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.

Don’t listen to the negative moaners.

You are ahead of us when we started.

So patronising people. Be kind!

We paid off our mortgage at 42. But we didn't save a lot, we were frugalish, but we benefitted from the housing market and moved to a cheaper area. We both work freelance. I do school hours. I would say re: holidays, my kids love caravan holidays, but they also love going abroad. You are basically paying for the sunshine. The experience of climbing a volcano in Tenerife and playing in the black sand, going to a Mardi Gras parade in the night, eating Kebabs on a Greek island are memories they do still have. But even in the cheap it's expensive. Holidays in the UK can be astronomical too. I do live holidays though. Also when your kids are at school, all the exciting leisure activities you want to do will have to be done between 9 and 3

@goodstuffannie

So how exactly did you amass assets of over £1M in 11 years?

If you add your house value, assets and debt, it's over £1M.

Was this working in very high paid jobs, inheritance or the lottery ? :)

Working. And being money savvy and frugal.

But working savvy. My husband changed careers took a pay cut, took a risk. Worked his way up. Became a managing director, got shares in the company. I have taken the much lower career to support him.

I still don't understand though Goodstuff how is a pension of only £200k going to last you?

I'm puzzled by all of this I just don't see how its affordable and we really don't live extravagantly. We paid off our mortgage a fortnight ago and that was great (although I've now switched to worrying about the pensions). Mine has about £370k in it and DH's has about £270k in it. I'm 44, he's 47. That would not give us enough to live on, particularly with a teen and a tween in the house who never stop eating and growing.

@GoodstuffAnnie

It's more than just being 'savvy' though!

On average you have accrued over £100K a year ( though some depends on the increase in value of your home.)

To SAVE / or be able to invest £100K pa means you would need to earn around 3 x that pa, allowing for tax & NI (50%) and live off something.

It's stories like yours that give a false impression and false hope of retiring early, because the mean income on the UK is £27K.

You clearly had a huge income for a decade, which included a profitable share option your DH cashed in, and it's not typical or relevant to most people who aren't in that position.

I still think your aims are pretty inspiring. But like others I think you’ve underestimated the cost of kids. I think the difficulty would be that your plans rely on choosing to spend minimally on future children even though you have a high enough income not to. That’s a very different proposition to having to be frugal because of low income especially if your friends are in a similar income bracket who will be spending on days out etc.

At the start you’d have upfront costs of getting buggy, cot, clothes, possibly an NCT course if you want to make friends, maternity clothes, toys etc . Now you might want to do second hand etc which would keep your costs down but you’d still need to account for kitting yourself out, possibly needing a family car etc. Obviously the greatest cost though is childcare. We pay £850 per month for 3 days for one child. The later estimate of £1000 for full time might be on the low side but if your parents could do one day a week you’d be in the right ballpark.

The other thing you might find is that you struggle with time and spend more money on things to make your life easier. Food bills might increase as well. You’d need to think about nappies/wipes when little. My toddler inhales things like fresh salmon, berries, avocados etc which are expensive. Obviously my choice but she has a far better and more costly diet than we did pre-kids. Bigger kids are only going to get more expensive.

A lot of our spend is totally optional but makes life more enjoyable. You can do things like getting a national trust pass for days out but other things start to add up. We did baby swimming which was £150 a term, our local adventure farm is £15 a head, soft play £4, kids classes seem to be between £6 and £15 a pop. I have lots of no spend days but I couldn’t do it all the time.

You also need to factor in some expenditure for emergencies and maintenance. Just this week, we had an unexpected £500 go out for car maintenance this, my friend’s boiler died, my dad had a leak. Insurance covered some of the above but not all. Those are the sorts of things that are annoyingly common and could cause you problems if your budget is too tight. You should also think about life insurance and wills.

Do not underestimate the psychological impact of paying off your mortgage. Yes you can probably get a better return investing the money in your theoretical tick box excel planning rather than paying off your mortgage, but you might not. Having no mortgage payment every month is a huge weight off your mind.

No I know it’s not typical. But we worked out that to do it we would have to take risks and be strategic. We did it because we had a goal. It wasn’t easy. At all.

GoodstuffAnnie there is also a large amount of luck involved, particularly in your dh getting the promotion and shares in the company not tanking. It is not just hard work.

That's why we paid our mortgage off trixy, the peace of mind that goes with not having that debt and being subject to the risks of interest rate rises is significant. We could have put the money to better use since our rate was low but it was so nice to be able to tick off and know that the house is now fully paid for. Many younger home owners simply haven't experienced "normal" interest rates and are living in a bit of an artificial interest rate bubble at the moment.

Yes GoodStuff had luck but she also resisted the temptation to spend all the excess money and upgrade her lifestyle.

As an older Mner, 61 I do think that as you get older you find that being in the world of work enriches your life. I have a friend who is 71, he had a very glamorous profession which was his life, safety rules meant that he had to retire at 65. Although he has many hobbies and a good social life it is the very ordinary part time job that is best for his morale. I have recently had the opportunity to move to 3 days from 5. I very much thought I wanted this but have decided I don't. Some of our friends have retired early - 50's and they seem, on the whole to have gone down hill fast. All of us only really have today, whilst it is good to save to a certain extent, not at the expense of all pleasures now.

Yes I was going to say as well that my parents retired in their mid 50's. Spent some time going on holidays but have now settled into a routine of sitting around with their retired friends at lunch club twice a week and buying crap to fill my house with . They are also heartily sick of the sight of each other My Mil never really retired and now she works as a volunteer for charities. She's 10 years older than my mum and has had breast cancer but still is much fitter mentally and physically than she is.

That's very impressive to achieve all of that without inheritance/parental help etc Goodstuff . Do you mind me asking whether you took those risks before the children came along or afterwards?

I think what the OP really wants is not early retirement as such but the freedom to make decisions without worrying about having to cover the financial essentials. Is that right OP? I can certainly see the attraction in that. I think I view it in a much gentler way than the FIRE approach. By always living below your means (but not being uncomfortably frugal) you buy choice. We've used quite a lot of that choice during our younger years rather than saving it for the future. So we've 'bought' the chance to take time off to retrain for a new career, to have periods of SAH and part-time work etc. You also buy the peace of mind of knowing that you'd be OK if faced with some of the misfortunes of life like redundancy. That's the way I'd think about it, though Living Below Means to Buy Choice and Peace of Mind doesn't have such a good acronym as FIRE!

i would also say the one thing that will kill your financial planning is divorce. That killed my savings (I was the one who saved and ex wasn't). So if you can spend a bit of money doing nice things together, I really would!

I agree with the PP , aged 61, who said that some sort of work gives your life meaning. Most of my peers are retired and seem to spend their lives on holidays (but always love coming home) or caring for elderly parents.

There is a lot to be said for carrying on working in some role. Voluntary work is fine, it doesn't have to be paid work, but it gives life another dimension. One of my role models is a kind of colleague who retired from being a psychotherapist at 80.

Surely the answer for the OP is

-Clear your mortgage
-Take work that gives a good work-life balance and gives you mental stimulation and a sense of being useful

You don't have to carry on up the corporate ladder as long as your work provides income for day to day living.

When I think of my dream ‘old age’ it still involves the self esteem and challenge of work in some form. My dream is to run a small farm (recently bought this but too busy with kids to put to work yet) and run a business related to it. I’m 35 so have the next 15yrs to do my best to establish this but I’ll hopefully do it lots quicker if I lose my day job.

I’d love still at 70 to have someone managing my business and still be involved enough to keep me getting up in the morning but not enough to make me stressed.

This is the real dream for me and to do it comfortably means having finances in order that it’s not dependent on a massive profit.

Well yes Daffo and the other big one is death. I mean that quite seriously, I've lost enough friends in their 30s to want to make sure that I don't live life assuming that I'm guaranteed an old age. One in particular was very into this FIRE approach and lived pretty frugally whilst earning a vast amount in the City for about a decade. He'd just reached his goal, got married and was looking to start a new life in a rural area with a slower pace of life when diagnosed with an aggressive terminal illness. He achieved a great deal in his life and had a lot of joy but I think his approach to his 20s and 30s would have been very different had he known that he wouldn't enjoy the savings (though it did make a difficult time much easier for his poor wife).

Haven’t read full thread. I’m 34 with 1 baby would, I think, like a sibling for them of I’m fortunate enough again. I earn just under 60k FT and husband around 80k. Savings of around £35k ish. Mortgage 80 LTV and around 380k left 23 years to go. I want to pick up on the statement you make that you’ll do this and even if you don’t retire you’ll still be in great place. But remember this isn’t necessarily true - there is always an opportunity cost albeit not necessarily financial one. Yours may be work life balance and enjoying life and having nice experiences. You may look back with pots of savings and say oh I wish we had both dropped a day at work to spend more time with the two kids you want to have or I wish I had just relaxed about things a bit more. We are spending our money at moment on taking 18 months off and then going back part time and will be happy to work FT etc when all grown up. By all means proceed as you are but don’t think there’s no possible negative to your course of action. Also you sound a little odd: you admit you’re “obsessed” and also that you feel you’re at a crossroads. Sounds a bit dramatic. Just save money, consider as things arise what or if you’d like to spend some money and see what happens when you want kids x

The thread reminds me of the story of the ant and the grasshopper!

True epic but that story would have been more accurate if either the ant or the grasshopper (or both!) had been eaten or squished before the long winter even began. None of us are guaranteed an old age, we should all try and strike a balance in life

My other advice is to really reflect on whether your other half is as keen on living frugally as you are. My DP ended up very depressed because his ex insisted on being aggressively frugal.

I think a better starting point is to think about things that save money while actually enhancing your quality of life.

No-gift pacts with relatives = less shopping stress and clutter. Keeping Christmas etc. low-key = way less hard work, more relaxation. Batch cooking = saves time, you eat healthier as well as waste less. Use re-usable and rewashable nappies, wipes, kitchen clothes, carry your own refillable water bottles, bring your own picnic food when possible = makes you feel good about helping the environment too. Stay away from shopping as a hobby = house remains clutter-free, resulting in less housework and wasted time and energy. Minimize spending on fancy phones, computer games and other devices = spend more time reading, playing board games and being active outside which is better for your mental and physical health.

By contrast, I'd be very wary of saving too much money in ways that feel like putting on the hair shirt. I'm happy to save money doing things like the above. I'm not interested in having no foreign holidays at all or hardly any fun days out, or compromising my kids' education, or not being able to enjoy nice meals out sometimes, or having hardly any social life with friends.

In general, "stuff" doesn't make people happy but "experiences" do---I'm happy to cut back on "stuff" spending, but experiences are what life is made from. There's no point having kids if you have hardly any amazing memories with them, and they won't be interested in making memories with you once they are teenagers.

It’s not just about earning 100k by thirty, it’s about investing it properly too. Retiring at 40 means saving in investments, overpaying mortgages, and you can’t do that without quitting your high paid jobs.