33, Pregnant, and Getting Close to ER

[BumblingtoFI]

daylatedollarshort: Managing AGI to maximize financial aid is such an interesting strategy and I haven't seen it discussed much. I went to a pricey private college for very little on basically this strategy (although it wasn't intentional, my parents just didn't earn much). I graduated with 25K in debt for a 160K education and paid it off in a year. My brother went to the University of Minnesota on basically the same strategy and graduated with no debt.

One question: When you buy a house does it then count as part of the nest egg you can compute your safe withdrawal rate against? I've been thinking of the $200K as a sunk cost since I don't trust that real estate actually appreciates, but I guess it's an asset that has value as well.

On Minneapolis: South Minneapolis is the neighborhood I know best (my cousin lives there). It seems decently safe to me and the $200K properties seem incredibly large to my NYC eyes. That said this is really speculative as we haven't even settled on Minneapolis and would rent for a while regardless. The advantage is family nearby, the disadvantage is the cold.

dadu, here's an example of what we've been thinking, what would be your evaluation of this type of property? I'm genuinely clueless about property ownership, although DH is a lot more knowledgeable.

3731 22nd Avenue S, Minneapolis MN For Sale | Trulia.com

[iac1003]

Good job!!

Breastfeeding while having a high-powered long-hour job in finance in NYC will be a challenge. It can be done as long as they allow you to pump a lot at work and your milk flows well. When I practiced in NYC (psychiatrist) many of my female patients in finance were looked down upon and in some cases felt discriminated against for having babies and wanting a life outside of work.

House expenses in terms of repair can really eat into a budget especially an old house in a cold place. Buyer beware. Get a good and thorough inspection including a separate plumbing and heating inspection. Same is true with an older car where repairs are unpredictable. Well, some are predictable. Then there's insurance, car replacement fund, etc. These are costs you don't have now and with which you don't yet have any experience.

You are in what Dave Ramsey calls "stork piling." You don't know what the immediate future may bring and hopefully your baby will be happy and healthy. But one needs money and plans on hold just in case everything is not rosy, at least until a few months after the baby is born. I think it would be wise to revisit this plan when your child is 6 months-1 year to see how you all feel then. It may solidify your plan or you may feel completely different from now.

I agree you are way underestimating health care and child-related costs. Where is the high deductible money? For a family that's often over $10,000 a year some of which could be offset by an HSA which you also pay for. Kids with recurrent ear infections, GI problems, broken bones, weird little accidents that end up costing, it can eat up your high deductible pretty quickly. Don't count on not needing to spend that money. And college costs. Not everyone gets a scholarship even with good genes for smarts on both sides.

You are planning on a 55+ year retirement. You need the money to grow and last a long time. Many curveballs happen in life. Being flexible is key to making life successful.




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[rodi]

A couple of thoughts.

I'm married to a retired architect, and just retired myself (as an engineer) this past year. I have 2 kids under the roof - ages 12 and 14.

I think your house maintenance expenses are low... but I'm not super family with Minneapolis' property tax rates. You'll need insurance, you'll need maintenance. Periodically you'll need a new furnace, a new roof, a new water heater, etc... Look at this budget item. You may be right about the expenses... but my gut says it's low.

Do you plan to have a car in your new home? If not, you'll probably want to budget for zipcar or car2go... grocery shopping with a kid in tow is challenging enough without a car.

I think your kid expenses are reasonble for the early years since you'll have a stay at home parent. Especially if you breastfeed and do cloth diapers. Daycare is the killer cost for the pre-school years. That and formula. I wish we'd had a diaper service near us when mine were small - but there wasn't. I had friends who DYI'd cloth diapers - but they were SAHMs... Disposable diapers are expensive (and fill landfills so not very enviro friendly.)

When the kids get older the number is probably a bit low. But it depends on what you want to spend... My kids do piano lessons, play sports etc. These are rec leagues and little league - so the cheapest options - but it still adds up. I also coach a robotics team for them - and there are fees associated with that. It was $1900 for 2014 for all of these items.

That said -a family of 3 with a budget of $64k seems doable, especially with a paid off house. We're a family of 4 with a budget of $84k - and that includes travel, 2 cars worth of expenses, etc.

[rodi]

One more thought - the high deductible insurance can bite you with kids.

I just switched to an HSA compatible plan 1/1/2015. I had a kid hospitalized for 3 nights in January, and my other kid broke his elbow last week. I'm assuming I will hit the family max OOP ($12k) well before June. Fortunately, we'd set aside money for this... but now I have to re-fill that medical spending fund. The good news is that insurance does significantly reduce the charges (negotiated rates are AWESOME.) The hospital stay (just the hospital, not doctors) was "only" $1200/day. Without the negotiated rate it would have been MUCH higher.

[ER1970]

Quote:

Originally Posted by rodi One more thought - the high deductible insurance can bite you with kids. I just switched to an HSA compatible plan 1/1/2015. I had a kid hospitalized for 3 nights in January, and my other kid broke his elbow last week. I'm assuming I will hit the family max OOP ($12k) well before June. Fortunately, we'd set aside money for this... but now I have to re-fill that medical spending fund. The good news is that insurance does significantly reduce the charges (negotiated rates are AWESOME.) The hospital stay (just the hospital, not doctors) was "only" $1200/day. Without the negotiated rate it would have been MUCH higher.

Rodi, a quick question on the max OOP: does it mean once you reach/have spent the full amount of annual OOP, the insurance picks up the rest of medical expenses? Or do you have to pay more, on top of that $12K OOP? If so, how do you budget for annual medical expenses? I thought one could just budget with a max OOP? Just a bit confused about this.

[AnIntentionalRoad]

Quote:

Originally Posted by BumblingtoFI 3) The kid budget could certainly be adjusted up, but since DH is staying home we don't need childcare. I'm probably being naive, but I can't imagine what could consume even $400 per month at any age. My parents certainly didn't spend that. That said, the main reason I plan to keep working beyond this year is the uncertainty around kid costs.

The way you spend your money on kids will vary greatly from family to family based on your means and values. When I was a kid my parents got by spending very little on us and we turned out fine.

But here are a few expenses we've had recently for our kids that we could never had forseen as younger parents(we have 2 kids in school):
- Braces and dental care for daughter: 12k
- Sports and activities: 800/mo
- Clothing, toys, etc: As much as you care to spend.
- Restaurants and vacations: 20-30% more, at least once they become middle schoolers and aren't eating on kids menus.
- Saving for college: $$$

Yes, these are all wants, not needs, so you'll have to decide on each(and other wants that will materialize).

Parenthood is an expensive proposition in our culture.

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[dadu007]

BumblingtoFI,
Take a look a the "Crime" section under "Neighborhood Info" of that Trulia listing and I think (unfortunately) you will get your answer. Over 10 break-ins in the surrounding blocks over the last month and a half.
Also the house was built in 1910; I would venture it is a real fixer-upper.
Truth be told, I'm a suburbs kind of guy and I would have no tolerance for the uncertainty in this type of neighborhood, especially with a newborn.
Sorry, that's probably not the answer you were looking for!

[Bryan Barnfellow]

I don't think you mentioned life insurance. Be sure to factor in an adequate level of term coverage so that your child is protected. What about travel? It's a big wonderful world with a lot to see!

-BB

[mystang52]

I did NOT do any comprehensive financial analysis of your numbers. But I think that while 1.5 million sure seems substantial (and is for your age), there are a "gazillion" things that can happen for such a long retirement. These can slowly/steadily reduce that stockpile.
A simple thing like wanting a better, less austere, lifestyle will impact your budget. Real-life things such as major home repairs likewise can force you to withdraw funds above and beyond what you budget for. And of course having a child is one ongoing major expense........never mind the very real possibility of wanting/having a second child.
I suggest you give this a whole-lotta [more] thought and analysis before making that decision.

[bingybear]

do you have enough quarters credited to qualify for SS and Medicare? While we don't know the future of these things, health insurance gets significantly more expensive as one ages.

[rodi]

Quote:

Originally Posted by ER1970 Rodi, a quick question on the max OOP: does it mean once you reach/have spent the full amount of annual OOP, the insurance picks up the rest of medical expenses? Or do you have to pay more, on top of that $12K OOP? If so, how do you budget for annual medical expenses? I thought one could just budget with a max OOP? Just a bit confused about this.

The $12,500 (for myself and 2 sons, DH is on a different plan) max OOP is above/beyond the insurance premiums. I had $6k budgeted, since that is significantly HIGHER than previous years averages of total medical bills. But we haven't had hospitalizations in previous years. I also set aside $30k for emergency - with the idea of refilling that bucket as it gets used.

Sure I could budget that we'll hit Max OOP each and every year. But I don't think that's realistic. We're fairly healthy and don't go to the doctors a lot. But... both kids had issues this year that are atypical. If one of us gets an ongoing condition that makes it likely we'll hit the OOP each and every year, we'll cut back in some other area, change our insurance to a more comprehensive one at the next open enrollment, and deal with it.

I don't consider this year a typical year - but it's the type of thing you have to plan for. In our case I have medical emergency fund as my planning.

[explanade]

Sounds like basic expenses could be covered but as many have pointed out, there are potentially many unforeseen expenses which could crop up.

But beyond those, it seems like there's very little discretionary spending planned for, like vacations or maybe some hobbies or activities, not just for the kid(s) but for the parents too?

Also not much said about why getting out of a lucrative career so early. Burned out? Are there other things that you specifically plan to pursue which you couldn't with the career?

Have you thought through about other aspects of retirement besides meeting just the basic living expenses?

[daylatedollarshort]

Quote:

Originally Posted by BumblingtoFI daylatedollarshort: Managing AGI to maximize financial aid is such an interesting strategy and I haven't seen it discussed much. I went to a pricey private college for very little on basically this strategy (although it wasn't intentional, my parents just didn't earn much). I graduated with 25K in debt for a 160K education and paid it off in a year. My brother went to the University of Minnesota on basically the same strategy and graduated with no debt.

In California the cutoff is around $90K for grant money for a family of 4 (varies year to year so I don't know the exact the amount for 2015) and that is AGI, not gross income. Income inside our retirement plans does not count nor does house or business appreciation. For older homeowners like us who bought when house prices were less crazy and are covered under Prop 13 for property taxes it is a pretty good deal.

Every time kiddo #1 would bring up private college or out of state we'd print out the Payscale reports on salaries by college and by major and say if you can make a good case for going somewhere more expensive than free, especially considering the starting and mid career salaries of the many good public schools we have here, let us know and we will consider it.

[ivinsfan]

Quote:

Originally Posted by dadu007 My only 2 cents is in regards to your plan to buy a 200K house in the Minneapolis area. You can certainly do so, but it's going to be in a crappy neighborhood and, respectfully, and I'm just guessing here, the style and condition of the house will not be very appealing to your architect husband. I would suggest a recon visit to the Minneapolis area to see what and where 200K will buy you... With a child on the way you want to minimize the number of moves. Trust me on this one. I live in in the Minneapolis area, BTW.

Agree with you completely, not sure where the OP pulled the number for MSP, but she has underestimated what it will take to buy near transit, with good schools..the close in transit spots are very popular with all the young professionals in the area and the prices reflect that. That area never collapsed much and is rising quickly in price. MY DD and SIL live in such an area.

[BumblingtoFI]

Hey everyone! There are a lot of great and interesting points of view here, and I'm picking up that some of my assumptions may be a bit rosy. I have a bunch of questions that'll take a bit of time to wade through but wanted to address the questions about travel and the big "why" question.

1. Travel is most certainly already in our budget, and I am thinking we'll spend the same amount on travel we do now (~$4K per year) just do it slower. We're somewhat thrifty travelers now but end up making more expensive choices to save time.

2. What do I want to do in retirement? For first few years after retirement I just want to spend time with my baby and let the dust settle from 10 years of uninterrupted work. My job is about as good as you could get but it also consumes a huge amount of my time and energy every week. And after that? I want to write a novel, hike more, teach a class, give away career coaching, cook a lot, and have the luxury of learning without it being tied to a profit motive.

Thanks to everyone for the interesting feedback today!

[MichaelB]

Quote:

Originally Posted by BumblingtoFI 2. What do I want to do in retirement? For first few years after retirement I just want to spend time with my baby and let the dust settle from 10 years of uninterrupted work. My job is about as good as you could get but it also consumes a huge amount of my time and energy every week. And after that? I want to write a novel, hike more, teach a class, give away career coaching, cook a lot, and have the luxury of learning without it being tied to a profit motive.

That's a great set of objectives and a whole lot to look forward to. Good luck and welcome to the forum.

[Fred123]

I'll chime in here to say that you might want to reconsider some of your assumptions. You can certainly take *some* time off, but I'm dubious about your financial ability to permanently retire. Just a few considerations:

1) Home maintenance costs generally run about 1-2% a year and the property tax rate in Minneapolis is about 1.5%, so best case you can expect to spend at least $5K a year on housing expenses, not including utilities.
2) According to the USDA, it costs on average about $250K to raise a kid and that doesn't include college. If you add current costs for a public university to this and assume that you will qualify for some financial aid, that goes up to perhaps $300K. That increases your monthly child rearing costs to over $1000/month and, of course, if you have more kids that will increase.
3) Others have mentioned that your estimate for HI also seems low, though you will probably qualify for ACA subsidies. Still, with a high deductible plan, all it takes is an ER visit or two to blow through the deductible.
4) You have to plan for > 50 years of retirement, and I don't think the methodology behind FireCalc is reliable for very long retirements. You might want to some other retirement calculator (like Fidelity's Retirement Income Planner).
5) I'm guessing that you could safely withdraw, at most, about 2.5% of your portfolio per year for such a long retirement. That leaves you a little over $30K/year (after deducting $200k for your house purchase). Can you live on that?

At this point, you're probably sorry that you asked for any advice!

[ivinsfan]

Quote:

Originally Posted by Fred123 I'll chime in here to say that you might want to reconsider some of your assumptions. You can certainly take *some* time off, but I'm dubious about your financial ability to permanently retire. Just a few considerations: 1) Home maintenance costs generally run about 1-2% a year and the property tax rate in Minneapolis is about 1.5%, so best case you can expect to spend at least $5K a year on housing expenses, not including utilities. 2) According to the USDA, it costs on average about $250K to raise a kid and that doesn't include college. If you add current costs for a public university to this and assume that you will qualify for some financial aid, that goes up to perhaps $300K. That increases your monthly child rearing costs to over $1000/month and, of course, if you have more kids that will increase. 3) Others have mentioned that your estimate for HI also seems low, though you will probably qualify for ACA subsidies. Still, with a high deductible plan, all it takes is an ER visit or two to blow through the deductible. 4) You have to plan for > 50 years of retirement, and I don't think the methodology behind FireCalc is reliable for very long retirements. You might want to some other retirement calculator (like Fidelity's Retirement Income Planner). 5) I'm guessing that you could safely withdraw, at most, about 2.5% of your portfolio per year for such a long retirement. That leaves you a little over $30K/year (after deducting $200k for your house purchase). Can you live on that? At this point, you're probably sorry that you asked for any advice!

On the other hand, it's fun to dream and it's better to ask for input sooner, rather then later!

[soupcxan]

Personally I would be very uncomfortable retiring with only $1.5M for two 34 year olds plus a newborn, even if you also have a paid off $200k house. $1.5M at 3% WR is $45k/year before taxes for three people. No way would I do that.

[calmloki]

+1. We have 30 years less retirement to cover, no kids, a higher net worth - and I still stew over what ifs. SWMBO's mom lasted well into her 90s, so I'm looking at covering 30 more years for SWMBO. We are pretty darn thrifty, but I figure our investments only do a point better than inflation and I don't want to be forced to live as we currently choose to live. I'm finding myself with the knowledge to take care of various repairs but lacking the desire or stamina. That means spending more going forward just to take care of things I now do myself. Rather major health issues crop up quite unexpectedly - Oh! Want a dental implant rather than a bridge? That'll be $5000/tooth. Chewing is a good thing.

My totally uninformed opinion would be that if one leaves a high powered, high salary, great job in New Yahk City for a few years it is not liable to be there when one wants it again - wouldn't want to count on just picking back up after an extended hiatus.

EDIT: love the house though - our kind of old place with the varnished wood and 8" baseboard. You noticed the normal old house total lack of workspace next to the stove and the dearth of outlets and overhead lights on dangling electric cords, yes? I guarantee a lack of grounded outlets and probably knob and tube wiring. Real estate agent photos crack me up with their wide wide angle lens. Doors look 4" wide, that little parlor with a couch that about stretches from wall to wall is maybe 9 1/2' wide, but sure looks good in the picture. Again, really like old houses, but that puppy will give you something to do with your retirement time chasing fix-ups and repairs.