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.

I'm 48 and my children are growing up, I'm so glad I work, I would go stir crazy if I didn't work. I work part time, which helps, I work with some lovely people and organise after work social evenings. I have hobbies, horse riding, dog agility, long dog walks, travelling. You might change your mind when you get to 40. It also makes you realise how important it is to be paying into a very good pension at the age of 40 to 60, that's 20 years of saving. It's funny the nearer you get to retiring age the more you appreciate what work brings to your life.

You probably need to get advice about pensions, including state pension which is obviously dependent on NI contributions. Living off savings for a few years while relatively young sounds fine until you consider what comes afterwards when you're older.

There is nothing wrong with wanting a good work-life balance and quitting the 9-5 corporate world.

But you need some realism. At your age now your state pension is likely to be available at 70 for you, if at all.

The idea that your parents will want to cover child care is not a given. I expect I am roughly your parents age (or they could be younger.). I would not be happy at being relied on for child care because a) I'm still working running my own business and b) who's to know I'd not want to say f..k this, I'm having a grown up gap year, or two, or three?

But the main thing you don't appreciate is inflation. If I compare what I earned at 28 and what the equivalent salary is now, the difference is 5-fold. So whatever figures are in your equation you need to realise that today's values are going to be meaningless in 30-50 years.

I'm sorry but you don't show much financial acumen from your posts. As others have said, you should overpay your mortgage, not save each month. You are paying interest on your mortgage and probably not getting that return on savings (even stocks and shares in the short term.)

I'm not sure or not if you understandmy point. DH has a final salary pension which can either be transferred to another pension (private) and where we can draw down what we want each year.
The advice is this is too risky unless the transfer value of the pot is over £2M.

The other option is we take a lump sum ( max £250K) and then a guaranteed pension of £XXK annually.

So if you want to be secure in your 80s, you will need a pension pot of rather a lot to cover 40 years of no or little income.

Two things - the biggest cost of having kids is actually reducing the hours you work. Your plan is based on still earning what you do now. Also, If you have a dc with a disability you may be unable to find the right childcare outside school hours so are forced to work pt.

Also, as others have said, you should shorten the term of your mortgage and get it cleared in a third of the time.

You are in a great position financially, I would just kick back and live for the moment. But thats probably not the advice you should take!

On top of what everyone else has already said, you are also factoring in inheritance from parents. What if they spend it all travelling, or more realistically on social/nursing care? You absolutely cannot assume there is anything coming from that field, even if they want to leave it you now.

You are relying on over 10 years of childcare from your parents. This might not work out for a number of reasons and you need to be prepared for this. Your DC might also want to sometimes go to holiday clubs instead, when all their friends are going.

Also, hidden costs of children and teenagers - like hobbies, health issues, tutors if they have difficulties at school etc. My DS is going to university open days and these are expensive due to the train fares, and even had to stay at a hotel overnight. You may need to contribute towards your DCs accommodation costs at University if the maintenance loan does not cover it.

The only people who can hope to retire at 40 are the super rich who are often entrepreneurs orfootballers, Mark Zuckerberg, actors etc. Or the aristocracy. The rest of us have to work unless we choose a bohemian type of life shunning most of life's little luxuries. £100K combined salary is far from exceptional and I don't know anyone who has been able to retire on that at 40.

Contrary to what everyone else says, she has factored in inflation, by looking at real returns not nominal returns. Though relying on 7% real is a bit risky. But a withdrawal rate of 4% easily allows for inflation. Her pot will be growing. And paying off your mortgage isn't always the best thing to do, it depends on what interest you are paying versus what you could earn elsewhere.

Yes you could retire at 40. Or you could do what I did and quit the London rat race and set up my own business. Making more money now than I did working in London. Whoops! (To be fair I made next to nothing for the first 5 years).

Anxious, I really admire your forward thinking. I really really wish I'd done the same at your age as I'm now late 40s and would give anything to be able to retire now. I used to be very ambitious and aspired to go all the way up the ladder, but I've learned that the higher up you go, the more you have to play the political game, the more stress you are dealt with, and the less energy you have to remain enthusiastic. Thankfully, I am now coming to a position of having our mortgage paid and that already makes a big difference, but still some years to go before I can consider retirement.

My only comment is that you seem to have only considered the best case scenario. There are so many unpredictable event that can take place in your life, and most likely will that it is more improbable that you will be able to save as much as you've forecast.

For one, I can assure you that children cost more than £500-£700 a month, especially as they get older. They will want phones, ipad, school trips abroad. They might need extra tutoring, might want to take up expensive hobbies. There are driving lessons, then help with their first car, insurance. Of course before having kids, it is easy to assume that you will bring them up to be grateful for the simple things in life, that they will have a good work and saving ethics. The reality is that you will want to please your kids, treat them, and spoil them, at least to a certain extend and all those little things mount up.

Still, no harm is setting yourself a goal and see how life evolves.

The thing about putting your pension pot in an annuity is that once it's done that's it. Your guaranteed monthly sum is likely to be what, 2 or 3% of your pot. And then, get run over by a bus or die early, all that money is gone.

If you get a SIPP and use drawdown then you retain control of your money. And when you die the fund gets passed on. I think to put a million in an annuity is crazy. And yes, pension advisers will tell you to do it because they get a big fat commission.

You're going to be so beholden to your parents when they're older for all the free childcare, you may not have the time or opportunity to travel.

I don’t think your figures work but I absolutely see the appeal of stepping out of the rat race as early as possible. If I were you I’d pay off your mortgage as fast as humanly possible, which will give you both lots more options.

I knew someone who retired at 42

It doesn’t go well. 4 years later he was job hunting.

No money problems. Just like a lost soul during the day. Children at school. He and his wife would go for coffee, read the paper, Gym.

All well and good. But this got so bored and fed up of each other

Also, they became a bit boring if I’m brutslly honest. Had nothing to talk about. It was all just how their investments were doing and the latest cafe opening in town.

what about :
either of you losing your jobs in the next 12 years and earning less? How safe are your jobs and how easy to get a similar job?

Your parents dying (one or both) or needing nursing home care?

Children needing some kind of care so you can't or don't want to work full time ?

Your children not getting on with grandparents and gps withdrawing their ofer

Brexit- no one knows what will happen to investment funds or inflation in the next 10-20 years.

If you hate your job , think about other options to retrain.

God i thought i was thinking alot about the future but you are on a different level .
I think it is part of the british culture to think and plan so much about the future it amazes me !

Two children are likely to cost you a hell of a lot more than £500-700 a month. I know you said that your parents were willing to do childcare, but realistically, looking after two babies/toddlers full time is very hard work, and I think you may end up having to put them in nursery at least part-time. Full-time nursery for two children could easily be £2500 per month in London/ the South East. School-age children may still need wrap-around childcare and will probably want to participate in clubs and activities, school trips etc, which really add up (my daughter's swimming lessons alone cost £280 per term!). Then there's clothing and shoes (both rapidly outgrown/destroyed/lost)- school shoes can be £40-50 a pair, plus trainers, wellies, ballet shoes... You may need a bigger car, holidays abroad will mean paying for four flights instead of four, the list goes on...

OP I think you are getting a rough ride! You are proposing to save hard for 12 years, hardly a crime!!
I think buying choices is the key. We both work part time so don't need childcare. We are low earners so it's a drag financially, but we have a safety net so we are fine. The safety net gives us options. Once you have the safety net, you can take risks (you could even spread that retirement out a bit - both part time 30 to 50 instead of full time to 40 and retire, for instance!)
I do agree with the PPs who say "find a career you like" too. You mention homelessness as something you want to help with. There are careers to be made doing that too! You can, if you want, afford to take some time out to retrain, and take a drop in salary- options!

We earn exactly the same as you. Our mortgage is 100k more so payment of 1k per month. All bills, life insurance, etc and a 2k childcare bill for two under 3 and we have about 1k disposable monthly which we spend on fun stuff and holidays. We have a plan for retirement and we may be able to retire slightly earlier but young children are crazy expensive. 3 years ago our disposable income was 3k.

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

No kids yet but expecting to retire in your 40's??!

LOL. Good luck with that one.

Just make sure the "2 kids, fairly close in age" work out first... and life is perfect

I'm 36 we could afford to retire now but why? We can't travel out of term time, there are still 24hrs a day, etc. We have a nice life where I work when i want to as does dh. Maybe in 10 yrs time we maybe want to stop and retire properly bit at 40'what will you do?

Appreciate everyone's comments here, you've given me food for thought - if only to tweak my numbers to add some risk factors, and budget for 'fun' so to speak, and also account for child costs as they get older and require more. I'll definitely see how I get on in my plans, and be flexible with it where I need to.

I already have a large fund for emergencies, which husband and I will keep topped up - so if the roof caves in or car breaks down, it's covered :)

Many of you mentioned the childcare and 'stealing' my parent's retirement.
Whilst I might expect to pay some childcare and may need to factor that in, my parents are adamant that they want to do it - to the extent that they've been pestering me to have kids so that they can enjoy them.

Obviously, I know my parents more than anyone here, and whether they mean something or if they're just being polite. My parents are around 60, and retired when they were around 55. They have done lots of travelling (mum loves it, dad hates it). They are also financially independent and are what most people would consider wealthy, in that they have a significant property portfolio that they use as their retirement fund. However they are extremely frugal (they are quite happy fishing/growing fruit and veg in their garden).

In terms of stability of my/husband's job - mine is extremely stable as a chartered accountant. Husband works in medical advertising and is constantly headhunted, but he could easily move into industry too (also gets headhunted often) so the risk is pretty low.

Obviously if one of us dies/has disabled kids/some major life impact, I'll have to rethink the whole retirement at 40 thing.. That goes without saying.

I recently changed my mortgage to a 30 year (did have 19 years left), so that I could invest the remainder in a stocks and shares ISA (as interest rates are currently so low). I can more than afford it if rates go back up.

If I put all my money into the mortgage, I would only archieve a rate of return of the mortgage. However as I'm young, and can withstand market shocks over the long term, I plan to hold the mortgage in the market and keep it liquid. Maybe I'll decide to pay it off, if I felt that the peace of mind is worth more to me.

At the moment my investments are £50k, with a mixture of 9% on stocks (index funds) and then 4.5% on a 60:40 stocks:bond allocation.

Why don’t you take time off to raise your dc with dh still working, you can do some of the things you hope to and see if you like being retired.
We tried it at 45 and it was boring as hell. We spent so much on holidays and entertainment. We both got jobs and saw it as a lesson. 40 may seem old to you but trust me you won’t be ready to put on your slippers - in fact career wise you are at your peak.
I would enjoy your youth and wait until you are old before retiring. Japanese culture in fact says never retire, it ages you

It's great that you are financially planning so young. I do agree with PPs who say to find that work life balance now though. Why wait? You don't know what the future holds. If you want to pursue hobbies or spend more time cooking etc then do it now.

I think your title is misleading as you really mean you want to downsize your career at 40. I have always downsized mine! I have been working since 16 and worked through my degree etc but have always balanced work with study and significant hobbies and down time rather than the rat race of full time office work and have managed to save by being savvy (15 year mortgage on first house I bought at age 23) and frugal and not consuming loads (ardent charity shopper and vegetable grower etc) and in recent times, being lucky (mortgage paid off thanks to inheritance). I have always found the idea of being on a treadmill for 40-50 years before retiring and only then pursuing hobbies really sad, but then I lost a parent before they had the chance to retire which I think has influenced my thinking.

If you have kids in the next few years you may feel like taking some time out to be a Sahm or work part time when they are little and might really feel like going back to full time when they're older. Just make sure you are enjoying life right now.

Also, I would get a better mortgage deal if you have all that disposable cash.

I'll be 40 next year and can't imagine retiring but can absolutely imagine continuing as I have so far with an ok work life balance.

Just to add, I'm hoping that in my 40's I may have the opportunity to work full-time in a more senior job for ten years or so as I feel that might be the right time. As pp said that's when careers often peak.