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.

Oh yeah, DH has done a bit of consultancy too, but not as much as he was expecting. Fortunately we didn't factor it into our calculations because he loathes getting back on the hamster wheel even for a day.

The bit that stands out for me is that you will be relying on parents to provide childcare

So you are basically robbing them of their retirement time to pay for yours

It's fine to aim for it, but bear in mind that you'll need to be flexible. Things change over time.

We intended to retire at 45, but continue to foster. In fact, we had to finish fostering and DH had a pay cut. So we'll be here for a few more years yet. However, it's well worth aiming to pay off your mortgage ASAP, get good at saving and investing. Then when the time approaches, you can semi retire- go part time, become self employed etc.

I admire your ambition and feel sure that there is a middle ground somewhere between retiring at 40 and remaining in the 'rat race' for another 20 years.

Some really interesting points from other posters. Just to add that your estimate of £500/month for a child could be wildly optimistic depending on what they end up being into. Having just spent £150 on essential kit and club subscriptions for DC's hobby, £50 in Next on clothes to replace stuff that no longer fits and a £200 Travelodge stay for a weekend sporting event it adds up very quickly. Not to mention the volume of food that my 'wheelie bin on legs' DC gets through at the moment!

I have to say, if I was your parents I don’t think I’d want to volunteer full time childcare to two pre-schoolers so you could retire at 40! Also, my dad died completely out of the blue in an accident when my DD was 1-he was the main age earner so my mum is only in a position to help me one-day a week with childcare as she has to work (when dad was around she just worked for spare cash, now it’s to pay all the bills). It’s a huge help, but I wouldn’t want her to do any more than that because I think her leisure time is important but also because DD gets so much from nursery. 2 days a week in the South East was costing me over £500 a month though so if you do end up needing nursery your child cost estimate is way off!

and I'll already be paying off my mortgage anyway (albeit more slowly) in my bills calc.

A 30-year mortgage means you’re already paying 5 years more interest than the standard.

The financially smart thing to do would be to put some of your savings towards paying off the mortgage early. You will get a much greater guaranteed return on your investment than by maxing your S&S ISAs.

Planning to ‘retire’ whilst still with a massive mortgage is a bit bonkers.

Don't rule out PT work, OP. I am mid 50s and work PT, for myself, so I pick my own hours, rarely work over school holidays; up myhours if I want to pay for a better annual family holiday. I did a lot (too much) of voluntary work at first and burned out. you slave away with just as many deadlines and demands as employent, but no money. PT allows you an income, some connection with the wide world, a chance to develop your career and take it in new directions if you want.

Until DC are grown, unless you are alternative and take years out to travel with family, you are pretty tied to school so can't go off travelling. And there are LOTS of expenses as DC get older. Seriously - it jumps. They eat more, clothes, sports gear and uniform are far more expensive. They want to join more clubs, more pocket money, phone contracts, money to socialise with their friends. I hand out the vast majority of what I earn to them. I admit I'm a bit indulgent but not stupidly so. No more than their friends' parents appear to be.

They'll need driving lessons, money to explore unis and then to pay for uni etc etc. What you can live on when they are pre school and primary is not at all an indication of what you need once they'r ein their teens.

Are your parents on board with the idea they will be your childcare as they get older, in order to enable you to retire at 40?

And what about those potential future children? Wouldn’t it be nicer for them to have time with their parents when they are young, rather than their parents working full time to fund an incredibly early retirement?

I always aspired to find a career so interesting I wouldn’t want to retire, even if I could. Wouldn’t it be better to look into those options?

That’s not to knock you living sensibly so you can build up financial security. But working furiously while you have small children then winding down at 40 sounds like a strange balance. It’s a joy to me to work part time now, and see plenty of the children.

I had a friend A who did very well with his high pressure corporate job and retired early, as planned , at 50. It was great for about 2 years. His partner was younger and still enjoying working ( had an unexpected promotion which changed his attitude to stepping down) so was less able to travel about with my friend; A did some volunteer work, but found that the occasional but intellectually engaging non-exec work that he thought would fall into his lap didn’t ( you would be amazed at the number of newly retired people who are chasing that or trusteeships on charities); all his friends still had careers - many of which were getting to the interesting, powerful and rewarding stage or still had children taking lot of time and money or having elderly parents needing much more care and attention, so did not have the time or inclination to do the things he wanted to do with him. He really regretted stepping off so completely so early.

I do understand why you want to do it, OP, ( felt very much the same at about 30 for awhile -stop the world, I want to get off, there must be more to life than this) but you are really young to be thinking about actual retirement at the ages you suggest . . What about aiming for a long sabbatical period ? Or a planned, funded step down to some part time, self employed occupation that would keep you engaged with the world ? It’s not just about the money ( and I think your financials are based on a very optimistic view of the certainty and predictability of life, btw, not to be too down)

Why not focus your energies on getting a job you enjoy?you can do a PHD as part of your job at a university. You don’t need to retire to learn to cook new dishes. Maybe look at your time management too?

Good aspiration, possibly. Having kids tends to dent a couple’s earning power. This is because there are many parts of family life that can’t be outsourced (from minor such as nativity plays, or being at home with a poorly child who needs Mum or Dad, to major such as attending hospital appointments), and its expensive to pay someone else to do the ones that can. For instance household chores don’t just double with two kids, they rise exponentially for some reason, and if both in full time work these become tedious. My advice would be either aim for mid fifties, or instead live a balanced life now, not going full pelt especially when dc are small.

I think it's a fantastic aim - go for it! I guess be prepared that kids might cost you a lot more than you think. But you can't know...I think it sounds like a great idea. Good for you.

I think it's fantastic that you're doing so much number crunching before the kids arrive on the scene. Based only on this, I expect you'll retire early (although perhaps a bit later than 40).

'Life is what happens ,when you're busy making other plans '

I would be very concerned that you seem to have no Plan B if it all goes pear shaped, whether due to Brexit or one of you having a period of Ill health and not being able to work. The best laid plans go awry and admirable though your plans seem, it is all about doing things in the future. You need to have some pleasure in the here and now. My husband had a stroke, following a minor operation. He is no longer able to work, our lives changed in an instant. We never wasted money but made sure we had a blooming good holiday once a year . I'm so glad we had visited interesting places and enjoyed amazing experiences when we were younger as doing such things is totally impractical now. I'd hate to have put off my hopes and dreams and then never have the chance to do them. You need to find a balance, rather than plan to start your life when you retire.m

Sort the mortgage out, have a rainy day fund and a saving to retire fund, but have a life as well!

What you can live on when they are pre school and primary is not at all an indication of what you need once they'r ein their teens.

Weeps

Like you, I prioritised saving when I was young and earning a big salary, and I'm really glad I did because it has given me choices as I have got older.

I agree with PPs who have said you should switch your mortgage onto a shorter term. There is no point you paying loads of interest for years to come, when you can easily afford to pay a larger monthly amount. When I was your age, I had a 17 year mortgage because that was the maximum monthly amount I could afford to pay (it means you are paying off much more of the capital sooner and so benefit from any rise in value if you sell it). As it happens, I've been mortgage-free from the age of 36. This has been a huge benefit over the years. Not having to pay a mortgage each month means that you can relax if you lose your job / decide to go part-time for a bit / decide not to work for a year / only take jobs that you enjoy etc.

Your figures don't accurately take account of inflation or likely investment rates. For example, you say that when you are 40 you'll spend 4% of your £650k i.e. £26k pa which is the same as your current expenditure. But £26k in 12 years' time won't buy anything like what £26k will buy you now. Not only that, but £26k when you are older - 50, 70, 90 will be worth a pittance and will need to cover not just the costs of the two of you, but potentially four of you until your future DCs are self-sufficient.

If I were you I would prioritise paying off the mortgage; save as much as you can into pensions; travel with your DCs when they are small (don't save everything until you are retired!)....and then see how you feel when you are 40. I know lots of people who are wealthy enough to have retired at 40, but none of them have actually done it.

12 years of saving 30K and earning 7% gets you to just 540K

You have absolutely nothing in your budget for anything beyond basic bills. No clothes, no holiday, no going out. Doesn't sound much fun to me.

Having said that, I think there is nothing wrong with assessing your priorities and deciding you would rather save the money in order to buy more time and flexibility in the future rather than spend it on things you don't really value. In fact it is obviously a good thing.

This discussion is super interesting.

@QueenoftheNights I don't think the OP is understanding the difference between buying an annuity and investing the whole amount to live off the interest/drawdown, so your message isn't coming across clearly. (Sorry OP if you do actually get this).

I'm 32 and have 2 kids - I'm spending all my spare income on overpaying my mortgage so that I can pay it off in next 4 years. This is because
(1) I'm severely restricted what I can save tax free into pension - I've saved 125k and now I'm only allowed to save 10k/yr tax free (as I earn too much, thanks George Osborne - you could have taken pot size into account ) so no point doing more and
(2) if I'm mortgage free by the time DC2 starts school I'll have complete freedom to choose what I do with my time as I'll no longer need to earn this much to pay mortgage/childcare. I'll aim to continue paying 10-40k/yr into pension and then can aim to earn my tax free income allowance doing something more part time or completely different

Think about how to give yourself more options when you reach 40. The 30 mortgage is the main thing holding you back here OP.

Why not look for the job that you enjoy now? Why wait until you are 40? Then you might not be in so much rush to "retire"?

I quit my job at 30 and live off the interest of my savings while I do a course at uni that I've always wanted to do.

It is quite frugal though and I want to travel more with dd so have picked up some freelancing work for £££.

If you're in an industry that you are in demand for then go for it. But if quitting means that you lose any way back in to earning good money then I'd probably just go part time to save my space.

Probably worth mentioning that we are also mortgage free. It would be impossible with a mortgage

Childcare - Don't rely on family (why should your parents have to give up their retirement so you can start yours early ?). My eldest is nearly 10 - In EVERY SINGLE family I know who used family childcare, this broke down within a couple of years, usually around the time the second child came along. Even when GPs had moved closer to the grandchildren - it is not a sustainable source of childcare, and you need to account for paid child care. Even now my 2 are at school, breakfast and after school club and school dinners cost around £500/month. Not including music lessons (at school) and swimming lessons (out of school and various other activities. Neither of these are compulsory, but I would rather work a bit longer and let my DCs develop these skills.

Also, we weren't even going to move etc, but in all honesty the house is getting but cramped now, especially now the DC sometimes don't go to bed until 9pm. Its not to do with bedroom space, its to do with living space.

I admire your ambition to work hard, live frugally and get out of the rat race, but I would not do this to the detriment of other people enjoyment of life (my children or parents). I also think you may need to revise your living expenses in time to come.

And Brexit
And the stock market... interest rate

Just to give the other side of the grandparent childcare thing. Only you know if your parents are genuinely happy to do it, and if they are then great. For the children, it's absolutely fantastic to be with people who love them in the same way their parents do! We have been lucky enough to have very supportive grandparents. My mum in particular has been amazing. None of them have 'given up' ALL their time to us and our son; neither have they thought of being with him as 'giving up' anything. It's enriched his life and theirs too. Your retirement plan seems to mean that you will have lots of time to be with your children as teengers and that is a time when they need their parents just as much as when they're toddlers. Equally if your parents need more care when older, you'll be available. Swings and roundabouts. Having close GP involvement has been enriching for all, here.

I'd hate to have put off my hopes and dreams and then never have the chance to do them. You need to find a balance, rather than plan to start your life when you retire.

This. I’ve lost far too many friends who died young to ever see the medium- long term future as a certainty. I can’t imagine being complacent about my health and luck that I didn’t realise there needed to be a balance between living now and planning for the future.

My folks were all set up for childcare. I went back to work at six months. By ten months I was not happy with the quality of care and moved dc to nursery. This meant I had to fix shifts at work = no bonuses, pay rise or promotion for the next 15 yrs and also went from full time to 4 days so less money overall. Both have had job changes and sickness which have meant lower salaries to be around for kids. Two part time nursery places were 1k. Kids didn’t like out of school care which precipitated job change to be around for them. In short life gets in the way. Also do took I’ll around birth of second dc so would have been unable to continue childcare anyway. Doesn’t hurt to have a plan though. Good luck!