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.

minnieandcharlie

I think you make it sound very easy. Or you live where property is dirt cheap.

You paid off your own mortgage in 10 years (working on from when you were in debt) on £70K income, bought another house and did it up to rent out ,and also bought another house (and did it up) to sell at a profit.

Would you like to say how much the houses cost? It just shows how different house prices can be across the UK. In my part of the UK you can't buy anything for under £200K , whereas I know parts of the north where it's possible to pick up a house for £40K.

If you both work at lots of part time jobs - proof reading, working in shops, renting out your home for film sets (and I know this can be a generous fee) and your holiday rental income, I would assume you are bringing in a pretty reasonable income. THat's fine as you have no children, but anyone with children wouldn't want the uncertainty or be able to cope with the mix and match of that work.

Ok, so because I love Excel and because I'm now really, really curious... I've mocked up a model of the next 14 years of my life based on various wild guesses and assumptions.... and accepting that life is not perfect and doesn't run like a project plan...

I've refined some of my assumptions!

And just for the purposes of putting some numbers to things, I've ignore inflation (aside from investments)

So..

Baseline year 1 (no kids) - baby brewing

• £5400 net salary (2 working)

• £600/month Mortgage
• £450/month Gas, elect, water, tv, internet, council tax, insurance
• £150/month other adhoc maintenance
• £400 - 0% credit card

• £250 food
• £100 petrol
• £300 fun money

total cost = c£2,200
total leftover to invest = £3200

Year 2 (incremental change)
Baby born

• (£1600) net salary decrease to £3800 per month average net salary which includes stat pay
• (£50)/month increase in food costs

Average saving: £1.6k/month

Year 3 - 4
Both parents go back to FT work, Baby goes to FT childcare

• £1,600 salary increase for parent 2 going back to work
• (£1,000) additional costs/month for childcare
• £400/month decrease in cost due to 0% credit card paid off

Average saving: £2.6k/month

Yr 5
Baby number 2 is born

• (£1600) net salary decrease
• £1,000 saving on baby 1 childcare as parent at home
• (£50)/month increase in food costs

Average saving: £2k/month

Y6
Both parents go back to FT work, Baby goes to FT childcare

• £1,600 salary increase for parent 2 going back to work
• (£1,200) start overpaying mortgage - payments increase from £600 to £1800
• (£1,000) additional costs/month childcare for baby 2
• (£100)/month for P/T childcare costs for baby number 1 )3 years old by this point. (GPs will share childcare half the time, the other half will be free childcare provided by the government)

Average saving: £1.3k/month

Y7

• £100/month saving for baby 1 going to reception at 4-5 yrs old
• (£100) increase in food and general other. Food budget now £400/month

Average saving: £1.3k/month

Y8

• £900 saving as baby 2 turns 3 and qualifies for PT free childcare. Grandparents to provide childcare for other half of time

Average saving: £2.2k/month

Y9
baby 2 starts school

Average saving: £2.3k/month

Yr 10 - 11

No change - end of yr 11, mortgage paid off end of Y11

Average saving: £2.3k/month

Yr 12 - theoretical last year of both parents on FT work

£1800 Mortgage payment saving

Average saving: £4.1k/month

Phew........ and impact of all this is (factoring Stocks and share ISA growth rate of 6% per annum and fully invested in index tracker low fee funds)

... £500- 600k saved by end of year 12

Now, if I were to take the lower end of that - £500k at a withdrawal rate of 3% gives passive income of 1.3k per annum

If we were to stick at our jobs two more years, we could have £1.7k/annum (which might reflect inflation adjusted prices a bit more..)
or 5 more years (so retire at 45) then we would have £2.4k/annum

(And a fully paid off mortgage!)

Hope that was interesting! Obviously loads of other factors to take into account, and open to hearing about where I could refine calc more, but this was fun and I can play around with assumptions, add inflation etc

There is no need to add in inflation. Just do everything in "today's money" and use real returns on investment not nominal returns. Provided you do that, inflation won't make any difference.

😂😂😂😂 are you planning on having naked barefoot longhaired children with no hobbies or friends?

Ah yes, good point irregular

hannahwells- you mean you had haircuts when you were a kid?! :)

I haven't factored in any work promotions and planning on getting rid of TV costs (Apart from netflix) forgot to strip from numbers - that might cover any random after school thing?

are you planning on having naked barefoot longhaired children with no hobbies or friends

who don't go on holiday (or even days out), eat out, have any technology, treats, new books, go to any parties....

Obviously, you could live like that, some people have to. But with a family income of around 5-6k net a month, do you really want to?

Patricia, I've factored in about £350-£400 'fun' money in the budget per month. I don't plan to take kids abroad, but would def take them camping!

Lol agent

I earn more than you on my own anxious never mind my husband, and have no mortgage and I wouldn’t be able to retire just yet. I think you’ve wildly underestimated the cost of the children. Also if you have any serious illness and no sickness cover, you will rapidly burn through that pot of cash. The stock market can crash etc etc

Why the rush to start the family now? 28 is younger than average these days especially for £50k salary earners. If you wait 3 or 4 years then you can clear the mortgage before you start the family and that gives a lot more choice and freedom in terms of managing 2nd income / childcare balance.

Camping isn't cheap when it's raining. Well it can be but generally it's boring and miserable and the cinema is tempting.

You can do it if you want to but there is no joy in penny pinching relentlessly.

My son had a haircut today which cost 24 in total as car was being fixed and needed to get taxis... I could have said no but he is going to a party at weekend... The present will be £20... Also spent out this week on school royal wedding thing... A sport extra... The next book in a series that DD is enjoying... Euros for school trip... A squishy like the other kids have... Fripperies and fads are part of what makes childhood enjoyable...

What are you planning for before and after school care and for holiday care? Are you planning on grandparents organising all of that for the next 12 years? A day's holiday club where I am is £35-40 per child per day or c£170 each for a full week.

I would also check your assumptions on the 30 hours free childcare very carefully. My children are out of that now but my understanding is it's still the same and only applies in term time. Nurseries essentially can't afford to run on it so will organise the fee structure so that they make money elsewhere to deal with the shortfall. So for us if you were a SAHM it was OK because the pre-school attached to the school allowed you to use the free hours say 9-3 in school term time but you couldn't use it for working childcare. If you were using the nursery that did full day child care all year then you'd still pay a substantial sum. So at the nursery in our village, if you do 3 days a week and claim the 30 hours you still need to pay £600 a month.

But your 300-400 ,on you budget above, appears to need to cover 4 people's clothes, outings, books, entertainment, eating out, haircuts, shoes, makeup, parties, hobbies....

Not doable. Unless you do none of those things.

What do people reckon is a realistic 'fun' & hobbies budget for kids?

And how much 'extra' has having young kids increased the food/other costs by?

Clothes - hubby and I charity/carboot sale shop it , and are practicing minimalism (we're both not really big into clothes/fashion). kids clothes I will probably also source second hand, as they grow out of them so fast!

but yeah didn't think about kids having hobbies! I guess I only know my own childhood - no hobbies (well, I played outside with my friends, all free games)

Had not considered holidays club! We'll probably take some annual leave to spend time with them, but yeah will have to factor something in for those costs.

Are you seriously telling me that you’ve extended the term of your mortgage considerably to extract cash to punt on the stock market in one of the most inflated equity booms for the last 30 years? Good luck with that.

@Howabout

I get what you're saying and paid off mortgage would be lovely, but I've seen a couple of people I know now struggle to have a baby - I want to get 'in there'(!) while I'm most fertile.
Also as mortgage rates are so low, we're not so worried. If that changes, we'll change our position on it

Husband and I are also so so broody, don't want to wait much longer!

Even the most inexperienced financial adviser will tell you OP that any investments you make with cash while you’ve got a mortgage will need to earn the interest rate on the mortgage plus the rate of inflation just to break even. That is in most cases impossible. Pay off the debt and then it’s all gravy.

I don't think the family living budget is that much out. I find it easier to deal in pa amounts so going on your figures I think £17k (?). Build in a cushion for car running not just petrol, bit more for DC spends as others suggest and housing maintenance also looks light. This gets to about £20k which feels more realistic. However a family holiday would be on top of this.

Hobbies are difficult because it depends on whether you are talking about horse riding or Brownies!

We spend £30 per month per child on swimming which I regard as essential rather than a hobby. Things like cubs are only £30 a term so not too bad, though there are also things like camp as well so it ends up more like £60-70 a term per child. It gets more expensive when you look at things like individual music lessons (£20 a week) or the local drama club (£130 a term for an hour on a Saturday). My children don't do any really expensive hobbies but obviously if they are really pursuing things like sport or dance to a high level then you've got all the kit that goes with that too.

@JennyHolzersGhost

over the long term, I would expect this to net out. We'll be long term holding investors so we should in theory be able to ride out any market disruptions. 3% 'real' rate over 12-15 years is not being overly optimistic, based on the entire history of the stock market through all its many recessions.

My investments don't have a huge amount of UK bias either, so hopefully a little more shielded from long term Brexit impact.

My LTV ratio is only 35-40% right now - husband and I gained quite a bit of equity in our home as we lucked out with location, so we may even move in the future and own a house outright if we moved further away from London.

OP I'm really interested in all this but the stock market factor seems so risky
Yes you can track long term but even so....
I'd pay off mortgage first.

Oh and before and after school care really adds up, depending on your work patterns and whether your parents can do this. So at our school it is £6 a day for breakfast club and £10 for after school so if you have two children doing that 5 days a week that's £160 a week. That plus holiday clubs (remember there's 13 weeks off school a year and annual leave won't cover it all, especially if you want some time off together) so I think your childcare budget needs to be increased for the school years. Of course lots of people end up going part time/SAH/stepping to a different role for flexible working in that time but that usually comes with a larger cut in income than the savings in clubs.

If I were you I would look at the actual costs in your area including the real costs of nursery (I think you are underestimating this too especially in the government funding years) remembering that (a) you won't want to choose a nursery based on how cheap it is once you have a child! and (b) often people keep the first child at nursery for a bit of the time when they are on maternity leave with the 2nd as otherwise they risk losing the nursery place.

Also I understand the minimalism thing but I'd factor in costs for DC having hobbies
They might have a real passion for dance or music and I think it's great to have something like that so we save with that in mind

I think your childcare is low, both with the 30 hours and round school.
We are v minimal and thrifty and lucky with hand me downs, and have about 100pcm in the budget for children's sundries, 100pcm for birthdays, parties and Christmas (not just for the kids!), and about 300-400 slush at adults discretion, which goes on things like the adult gym, clothes and haircuts for adults, going out, cafe lunches for all and activities with the kids. It's tight. When knackered and pregnant it was much higher (especially with the second child- I could not face cooking, but older DC and I needed lunch so- cafe).
I also think that you will really really want a cleaner if you are both working full time with two tiny children.

@Mia

Interesting -thanks! These little buggers add up

Guess I've gotta get a move on with that side business for extra £££s

@ messy - thanks!

Re: cleaning - House is not huge, so husband and I can actually clean whole house in an hour (if we're quick) but I guess all that extra laundry and spills etc it's the frequency that will be painful!