31 year old, married with two young kids, looking to FIRE in 5 years

[alexbalex]

Hi everyone, long-time lurker here, I thought I might post a little something here to introduce myself.

I'm a 31 year old looking to (mostly) retire in 5 years due to sheer hatred of being stuck in the rat race (especially my current job, which I'm looking to switch from) and the desire to be around and present in my two kids' (age 1 and 2) lives.

My plan is to try to acquire around $1.8 million by 2017, and then live off of gross yearly expenses of around 110K until the kids graduate college and my house is paid off, at which point my yearly expenses would shrink to around $40K.

Due to my relative youth, I'm hoping my wife and I can mitigate risk somewhat by taking on pt w*rk for a few years after 2017 (me: temp work & online poker, her: dog walking, temp/seasonal work) to supplement our incomes by around $20K.

I tried to anticipate health care costs in this plan, but the whole situation seems too difficult to predict, so my current thought is to wait until 2014 and then try to figure it out.

Fortunately (I suppose) my wife is like 13 years older than me, such that even if we FIRE, I anticipate some SS income. Other potential risk mitigators include potential inheritances (macabre to think about, I know) of conservatively anywhere from $50K-$200K down the line and a small (like $5K) pension if I can successfully obtain a job in the government.

Comments/criticisms/questions are most welcome! You basically cannot offend me

 

[Alan]

Welcome to the site. Good luck on your plans going forward.

 

[lhamo]

If you spend 110k/year out of a 1.8 mill nestegg, that is a 6%+ SWR.

If you bring in 20k/year from PT work and spend 90k/year out of your nest egg, that is a 5% SWR.

I think most participants on this forum would feel uncomfortable with those SWRs. For those under 40, most of us are pretty conservative and suggest SWRs in the range of 2-3% for younger retirees.

110k in annual expenses for a family of four is high compared to what many here spend, but can be greatly affected by where you live. Have you looked at ways to reduce your living costs, possibly by relocating? You may find that if you are open to living in a less expensive part of the country, you can get by with a nest egg much smaller than 1.8 mill while still having a low SWR.

 

[alexbalex]

If you bring in 20k/year from PT work and spend 90k/year out of your nest egg, that is a 5% SWR.

I think most participants on this forum would feel uncomfortable with those SWRs. For those under 40, most of us are pretty conservative and suggest SWRs in the range of 2-3% for younger retirees.

True, I agree that a 5% SWR is fairly risky, but I also think a SWR should take into account SS and other income down the line, no? Even if the minimum social security age gets raised, the program itself is highly unlikely to be eliminated.

110k in annual expenses for a family of four is high compared to what many here spend, but can be greatly affected by where you live. Have you looked at ways to reduce your living costs, possibly by relocating? You may find that if you are open to living in a less expensive part of the country, you can get by with a nest egg much smaller than 1.8 mill while still having a low SWR.

True, I live in a really high cost area, and am hamstrung by wanting to be someplace that has good public schools and is near people I am friends with. Still moving slightly further away into the suburbs/exurbs is a distinct possibility.

 

[Alan]

True, I agree that a 5% SWR is fairly risky, but I also think a SWR should take into account SS and other income down the line, no? Even if the minimum social security age gets raised, the program itself is highly unlikely to be eliminated.

Have you tried putting your numbers into FIRECALC? It takes into account future SS and pension income.

 

[alexbalex]

Have you tried putting your numbers into FIRECALC? It takes into account future SS and pension income.

I've tried FIRECALC a bunch of times, and suffer from the character flaw of continually monkeying with the numbers/assumptions until I get the result I want. I need to probably do a more serious scenario generator, once I am a few years away.

One interesting thing about FIRECALC seems to be that the decision to pay off my mortgage in full seems to really matter to the calculation. I see the argument for why reducing mortgage expenses cuts down on risk, but I also worry about putting so much money in such a poorly returning asset, especially when I'm going to really need a high rate of long term return to not outlive my portfolio.

 

[Alan]

I confess that I didn't start running retirement calculators until I was in my forties.

As for paying off the mortgage or not, there have many threads discussing the pros and cons.

 

[flyfishnevada]

I was gonna say something about you having a 1 and 2 year old at 31. Then I remembered that I had a 1 yo and one on the way at 31. I guess that explains why I have teenagers at home still.

Beyond saving, I'd look at trimming those $110k of expenses. That's a lot! Obviously, I have no idea what you spend it on but that more than most people make in year, much less actually spend (taxes, savings, etc.). Might be some wiggle room in that to reduce spending, hardly notice and meet your goals.

 

[alexbalex]

I was gonna say something about you having a 1 and 2 year old at 31. Then I remembered that I had a 1 yo and one on the way at 31. I guess that explains why I have teenagers at home still.

Beyond saving, I'd look at trimming those $110k of expenses. That's a lot! Obviously, I have no idea what you spend it on but that more than most people make in year, much less actually spend (taxes, savings, etc.). Might be some wiggle room in that to reduce spending, hardly notice and meet your goals.

Thanks, I agree with you, its a lot! Basically, it breaks down to:
$20K in taxes,
$24K in daycare costs (I've read that when children get older these costs get replaced with other things, e.g. music lessons),
$30K in housing and condo fees (definitely some savings can be had there),
$10K in groceries (this one is crazy),
$5K in clothing (my wife buys a billion children's outfits),
$2K in utilities,
$3K in student loans,
$2K in travel,
$2.5K in petcare (hopefully to be reduced once we can walk our own dogs).
$3.5K in restaurants
$3.5K in entertainment (including cable, internet, and phone)
$2K in healthcare

Lots of room for saving in here, but its tough to eliminate some of the more frivolous categories while I'm still w*rkinng, b/c they are necessary stress relief at this point

 

[alexbalex]

I confess that I didn't start running retirement calculators until I was in my forties.

As for paying off the mortgage or not, there have many threads discussing the pros and cons.

Thanks! I plugged in my numbers into FIRECALC just now, and unless I did something wrong, I get an 89% success rate factoring in likely inheritance, and a 77% success rate otherwise.

 

[Aiming_4_55]

Thanks, I agree with you, its a lot! Basically, it breaks down to:
$20K in taxes,
$24K in daycare costs (I've read that when children get older these costs get replaced with other things, e.g. music lessons),
$30K in housing and condo fees (definitely some savings can be had there),
$10K in groceries (this one is crazy),
$5K in clothing (my wife buys a billion children's outfits),
$2K in utilities,
$3K in student loans,
$2K in travel,
$2.5K in petcare (hopefully to be reduced once we can walk our own dogs).
$3.5K in restaurants
$3.5K in entertainment (including cable, internet, and phone)
$2K in healthcare

Lots of room for saving in here, but its tough to eliminate some of the more frivolous categories while I'm still w*rkinng, b/c they are necessary stress relief at this point

Welcome to the forum!

Interesting budget.... I might of missed it, but how about college funds for the 2 kids? Are the student loans ... yours or the kids? Healthcare might be low without employer contribution.

Budget for 4 = $110k, 2 = $40k... that's a major reduction. Is this correct or is it $40k + SS? It'll be great if you can swing it all. Good luck.

 

[Nords]

Welcome to the board, Alex.

You basically cannot offend me

Pretty brave talk for a former lurker who's seen what's happened to others making that statement...

(me: temp work & online poker...

I don't know how long you've been lurking, but to my count we've had a handful of online poker players here over the last eight years. "Odd"ly enough, none of them are still with us to explain precisely how many millions of dollars they've accumulated.

Who knows, you might turn out to be hard-wired to make a fortune at it, but at least you're willing to hedge your bets with temp work.

I guess that explains why I have teenagers at home still.

I think that by now the problem is you keep feeding them, so you've blunted their natural instincts. They have no reason to return to the wild to learn how to forage for themselves...

We've been testing out this theory in our house, but our teen keeps showing up at the houses of friends & neighbors begging for their food. The rehab seems to be a long, complicated process.

 

[MBAustin]

Welcome and good luck with your plan.

For planning purposes, your $24K in daycare costs should shrink dramatically once the kids are in school unless you choose private school. If you are FIRE by that point, you won't need after school care. And since you'll have time to do things with them, you won't need to over-schedule them with activities. So put some of that into a college fund and some ($200/month/child)? budgeted for lessons, etc.

 

[jclarksnakes]

The problem with your plan is that it does not take inflation into account. If you retire at age 36 you or your wife will likely be retired for 50 years. 50 years of seemingly harmless 2 to 4 percent inflation will enormously erode the purchasing power of whatever amount you decide to draw out of your stash. During that same 50 years there very likely could be several years with much higher inflation that will have an even bigger effect on your buying power. That 40K you plan on taking out may have only a small fraction of the buying power that 40K has today. IMO you will either need more money and/or to work longer than 5 more years. OTOH, it is very impressive that at 31 you are thinking about and apparently very successfully working toward an early retirement.

 

[alexbalex]

Welcome to the forum!

Interesting budget.... I might of missed it, but how about college funds for the 2 kids? Are the student loans ... yours or the kids? Healthcare might be low without employer contribution.

Budget for 4 = $110k, 2 = $40k... that's a major reduction. Is this correct or is it $40k + SS? It'll be great if you can swing it all. Good luck.

Thanks! You're right that I haven't been including college contributions, which is obviously an oversight. I'm hoping to have $160K saved for the little ones by the time I FIRE, which (assuming a 6% real return) means I'll still need to save some more if we assume any of them are going to grad school. Perhaps an additional $5-8K should be assumed.

Healthcare is obviously low, so hopefully savings I can get from daycare/housing will make up for that.

The major reduction isn't just the kids, but also includes savings from having a paid off home/moving somewhere without condo fees.

 

[alexbalex]

Pretty brave talk for a former lurker who's seen what's happened to others making that statement...


I don't know how long you've been lurking, but to my count we've had a handful of online poker players here over the last eight years. "Odd"ly enough, none of them are still with us to explain precisely how many millions of dollars they've accumulated.

Who knows, you might turn out to be hard-wired to make a fortune at it, but at least you're willing to hedge your bets with temp work.


I think that by now the problem is you keep feeding them, so you've blunted their natural instincts. They have no reason to return to the wild to learn how to forage for themselves...

We've been testing out this theory in our house, but our teen keeps showing up at the houses of friends & neighbors begging for their food. The rehab seems to be a long, complicated process.

Hahaha, yeah, as a former ravenous teenager, I have no doubt that mine will attempt to eat me out of house and home

The online poker thing is kind of a brainstorm for ways to shore up some money to avoid FIRE'ing right at the beginning of a market downturn. If it doesn't work the way I hope, I'll look into other j*bs such as temping (which will most likely be mind numbingly boring)

Basically, the plan would call for an hour or two of low stakes online poker playing ridiculously conservative and pulling down an average of $20 a day or $5000 a year. Plenty of ways this plan could go wrong, in which case, a temping I will go.

W/r/t being offended, I've been dreaming of FIREing for so long now, and being called crazy by everyone (including my wife) that being called crazy doesn't faze me

 

[alexbalex]

Welcome and good luck with your plan.

For planning purposes, your $24K in daycare costs should shrink dramatically once the kids are in school unless you choose private school. If you are FIRE by that point, you won't need after school care. And since you'll have time to do things with them, you won't need to over-schedule them with activities. So put some of that into a college fund and some ($200/month/child)? budgeted for lessons, etc.

I hope so, though to be honest, I don't really know. I obviously can't teach them how to play the violin or speak Spanish or play on the soccer team. I don't want them to miss out on enriching activities just because their parents are FIRE'd.

 

[alexbalex]

The problem with your plan is that it does not take inflation into account. If you retire at age 36 you or your wife will likely be retired for 50 years. 50 years of seemingly harmless 2 to 4 percent inflation will enormously erode the purchasing power of whatever amount you decide to draw out of your stash. During that same 50 years there very likely could be several years with much higher inflation that will have an even bigger effect on your buying power. That 40K you plan on taking out may have only a small fraction of the buying power that 40K has today. IMO you will either need more money and/or to work longer than 5 more years. OTOH, it is very impressive that at 31 you are thinking about and apparently very successfully working toward an early retirement.

Doesn't FIRECALC take inflation into account? I think my withdrawal rate (taking in future pensions/inheritances, and cost of living downgrades) is less than 5%, which seems doable, if you assume an 8% return on equities coupled with a 3% inflation rate. Worth pointing out, a significant chunk of my expenses right now are tied to housing, which obviously won't inflate at the same rate (fixed mortgage and all).

 

[ronocnikral]

your withdraw rate should take inflation into account. and the basis of the 4% rule which many cite has recently been taken by some here as not accounting for inflation. I don't have the answer for what a SWR should be, I just know I couldn't sleep at night with anything over 3 for that period of time.

I think your costs are all over the board. Anytime someone says, what about this, you respond, well, maybe this is a little a high and I hope that will cover this shortfall. I would nail down with a good deal of accuracy what your actual costs will be. and when you solve the healthcare riddle, please let me know the answer.

now, if you could share your secret on how to acquire $1.8mil by age 36 (plus pay off the house in a high COLA area and have 80,000 for college saved for each kid), I am all ears.

 

[alexbalex]

I think your costs are all over the board. Anytime someone says, what about this, you respond, well, maybe this is a little a high and I hope that will cover this shortfall. I would nail down with a good deal of accuracy what your actual costs will be. and when you solve the healthcare riddle, please let me know the answer.

now, if you could share your secret on how to acquire $1.8mil by age 36 (plus pay off the house in a high COLA area and have 80,000 for college saved for each kid), I am all ears.

You're right, my costs are all over the place. Its just very difficult to know where I'm going to be cost-wise in 5 years, given all the huge changes in my life upcoming. My plan is to try to cut down on entertainment, daycare, and housing costs over the next 5 years. Once I FIRE, I'll save a lot on clothing, restaurants, pet care but likely healthcare will be a very high expense. (healthcare seems impossible to predict until 2014)

No secret for me to acquiring lots of dough. Basically involved selling my soul to my employer, neglecting wife and kids, and accepting mockery from people at work for being the only person who didn't buy into golden handcuffs lifestyle (LBYM) People look at me like I'm crazy when I tell them I drive a 6 year old Toyota, take the bus into work, bring my own lunch, and use a pre-paid cellphone rather than the latest Iphone.

 

[jclarksnakes]

Doesn't FIRECALC take inflation into account? I think my withdrawal rate (taking in future pensions/inheritances, and cost of living downgrades) is less than 5%, which seems doable, if you assume an 8% return on equities coupled with a 3% inflation rate. Worth pointing out, a significant chunk of my expenses right now are tied to housing, which obviously won't inflate at the same rate (fixed mortgage and all).

Yes, Firecalc takes inflation into account. It looks back at the last 150 or thereabouts number of years. During the 1970s and 1980s inflation was very high and those years inflationary effects are blunted by the 120 or more years that had far lower inflation. If hyper inflation were to hit us for very many years in a row our Firecalc devotion would prove to be a mistake. Also, your estimate of 40K draw out of your funds after retirement does not take into account the inflation between now and that time. If it is after the kids finish college like you posted that is a long time from now. Inflation, even if it stays at the current low rates will greatly erode the purchasing power of 40K. As others have posted that 40K already seems low. Many on here live on less today but most of them never made or spent money like you are doing today. You seem to have some very good LBYM habits with the old Toyota and taking the bus and using a prepaid cell but to many people living on 40K or less a year today your expenses do seem to be all over the place, as someone mentioned. For those of us in our late 50s and older the chances of high inflation again in our lifetimes are low compared to your chances. It seems like a certainty to me that sometime during your lifetime inflation will again be a very big issue. We cannot accurately predict the future. When I was your age there was no reasonable expectation that healthcare costs would go up at a rate so much higher than the overall inflation rate for so long. I wonder what the world will look like 50 years from now? Could food costs go up like healthcare costs have gone up? Much of the money people spend today is for stuff that did not even exist when I was a kid.

 

[alexbalex]

You're right that my expenses are all over the board, and I am assuming no hyper-inflation, I suppose if that happens, I'll have to pick up more pt w*rk or move someplace far cheaper (e.g., Panama).

The $40K figure is based on my wife and my spending habits prior to having kids. It's low b/c it assumes no mortgage, but it basically breaks down to:

$9K- healthcare
$7K -groceries & restaurants
$7K- taxes
$4K - travel
$4K - entertainment +$ phone, cable, internet
$2K- utilities
$1K- gifts
$2K- gas/automobile repair/buying
$1K- home maintenance
$1.5K- insurance
$1.5K -personal care

 

[ronocnikral]

No secret for me to acquiring lots of dough. Basically involved selling my soul to my employer, neglecting wife and kids, and accepting mockery from people at work for being the only person who didn't buy into golden handcuffs lifestyle (LBYM) People look at me like I'm crazy when I tell them I drive a 6 year old Toyota, take the bus into work, bring my own lunch, and use a pre-paid cellphone rather than the latest Iphone.

Well, there has to be some secret in there. B/c I do all those things and my projections have me no where near $1.8 mil when I am 36.

Have you ever thought about easing into this a bit? Perhaps suggest your wife retire first (I would actually suggest I retire first) and see what the costs are as she can walk the dog and watch the kids so you can see all those cost savings.

Do you track every penny you spend? Usually that helps to eliminate big chunks of fat right off the bat. People tend to underestimate what they spend if they don't track all the money.

 

[alexbalex]

Well, there has to be some secret in there. B/c I do all those things and my projections have me no where near $1.8 mil when I am 36.

Well yes, I worked really hard in school in order to get the kind of job where selling your soul would bring in a high salary. But now, I'm utterly burned out and desperate to be present in my children's lives.

Have you ever thought about easing into this a bit? Perhaps suggest your wife retire first (I would actually suggest I retire first) and see what the costs are as she can walk the dog and watch the kids so you can see all those cost savings.

Do you track every penny you spend? Usually that helps to eliminate big chunks of fat right off the bat. People tend to underestimate what they spend if they don't track all the money.

We do track our spending, though its hard to crack down on some categories without causing marital discord (e.g. children's clothes & toys)

I am sort of easing into it, in that I'm looking for an easier less time-intensive job, which will unfortunately be a 60% pay cut, for the next 5 years.

 

[flyfishnevada]

Thanks, I agree with you, its a lot! Basically, it breaks down to:
$20K in taxes,
$24K in daycare costs (I've read that when children get older these costs get replaced with other things, e.g. music lessons),
$30K in housing and condo fees (definitely some savings can be had there),
$10K in groceries (this one is crazy),
$5K in clothing (my wife buys a billion children's outfits),
$2K in utilities,
$3K in student loans,
$2K in travel,
$2.5K in petcare (hopefully to be reduced once we can walk our own dogs).
$3.5K in restaurants
$3.5K in entertainment (including cable, internet, and phone)
$2K in healthcare

Lots of room for saving in here, but its tough to eliminate some of the more frivolous categories while I'm still w*rkinng, b/c they are necessary stress relief at this point

It not about giving up stuff you really enjoy. It's about weeding out the stuff that doesn't really bring you much happiness. Maybe $110K is your personal absolute minimum. That's a personal decision. I'd never presume to tell anyone what is a good level of spending for them. If I could afford to spend that much, I likely would.

It's more about priorities. Maybe you already know this, but some people don't. You want to retire young, you might have to give something up to make it happen. Giving up a few things that probably don't do a lot to enhance your life anyway is like putting that much money in your 401k. Actually put it in your 401k and its like doubling the effect. More money for retirement, but you need less.

As for the crazy groceries, I spend that much, but I'm supporting those two teenage boys. My wife and I think we can cut that by 2/3rds when we set them free. Half would be luxurious for us. What I think is crazy is the $24K in daycare. Wow! I know it's expensive but wow! You likely won't replace all of that with other stuff as they grow older. I mean you could, but...