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.

Okay, we are into FIRE and have just retired at 53, winding down for the past year.

The stock market is basically at an all time high. You won't get 7% for much longer, in fact you'd be better moving your money into something else. You won't get 4% plus inflation on your pot, you really won't, just do a bit more research.

I have four kids, three grown up. They teenage years are expensive, putting them through uni is very expensive. It's also nice to be able to help your kids once they have graduated; they might need supporting through internships, need cars, house deposits etc. We take they view that we have been extremely fortunate in life and we want to pass it on to our kids.

You don't need two million though. And you won't get bored, we certainly aren't. We wonder how we had time to work.

At QueenoftheNights - I would question what sort of lifestyle your friends/yourselves are expecting to fund, if a pot of £2m is not enough to fund your retirement?

If I was to assume that at your age, you/your friend will have a mortgage paid off, and you were to withdraw just 2% (after tax), then that's £40k per annum or about £3k per month. That in my mind is absolute luxury.

At your age, the pension funds will be invested in mostly safe low-return assets like government gilts/bonds and high investment grade corporate certificates etc, so I would expect there to be low growth anyway.

Husband and I are already paying into pensions, so this should supplement some of our spending by the time we reach 67, on top of the state pension.

On top of this, excludes any inheritance that we would receive from our parents - so should be 'safe' when we reach old age.

If I was to bring in £10k 'fun' money (and husband the same if he goes into teaching once he's done his PHD) then this is also a potential.

University education would be paid in a separate pot - maybe £200/month for 20 years would cover it? Unless parents are generous and offer to pay it.

Perhaps husband and I need to earn an extra £10k each per annum to make this possible.. or wait a few more years.

I suppose there's no harm in planning to save lots... and then seeing where I end up when I'm 40. Maybe by then, I'll have had a promotion at work, and have therefore been able to save up considerably more.

And perhaps I can cut more of my spending (e.g. spend less on groceries) and more on funding the 'fun' stuff like little holidays.

I buy car boot sale/charity clothes, my parents raised me that way, and i see no issue in doing this for when I have kids, so not planning to spend much on clothes. But will def have to have a budget for any hobbies/after school activities.

(sorry, just typing what's coming into my head. These responses have given me lots to think about! )

I think that you might find after having children that your position changes. Some people like going to work to have a break from the kids - that applies during the holidays as well! I am a SAHP through necessity of circumstance and I don't like the role-model that it sets for my DD(7) who thinks Mummys stay home and Daddys go out to work.

I think that you might need to look at a different career if you are thinking this way. You could learn a language on your daily commute if you put your mind to it. The more you have to do, the more you get done, I find. As you start a family and move into your 30s you may find that your earning potential will fall whereas your DH's will rise along with promotional opportunities. Your DH might decide not to retire so early once he has assumed a more senior position and only too happy to let you stay at home raising the children. Once out of work it will be very difficult to go back. There are not many people around during the day so you might find your life is isolating.

Lastly, your financial model is poor. You should not be looking at drawing down capital, but generating income from the capital you have. You will find 4% a struggle without share investments which might be volatile. Once you have children you might want addition funds, not only for schools but for trips, activities which can add up. You might regret not being able to provide the opportunities for your DC that more money could provide (eg musical instruments horseriding, sailing, skiing). Also I think that childcare costs will be more than you have bargained for.

All in all, I don't think that you have thought this through.

I think the posters criticising you are being extraordinarily harsh! Listen, don’t take advice on this from us lot, you have no idea whether we know what we’re talking about. Get an appointment with a financial advisor and run through it all and they will help you refine your assumptions. I think it’s really admirable to have a goal like this to work for, of course you may well change your mind entirely in the future it I doubt you’ll regret having lived frugally and saved.

TinlyLittleLaugh

Well done for FiRe-ing early! May I ask, how have you found early retirement and what have you been filling your days?

I take your point about 7% not being likely as the market is due a corrections .. I've just been reading this article which makes a case for 3% withdrawal rate.

time.com/money/4689984/safe-withdrawal-rate-retirement/

This bit

"Fidelity suggests limiting yourself to an initial withdrawal of no more than 4% to 5% of savings, and then adjusting the dollar amount each year to maintain purchasing power in the face of inflation. That recommendation is largely in line with the 4% rule, a withdrawal regimen that traces its origins to a 1994 study by now-retired financial planner William Bengen. Essentially, Bengen tested a variety of withdrawal rates using historical rates of returns for stocks and bonds. He found that 4% was the highest withdrawal rate retirees could use if they wanted their money to last at least 30 years, assuming they invested at least 50% of their savings in stocks. The 4% rule quickly became the default withdrawal rate for retirees who wanted to make sure that their retirement nest egg would be around as long as they were."

'Indeed, when Pfau calculates safe withdrawal rates based on today’s lower yields—which he updates each month on his Retirement Income Dashboard—he estimates that retirees who want a 90% or so chance that their savings will last 30 years should limit themselves to an inflation-adjusted withdrawal rate of just under 3% rather than 4%. At first glance, a drop of a little more than a percentage point may not seem like that big a deal, but it translates to about a quarter less annual retirement income from savings.'

Your figures don't look right (but neither does £2m aged 60)

Pay off the mortgage using your £30k per year saving would take about 6 years. This would then leave 4 years till 40 and even adding in mortgage savings of £7k per year would only give £150k ish early retirement pot. This needs to be in accessible funds (stocks and shares ISA but not LISA) as pensions can't be accessed till age 55 and looks to be moving towards 60 for younger people.

@anxiousplanner An income of £3K a month on a pension would be less than the net monthly income we have now, both working.

It's not luxury at all, I can assure you, as in the SE council tax, fares and living costs are far greater than in the north for example.

We are not extravagent, don't do pricey foreign hols etc though could, but in our retirement, having been careful all our lives and funded DCs through a combined 7 years at uni, we don't want to be poor in our old age. We've both worked very hard for 40+ years.

At yours ages I’d be thinking more about finding a job that I enjoy and gives me satisfaction. Whether that meats a new industry / study / MBA

Rather than how I can duck out of it all at such a young age.

I like your idea of not spending your lives and getting caught in that trap.

I agree with a pp that you should sort out your mortgage, why 30years? Have you calculated how much I interest you are paying overall?

The point about having £2M to invest is that the advice is based around the volatility of the markets. We were told that investing £1M as a main source of pension to last 30 years was too risky. The safety zone we were told was £2M.

We won't invest, we will go for a lump sum and a guaranteed monthly pension because this is the advice of at least 3 different FAs.

Hi Howabout

40 is 12 years away from me, and I'll already be paying off my mortgage anyway (albeit more slowly) in my bills calc.

My calc are based on the £40k I have in savings account right now, and then adding 2.5k each month and compounding interest of 7%. Husband and I are utilising our S&S ISA allowance and hoping to maximise it. Hope that clarifies, but let me know if I'm still missing anything.

I know about the FI community and I do believe it is doable for you. The trick is to save as much as possible and also lower your expenses. I personally love the idea and would have no problems finding things to fill my time, you just have to be organised and imaginative! Good luck and keep us posted x

Hi Lulu1234

thanks for your comment. Although some comments have been quite harsh, I think it's good to have all opinions as it either helps me confirm my thinking (by analysing the numbers more and then ultimately decide if I need to be worried about it) or things I hadn't considered.

Agree that, either way, even if I do pursue this and decide not to press ahead with retiring at 40, I will be in a great position anyway.

Yes, why do you have a 30 year mortgage?

I would re-think the age at which you want to retire, OP. It sounds more like you need to work part time instead of fulltime and get your work/life balance that way. Would you be able to do that instead?

I had an inheritance recently which sounded a lot on paper. It has paid off our mortgage which is lovely, and we have been able to replace our 2 old bangers. But even without mortgage payment going out each month, life these days seeems so much more expensive than it did a few years back. DH hasn’t had a pay rise in 10 years, his pension terms and conditions have been changed. He couldn’t have foreseen that when we had our first 15 years ago.

No could we foresee the cost of teenagers. God, the food consumption of teenage boys! Then there’s things like any meals out - once they are past the “kids eat free” age then it gets bloody expensive to eat out. Ditto with plane tickets when they need a seat of their own. Musical instrument lessons, activities, Duke of Edinburgh, school trips. Adult size clothes and shoes. Termly bus ticket. School dinners. It all adds up to a huge amount. It’s like supporting another adult really. They are so cheap when small and I think people forget that children cost much more as they grow into young adults. Do you really want to deny them the opportunity to go on a school skiing trip that they’re desperate to go on just because you want to stay home and do volunteering or bake cakes?

And then there’s uni costs to come....

We are both full time and can’t see us retiring within the next 10 years, or even going part time, as there don’t seem to be PT opportunities in my (public) sector anymore. Cuts have got rid of them. So I’m stuck with hectic fulltime lifestyle for now. We could cut back on expenses even if I lost my job and we would manage but we would miss out on a lot of things that make our family life really enjoyable at the moment.

I can totally understand the temptation to imagine yourself as retired early if you are fortunate to be earning well. But just don’t be hasty. You could live a looooong time and anything could happen.

I think its win win, there is nothing stopping you returning to work full or part time if you change your mind!

Hi lass

I'm 35 now, pregnant with one child already and living off one wage of under 17k after tax. Not entitled to JSA as contributions aren't high enough due to illness in 2014 and then being pregnant, but we do get CTC and FB.

My only advice is make sure you have factored in Brexit.

Our economy will take a massive nosedive to start with and with a Westminister goverment who many don't trust to play with a potato gun- factor in all those loses and changes etc.

We will have to work til we are at least 75 (35yrs for hubby and 40 for me) but that's ok as I'm going to train as a nurse.

Best wishes.

There's so much you don't know that this is impossible to plan.

You don't know if you will face infertility, health issues, redundancy, infidelity, all those things that happen to other people- they can happen to anyone.

Good luck with your future but stay open minded.

Your husband is planning to retire, and become a teacher for an easy life?
Agree with pp that you are likely to want to work less (so have less to save) when you have dc (and of course that's an "if" not a when, and fertility treatment is expensive if required). Some people are happy working ft though.

You'd be better doing more stuff to make you happy now rather than waiting till you're 40.

Hey OP, truly not trying to piss on your chips but I think it's the naivety of this that people are concerned about
Agree that, either way, even if I do pursue this and decide not to press ahead with retiring at 40, I will be in a great position anyway.
You're doing completely the right thing in saving like crazy. Good for you. But you have no idea what the next 12 years holds in store. Let alone the next 40. Hope for the best but plan for the worst. You have no idea how these financials will hold up. Life tends to throw serious curve balls, especially when children are involved, and to set your heart on this plan, with so little wiggle room would be deeply unwise.
If it was that easy financially, most slightly above average income households would be "retiring" at 40.

I don't think it does any harm to have an aim. We took early retirement at 58 and found the best way to work towards that was my husband continued with his career when we had our 2 girls and I essentially opted out of the rat race by going for a part time job which fitted in with the children. My husband was the main wage earner and covered our essential outgoings and my income was used for luxuries and savings. We both saved from 6% to 10% of our income as pensions and later in stocks and shares isas. Mortgage was repaid as first daughter started university.

I think you are being over optimistic in allowing 7% interest for a start.3- 4% would be closer to todays levels even if invested. The stock market has performed atrociously so far this year. I would say be prepared to be flexible. Is going part time an option for either of you sooner and allowing for a more relaxed working life when the children are small which is when they need you most? Also asking your parents to do all childcare seems a bit presumptuous even if they say they are fine about it initially. Our DD asked us to do one day a week and other grandparents do one and she does nursery three days which works fine for us. Doing five is hard work so you might end up having to factor in childcare costs. It is different volunteering when there is no likelihood of it happening any time soon and then being faced with it when it is imminent so be prepared for them to rethink that.

you’ve nowhere near enough money (yet) to retire at 40. You’d need to be investing heavily in high rusk stuff every spare penny till 40 and for it all to come good. Not likely in such a timeframe.

I’d personally plan for increasing financial independence in steps. Keep moving towards doing jobs you WANT. Who knows, if you could afford to volunteer part time doing something you love at 40 you could end up salaried in that exact work by 50. You should aim for freedom to explore other working styles and situations.

Also re the family childcare- my mil is the most obsessed devoted grandparent and spent years desperate for grandchildren she could look after. After three years doing three days a week for her daughters kids got to much and childcare costs don't reduce massively once they're school age so I think you definitely should budget for childcare costs

Are you getting 7% now OP? I need to look again at my savings as I'm getting nothing like that.

I don’t understand why someone who considers themselves financially savvy would ever go for a 30 year mortgage? Think of the extra interest you are kissing away!

Also, you need to work for 35 years to qualify for a full state pension:
www.gov.uk/new-state-pension/how-its-calculated

How many years will you both have at 40? I presume you won’t be itv have been contributing since age 5....

Anxious. At the moment we are winding up financial matters to do with our business and planning how to use our capital to generate an income. We are planning to buy at least one property, but that could be a student let, up market young professionals let or purpose built holiday let, we are still undecided. We are decluttering (selling where possible) all the stuff that goes with raising 4 kids. We are catching up on all the house maintenance that never got done. And we are planning our wedding (been together 26 years so about time).

DH is training for an ironman, I am making inroads into writing my novel and going back to my painting. We both have lots of groups and hobbies anyway and volunteer.

One thing I would say is that we still have youngest DS(11) at home. Of course he is lovely and keeps us young and involved with the community. We wouldn't be without him. But I wish we had had him earlier because we are restricted in terms of moving house and schools and massive long holidays, for a good few more years yet.