the childcare in the early years so we are very fortunate that we won't need to worry about those fees.

And you can't guarantee an income based on stock markets on that small amount.

Friends of mine have retired with a pot of over £2M - company pension. They were told this was the minimum (by pension experts) to risk investing and live off capital and they are in their early 60s. They wanted to do this rather than taking a monthly pension (ie play the stock market) and a smaller lump sum.

We've taken advice too and everyone has said the same- even in your 60s you need a lump sum of at least £2Million to invest to guarantee a decent income for 25- 30 years.

You are way out with your figures. And you sound very immature. Sorry to be blunt but at 28 or whatever 40 may seem old but when you get there you will probably feel very differently.

Just to echo that you have not calculated major unplanned expenses e.g. medical, house-related, etc.

Luckily we have a set of parents close by, who have offered to do the childcare in the early years so we are very fortunate that we won't need to worry about those fees.
At the moment they say that while it isn’t a reality. Hopefully yes it will workout, but (a) they may not be in a position to or (b) do have a look at all the ‘my parents have suddenly refused to do childcare and I’m going back to work on Monday’ threads!

How about reassessing and enjoying your life now and travel etc. You can travel with kids.

Work part time, spend more time together, live for the now to some degree. Give your kids happy memories. None of us know what tomorrow holds.

Full time childcare for 2 preschoolers will cost you nearer 2k!

And you haven't allowed for holidays, house repairs,emergencies.

You are clearly in pretty good financial position, but I think you need some specialist advice.

I don't think your insane to want to do it. Very few people really want to be working into their old age BUT on your financial figures I think it sounds absolutely impossible.

QueenofTheNights - I understand your confusion around this point, but the plan is not to use up the £650k, but rather, get the interest from the £650k and not have to touch the capital (the capital will keep growing above inflation rate)

The money would be held in low cost index funds, which seems to be the 'safest' way of investing in the stock market and a mixture of bonds. We would withdraw about 4% per year, which based on the numbers across many recessions is a 'safe' withdrawal percentage and allows the capital to recover.

As I said in a previous post, although I want to retire, what I really mean is that I want to be financially independent/retire early - so I might take on a part time job just for fun, in a sector that I enjoy (e.g. charity sector, or teaching assistant) where I'm helping people if I get bored, or want to buy something extravagant (like a holiday) but safe in the knowledge that the main bills/expenses are covered.

I'm not cofused. I think you are.

If me and my friends who are retirement age are being advised NOT to invest and draw funds on anything under £2M invested at our age now ( 60s) to last us for 30 years, how on earth do you think you can live on £650K from age 40 to 90?

We have been advised it's too risky to plan to live off anything less than £2M invested in a portfolio.

You can't guarantee growth and you can't predict inflation. When we first bought our house interest rates went up to 15%. Have you factored in things like this because you would still have a mortgage till your 60s?

If you are serious you need a big pension pot and also need to see a financial advisor to put you straight.

My experience is that people who retire early usually get bored and start wasting shitloads of money on this and that. And 40 is ludicrously young to even consider this!

A more sensible plan might be to set an informal goal of semi-retiring (=scaling back your work to the point where you are not adding to your retirement assets but not drawing on them either) at some point in your late 50s.

It's nice to slow down a bit at some point, but having some kind of work going on seems to suit most people better.

If your mortgage is on a 30-year term, how can you retire at 40? Focus on paying that down aggressively- being mortgage free will give you much more freedom that “retiring” at 40, and is a tangible goal.

I think your title is misleading; you don't want to retire, you just want to downsize and work for less. Not the same thing at all. And at 28 you have barely started work anyway

Nothing wrong with saving hard and quitting the rat race, great goal to aspire to. Live often gets in the way, but what's the harm of having an ambition and saving towards it? Realistically you would probably benefit from some ongoing paid occupation though, not least to allow you to qualify for state pension. You've got a great starting point though of affordable house and well paid careers at a young age.

Financially there is no way on earth you can afford it - not for more than 20 years anyway, and I assume your life expectancy is more than that?

Why don't you aim to work part time, and fit in the study and voluntary work that way? Plenty of people do that whilst working. It just sounds so lazy to aim to quit working at 40...