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 I didn’t even see the circa £1k per month which goes to investments.

How the other half live....

Must admit, hoping for plans based on less than a quarter of what Poo has coming in and no investment property.

Have tried to do maths on not using dishwasher (it was here when we moved in) but I'd probably be better asking that on credit crunch. For me, minimising costs is absolutely key to FIRE.

Blimey, JustHere, I really don’t think you fit the typical MN demographic

I’d imagine not. I’m not even in the UK so different taxes, rules on non-primary property etc.

I’m still at the “vague” plans stage, putting in 15% of salary to pension, plus 4% from company. I’m then saving approx 1/3 of my net pay on top of that, but obviously some of that will end up used for “big” purchases. So I think overall I’m hitting somewhere between a 40-45% savings rate per MMMs formula.

I’m not very far into this plan though, so I will need to be flexible and I’m making assumptions about earnings increases in my calculations. I will get a pay increase this year that should increase my gross pay by approx 40% so I think this will really enable me to increase my savings rates.

The Only reason I have rates like this is because I keep my outgoings low, particularly in terms of choosing to set myself up in a low cost area when I left university with early retirement as a vague goal before I even had a job. This cuts monthly housing costs by half compared to many friends. I’m not prepared to shift down to whether or not my dishwasher is cost effective though - given the total electric bill is approx 70p per day here, and 20p is standing charge, I’m fairly sure it’s under 15p a run. Lidl dishwasher tablets work fine, and are £3.00 for 60 I think so that’s 5p. Add another 5p for salt and rinse aid and we are still only at 25p per cycle which even at minimum wage is only 2minutes of work I think. 0.25/7.83*60 =1.9 which seems like a good trade off to me!

I would focus on being mortgage free instead of full retirement at such a young age.
If you only pay £600 pcm towards your mortgage, on your salary you could afford to pay that down massively.
We have 15 year left on our mortgage and Plan to overpay this so it is done in about 10. This will leave us mortgage free by 43 (me) and 49 (DH). This is when we plan to work part time, do study, and use our money to support DC through uni.

I admire your ambition but I don't think you've factored in the long term cost of having children.

WomanInGreen, I did leave a piece out of my post where I was asking how the OP would really fare on her income, and a 12 year timeline. To be honest, I can’t see that it’s doable, but I posted too early. My post was to demonstrate potential shortcomings in her plan.

I think the OP, and most people, have underestimated the cost of retiring young. In my case, I started saving and investing heavily at 28, so will have 22 years of that, plus a high household income, to get me to retirement at 50. I then have another big cash injection via pension at 65. That’s without the cost of children/childcare etc. Sadly, I don’t think the OP has given herself enough time if she intends on retiring within the next 12 years.

While I absolutely agree that saving on expenditure is very important, I don’t think people give enough creedance to how much a difference an increase in income can make on threads like this. Cutting back on Sky, coffees out, takeaways will definitely save a lot, but often can’t compare with the options available to those with higher incomes in terms of accessing credit etc. Where I am, you’re offered preferential interest rates based on your credit score which makes credit even more expensive for lower earners.

Your plans for two children, close in age may not pan out. Life is full of detours from the main road.

My only advice to be very careful what you promise to your DH. Hypothetical pregnancies and children are very different from the real thing. You could end up with SPD or throwing up for nine months then go on to have a traumatic Labour followed on by reflux baby. I think your vastly underestimating how risky the whole business to your health and how that may leave you feeling about "the plan". You may struggle to breastfeed and then once you've finally cracked it be loathe to leave that baby. Or you may be surprised by the surge of hormones and turn into a serious momma bear who wants it done her way. You parents may not quite remember how ill small children are or that their own immune systems will have lowered with age. There are just soooo many things in this that I would never be promising a partner that you will be going back to work when you don't financially have to. I'd leave yourself a pretty big opt out for a few years at least.

We had friends who were on this same trajectory then the baby came and she felt vastly different but he didn't. He felt betrayed, she felt unsupported and their marriage dissolved. It's just a word of caution.

Yes yes

I admire your approach to planning and long-term thinking but I think you might change your mind about targets once children are here. In the scheme of things, aiming to retire at 45-48 would still be very young but might give you more options in terms of spending time with children (and cash to enjoy life with them). Do you know how much mat leave you’d want to take or whether you or your partner would be interested in going part-time for a period? The other thing I’d wonder about is how beneficial it would be to stop work at 40 at the same time you’re children go to secondary school and start building a life away from you.

Your mortgage is actually pretty low for someone in the south east with a house at your age. I’m quite envious! As others have said, you could get rid of it quite quickly. Our sizeable mortgage will be the barrier to us retiring. Currently it runs until we’re 64 which is terrifying. We’ve started overpaying a small amount but need to do something more drastic as I want to retire by the time I’m 55. 40s would be amazing but it is an unrealistic dream for us like most people.

How much are you paying into pensions and will that give you a separate injection of cash over and above your 650k plan? If you’re higher rate then the pension would be tax efficient but you wouldn’t be able to access it until 55.

Relying on your parents indefinitely for full time childcare seems a bad idea and one that is unlikely to be sustainable. Childcare will eat away at your savings ability and the logistics of juggling work and children can be so hard.

Really good to see a FIRE being discussed - I think it is totally possible to do what you want - the early you start the easier and more likely it will be .. ignore those throwing stones!

Can I recommend rather than see an IFA who would want to sell you stuff, you consider managing your own funds and instead go see a financial coach who can teach you how to do it - I see a guy who retired at 40 in SE and he write a very good blog and does coaching, both in person and Skype. He teaches FIRE and I have learnt so much from him - no longer pay larger % of my funds in fees giving me more to invest - just by implementing his ideas, I have in the last 3 years, nearly doubled my retirement savings and my understanding of financial planning is so much better than when I relied on IFAs.. if you want I can send you his details but he is pretty well known in FIRE land - check out the Facebook group as well.

good luck and go for it - wish I had heard about it at your age rather than 20 years later as I could be living very different life now!

Poo, I've already reduced down from a better income. So proportionally the cuts to costs mean everything and there's never going to be a higher salary for me. It looks like OP doesn't want to factor in higher salaries either.

Must find this SE FIRE guy...that sounds funny

Please do keep us updated OP - I'm 53 in December, single mum to a 17yo DS. Got a SIPP with about £270k in it (which I used to think was a lot... ) and been paying into a govt pension scheme for 3 years; just got a new job with a higher salary and a bit of a windfall (£10k). Need to get my head round investing and retirement planning - I would LOVE to be mortgage free and no longer a slave to the Paycheck and employment contract but rather living by my own rules and having my own (as yet undefined) part time business to generate some income. Feels like a million miles away but this thread has given me loads of food for thought.

You know, reading this thread is really interesting. A short while ago this all would have really appealed to me. But then a colleague who was planing on retiring a few years early, at the end of this year, was suddenly widowed totally out of the blue. Her husband was late 50s and had similar plans I think. They must have made all sorts of plans together and saved for their imminent early retirement. And all for what? It wasn’t meant to be...

That event really REALLY made me think that scrimping and scraping day to day, month to month, going without treats, for a future that no-one really knows if they’re going to get, seems a bit extreme. I decided that on balance it’s better to enjoy yourselves with your loved ones while you’re still young and healthy.

What are you going to fill your family photo album with if to save for early retirement you’re missing out on the NOW.

I never used to think like this. Neither has it made me a spend, spend, spend type of person. But as cringe-worthy as it sounds, i woukd rather “make memories” now by going off on nice holidays with the kids rather than saving for a time when they won’t want to come with us.

Sorry, Op, I didn’t want to derail the thread and I find your plans fascinating. I just wondered if you’d considered the alternative- that you may not actually end up here to enjoy all the wealth that you accumulate. Bit morbid, but it’s got to be done.

PandaPacer*

Your scenario applies to around 0.5% of the population. You surely understand that having a DH who was an international banker, earned shedloads ( even just for 3 years) which would include a hefty annual bonus, puts you in a totally different league to almost everyone else?

I want to give a different side to it.
What puzzles me about all these threads (I don't know what the acronym FIRE means other than Retire Early) is that most younger posters seem to regard retirement as something wonderful to aim for.

We are early 60s. DH could have drawn his pension almost 4 years ago. We could live off our savings for 10 years without even touching his pension. But we don't want to! We could also have sold up and downsized 10 years ago when DCs went to uni and put the extra cash in the bank to live off.

But this doesn't appeal. DH loves his job, I work for myself and can completely control my workload which is around 2 days a week on average. Our example of someone we admire was the academic in Oz who committed euthenasia last week at 104, having worked till he was 102.

Unless you want to travel a lot or hate your job, I don't see the urge to stop working young. None of our friends who did this are any happier.
30-40 years a is long time to fill with no meaningful purpose in life except 'travel' or whatever you enjoy.

I can see the appeal of not having a mortgage or debts, but I think a lot of people who hanker after 40-50 years of not working may be disappointed or find it's not the Utopia they imagined.

Every situation and background is different Queen but I think the universal goal is less stress. If your work doesn’t cause undue stress, then of course it makes sense to keep working. I’d say that all the millions of people working for NMW and doing heavy hours for that DO daydream about retirement.

All anyone wants is a nice life and very few people can actually do much to make their life nicer.

So this thread is great to help some people daydream or better, think differently about what they could do.

YY to thinking differently. Many people probably want more time and less stress and often the answer is to work less. But they can't see how they can work less, especially if having more time means they have more time to spend money.

For the majority who aren't in Pandas position who has been able to earn and make a lot of money, one way is to think carefully about what you spend your money on and how to be happy with less, a sort of 'voluntary simplicity' approach.

Being happy with less stuff could be an easier route to more time/less stress for the majority than striving to earn enough to pay for more stuff. Get away from what was described in Fight Club as 'We buy things we don't need, with money we don't have, to impress people we don't like'.

I think it's brilliant to aim for it but that won't be enough

I'd agree with the majority of people who say children get more expensive as they get older. I'm 45 now (a single parent) and have 2 dcs in their teens and we have just done the financial planning for university and it's not cheap!

My children both work in part time jobs so that helps but they are a long way off earning enough to contribute in any meaningful way

most people posting on here who have millions put aside are the lucky ones - the majority of the population don't have that - either they weren't in high earning jobs, stopped getting final salary pensions or just weren't lucky (so didn't get large inheritances or help along the way). In pension terms now, people would not be able to accumulate that much without an extra tax charge (there's a cap on the amount you're allowed to have in total- still you can put extra into other investments).

I do think it's worth seeing an IFA. It's very hard at your age now to work out exactly what you will need but you can play around with the numbers and see what comes out the other end.

I would also agree with Queen - though retirement can seem appealing when you're younger, don't forget how many years of not working you would have in front of you if you had an average age of death - you'd be talking about 40 odd years of not working and waking up every day without earning money. I think psychologically that's quite difficult - and it might be worth thinking of whether there are other careers that are more appealing to you that you might want to do instead!

Panda "Keep going with your plan BECAUSE bad things happen."

agree.

btw we have a few rellies who are puzzled and say "you will get bored" - DP copes better than I do but I find the workplace horrendous. I have pretty much had this plan since I was about 20.

it's been good to be in a traditional workplace as I've had two major periods of needing to use full sick pay but of course other people may have other fallback options so that's something to factor in.

FIRE would be a great topic to have under Money Matters - what do others think?

Maybe we all need to be a bit more Buddhist- be happy in the moment and with what you have.

So many people here wishing for something different. More money, less work,more work, etc. So sad that so many people hate their work or their work-life balance. Surely the key to happiness is to find something you enjoy which can and should (IMO) involve your skills in some sort of work.

We have made choices along the way which included not taking promotion which would have meant 24/7 role for DH and masses of global travel. He turned down a big promotion in his late 40s 50s and put his family first and okay, still earned a decent amount which allowed me to work p/t and be a really hands-on parent ( we don't have any family near by.) we didn't pursue overseas work which would have paid more but would have disrupted the kids' lives.

This meant we weren't able to do some things that our friends did- ie all children at private schools, massive houses etc .

we still had a 6-figure income and once the DCs left uni we were able to save a lot. we could stop work at any time but don't want to. Just having that option- money invested etc- makes it easier because once you know you don't have to keep working, you feel a sense of freedom and may actually decide you like work after all!

One thing to consider OP- if you have children as planned, and intend to be work-free from 40, doing your own thing, how would you feel if at 60 your own children asked to use you as a full time carer for their children?

I'd hate it. I 'gave' 20 years to my kids, when I worked hours to fit around them. I now feel my 60s are 'my time' and although I'd help out, I'd not relish being in charge of babies and toddlers full time. It's huge ask of any grandparent at a time when they might want to enjoy their own retirement.

QueenoftheNights

interesting that you say this with a 6 figure income. and not a coincidence.

i was on another board where FIRE was discussed; the majority of us wanting to do it were not higher rate taxpayers, never mind 6 figure earners. So it's easy to say "how sad that you hate your work" but the vast majority of us are earning an average or below average wage and hopefully general awareness will show you how people in those workplaces are being treated, with higher and higher expectations for the money.

As I said, I tried something more senior and couldn't cope but tbh the extra £5k wasn't worth it anyway.

then you also say "Maybe we all need to be a bit more Buddhist- be happy in the moment and with what you have"

that's something only a few of can enjoy. I am now one of them - packing in my job to work for a family business - but it's taken hard work and if I just sat there and said "Ah, I will be content every day" i would have no forward planning and no cushion.

in fact I think FIRE is a bit more Buddhist than "ah, well, we quite like our 6 figure jobs". That's not a criticism, just an observation.

Interesting thread.

While I applaud your aims, I think you are being a bit naive OP. I think aiming for FI is maybe more achievable than retiring at 40.

I can think of plenty of things that you have missed out from your outgoings such as birthday/christmas presents, clothes, house maintenance, car (which you may find you need once you have kids). I could go on. Although our disposable income is very high on paper, in reality it disappears very quickly.

We have no childcare costs as my parents help out. However having children is more expensive than you may think. There seem to be constant birthday parties, trips to pay for, brownies, karate, piano lessons etc.

Having children changes everything. Taking two lots of maternity leave had a big impact on our finances. As does working part time, but that was worth it to spend time with my children.

We're in our early 40's and have more in our pension pot than your aim of £650k, but there's no way I could consider retiring yet. It's just not enough to last us until we die.

We've still got the teenage years to get through and university accommodation costs. I'm assuming we'll help out with house deposits. Until the kids are established in jobs and reasonably secure then I couldn't contemplate giving up work.

Also having had some time out of work with two maternity leaves and a period of redundancy I appreciate working more than I did in my 20s and 30s. I was delighted to get back into work and although it is a drag and I moan about it sometimes, I couldn't contemplate giving up yet. For the moment I enjoy the mental and social stimulation and the status of being a high earning professional.

I would also be getting that mortgage paid off a damn sight earlier than 30 years.

I think its a bit sad, this idea that to have a nice life with your kids and "make memories" you need to spend lots of money. I was fortunate not to work when my four kids were small. DH worked from home then we both worked from home in our business.

Our holidays were spent camping with like minded friends who also had tribes of kids, picnicking, cycling, messing around on beaches, going to festivals. At home there were always parents around and dinner all together at the kitchen table. Big family Christmases in their own home, sledging on the nearby hills every time it snowed.

My kids are definite that they had a great childhood. They really aren't bothered that they never went to Disneyworld or an African safari. That they never had designer clothes or the absolute latest phone. They've got bags of confidence and now they are adults they earn their own money to pay for exciting travel and experiences.

We got used to living on not a lot. Though we always had enough. And when we got more, it was uncertain so we got used to saving big chunks. As soon as we started earning big money, our main thought was "how soon can we stop work?". And that was our focus for the last ten years or so.

Don't get me wrong; we haven't scrimped on ourselves but we never did the big lifestyle upgrades many of our friends did, We had one big family holiday that cost about 10k, and yeah it was fun, a different kind of experience. But the consensus was that really, we have as much fun on a third of that.

We live on a small newbuild estate of about a dozen houses. We've been here 12 years. We got to choose our kitchens and bathrooms etc when we moved in. We went pretty classic. Every other house on our estate has since refurbished their kitchens and bathrooms at a cost of thousands of pounds. Ours is fine; it gets a lick of paint every few years, there's nothing wrong with it. I started a thread about it. The mumsnet consensus was that it is perfectly reasonable to regularly change your bathrooms and kitchen for reasons of fashion. To me that's such a massive waste of money.

@TinklyLittleLaugh

"Every other house on our estate has since refurbished their kitchens and bathrooms at a cost of thousands of pounds. Ours is fine; it gets a lick of paint every few years, there's nothing wrong with it"

I find it is often included in what people think is needed for "house maintenance" whereas mine is things like keeping gutters clear, accounting for the boiler needing to be replaced. I think the kitchen and bathroom are 20 years old here? I don't know - we moved here about 10 years ago.