33, Pregnant, and Getting Close to ER

[daylatedollarshort]

We have a conservative asset allocation and are conservative with our savings in general so we probably would not have planned to retire forever in our thirties, with kids, on that size of portfolio.

But if you have low expenses and one or both of you are willing to work part-time, do contract work, become self employed, start hobby jobs or some kind of low key family friendly careers and make another $20 - $30K a year or so at less intense jobs, that could work out really well. Over time that would give you another $1M+ for extras and future kid expenses as well as increase your future SS benefits.

Juliet Schor (author of The Overworked American, The Overspent American and Plentitude) calls this downshifting:

Downshifting - Wikipedia, the free encyclopedia

We've never had million dollar or half million dollar a year type jobs to give up so not working full time and testing out working less never involved a huge risk for us.

[CaliforniaMan]

Congratulations! You have done an AMAZING job acquiring such a net worth at your age. However, having raised two kids in suburbia, I think you have substantially underestimated the costs. And at your young age, you have many more years in retirement than tools like FireCalc and others are designed to model. What about working another 5 years? That way you could accumulate a better buffer, and still choose a home and neighborhood to live in before you kid starts 1st grade, so they can grow up in the same neighborhood. Not yet even having your baby, and trying to make such a drastic change, I think you are jumping the gun a bit.

[FUEGO]

Hey BumblingtoFI! Congrats on the baby - that'll be quite a big change in your life probably more than moving half way across the country.

In general, I think your plan is doable, especially if you stick it out another year or three and keep piling up the $$.

The $3600 for housing expenses might be low if you include insurance. We're at $3600/yr for maintenance and taxes, plus another $800 for insurance (1800 sf in Raleigh NC).

$400/mo for kids should be plenty. Although $4000/mo could also be plenty. The sky is the limit when it comes to kid expenses.

Your health insurance looks like a decent estimate assuming you'll be on the ACA subsidies.

It looks like you already found my blog. If you haven't see it, check out my "Developing a retirement budget" article on how we came up with our $32k/yr retirement budget. It sounds like you're using the same methodology as me - take your current baseline expenses and then adjust up for additional retirement costs and down for work (or in this case, NYC specific) costs that will end.

As for college, I'm just now starting to look at our options, and found out there's a thing called "Net Price Calculators" for colleges all over the nation. Google that plus the school you're interested in. I plugged in our stats and found that the kids might not need anything from us to get through college ($12000/yr from grants and loans, plus we/they chip in a few thousand from working). Then there are tax credits and merit scholarships. You'll also have 18 years to let your current $1.5 million grow, so you'll probably have extra money by then to help pay for college if necessary.

What's the likelihood of you or your spouse finding decent work in Mpls or wherever you end up should you need to refill the FIRE stash? I assume freelance architect translates well to other areas depending on what aspects he's in, and finance could too (although probably not with NYC/Wall St salaries).

[BumblingtoFI]

FUEGO - Thanks for the input! I think a year or three of additional work makes a lot of sense, particularly since I get this summer off for maternity leave. I realize "off" is not a very good descriptor of the first three months of having an infant, but at least it'll be an interesting input when I think about retiring.

Thanks for the references, I'll check out both the article and the Net Price Calculator.

While I realize marketable skills age quickly and as soon as I leave I'll likely never make the same money again, I also have generic skills like people management that could be employed in a variety of settings. I'm also somewhat well connected to the hedge fund community in Minneapolis, and think the "glitz" of a New York brand name firm would make it fairly easy to find employment again for the forseeable future. Another angle I'm considering is whether my current job would let me work remotely for part of the year or part time, which might make my remaining years of work more palatable.

A few questions from earlier in the thread:

1. 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 whatever we spend on a house 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.

2. Why would you recommend life insurance? Our kid will inherit a $1.5M trust if we pass away; how much more could he need?

3. I'm confused about the riskiness of this plan and the advice that it's better to have a 2.5% withdrawal rate. Doesn't the 3-4% SWR math work regardless of how long you are in retirement?

Thanks again for all the input!

[FUEGO]

Quote:

Originally Posted by BumblingtoFI FUEGO - Thanks for the input! I think a year or three of additional work makes a lot of sense, particularly since I get this summer off for maternity leave. I realize "off" is not a very good descriptor of the first three months of having an infant, but at least it'll be an interesting input when I think about retiring.

That approach makes sense. Enjoy the time off with the baby.

Quote:

Thanks for the references, I'll check out both the article and the Net Price Calculator.

You're welcome! You're close to FIRE if not there already.

[Fred123]

Quote:

Originally Posted by BumblingtoFI 3. I'm confused about the riskiness of this plan and the advice that it's better to have a 2.5% withdrawal rate. Doesn't the 3-4% SWR math work regardless of how long you are in retirement? Thanks again for all the input!

No, the original 4% SWR rule-of-thumb dates back to the Trinity study from the mid-90s, which reported that a 4% SWR gives you a 95% chance of having a net worth > 0 for a 30 year retirement. In other words, this SWR assumes that you are depleting principal. Since you are planning for a 50 year retirement, your SWR has to be lower. A ballpark guess would be that you could only tap your account at 60% (30/50) of the SWR of a 30 year retirement. And many retirement planners (such as Wade Pfau) who model this now think that, because of persistent low returns, the SWR should be less than 4% for 30 years. So 2.5% is probably optimistic for a 50 year retirement. But you really need to model it with a more sophisticated tool than FC (such as the previously mentioned Fidelity Income Retirement Tool).

[Fred123]

Sorry, meant to say persistent low bond rates.

[sheehs1]

Quote:

Originally Posted by BumblingtoFI 2. Why would you recommend life insurance? Our kid will inherit a $1.5M trust if we pass away; how much more could he need?

Your child won't inherit it if you and your spouse are spending it to live on or if any surviving spouse is spending it. But I gather that may not have been your point per se.

Typically, it is recommended in your situation with a young baby that you get a 20 or 25 year term life insurance policy on yourselves in the event something happens. This gets your children past college age and launched.

It doesn't have to be for 1.5M. Term life insurance is cheap at your ages and you can pick any amount you feel is reasonable should you decide to do this.

Whatever the amount, it helps replace any income that was produced and may be needed going forward. Even if one spouse is not currently working - he/she may start working and loosing that income and/or having expenses go up may be a jolt. It protects the surviving spouse, provides some breathing room so they don't have to worry quite so much about the money side.

Rather than thinking about what happens if you both go at the same time, think about the situation IF something happened to your spouse or if something happened to
you. Insurance can help mitigate some of the risks of loosing a spouse.

[rodi]

Quote:

Originally Posted by BumblingtoFI 1. 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 whatever we spend on a house 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.

I do not consider my home as part of my assets for SWR/retirement asset purposes. I consider the expenses of my house in the budget... but since you can't spend a house without selling - and you need to live somewhere... I don't count it.

That said - I *do* consider it in LTC planning. If my husband or I ends up needing LTC - the other could downsize and use the equity difference to pay for LTC. It helps that our house is a significant chunk of our networth - so significant equity could be extracted to pay for LTC.

[BrianB]

Hi! I see lots of comments on the money side of things, but here are some comments on the Twin Cities from someone who has lived here for 20+ years.

Minneapolis & its 'burbs are the trendier, "hip" cities. St. Paul is the political capital and more stoic. I am strongly in favor of the Minneapolis side!

Ignore anything outside the actual city or first-ring suburbs. You don't want to be a 30 minute drive from everything, do you?

Downtown Minneapolis living would be great but $200k won't buy you anything.

Northeast Minneapolis ("Nordeast") has some great ethnically diverse areas, you can probably buy a small pre-WW2 bungalow in OK condition for $200k.

Southeast Minneapolis has two new light rail lines that are spurring development & gentrifying the surrounding areas. Mostly large two-story houses that are gorgeous but can be money pits if you aren't careful.

First ring suburbs might be worth considering. Robinsdale / New Hope / St Louis Park and others are mostly post-WW2 bungalows & ranches. Not a lot of charm for an architect, but reasonable living with easy access to all parts of the metro area. Public schools are pretty good - likely better than you are used to in NYC.

We (self & DW & DD) have lived in a $150k (current value) townhome in St Louis Park for over 15 years and we love it. 5 minute drive or 15 minute bus to downtown, new shopping & entertainment redevelopment within walking distance and very good public schools including IB & immersion options. Five linked lakes within walking distance with walking & biking trails make it a surprisingly green urban area.

Minneapolis winters can be brutal but April to November are beautiful.

Good luck!

[BumblingtoFI]

Thanks for the responses! I'm still not sold on the necessity of life insurance, but the SWR and whether to include your house in your assets make a lot of sense.

I plugged a $66K expense rate to take into account some of the adjustments discussed below into Fidelity's Retirement Calculator and it said I have a 90% chance of success if I work two more years, which seems like a decent outcome. $66K seems like a pretty ridiculous spending rate compared to our cost of living now, but we need to spend more time researching taxes, health care costs, kid expenses, different places to live, etc. It seems like the sensible plan is to keep plugging away at both the job, the life plan, and getting to know our baby. It'll be an exciting couple of years coming up!

Thanks to everyone for the guidance.

BrianB - Thanks for the guidance on the MSP area. I have family in the area as well living in a variety of neighborhoods and agree with your take on living in the city or in close ring suburbs. A pre-WW2 bungalow would be perfect for our purposes and luckily DH has a lot of the experience I lack in assessing the future maintenance needs of older homes. We're completely committed to living in small spaces, it's the where that's the tricky part.

That said, though Minneapolis is a great option we're still not sure if it's where we'll end up. Living somewhere warm and spending summers in MN has definite appeal too :-)

[FUEGO]

I would skip the life insurance. Focus on FI for you and not FI for the kid. They would be set if they inherited your $ tomorrow.

[aida2003]

First of all, congrats on your upcoming new addition!!

But second of all, I'm VERY suprised that the response that you're OK to quit. OK, I admit, I skimmed the 1st page only, but I'm sure I'll come back to read the whole thread. So, I just felt an urge to chime in that the OP is fine to retire at 33-34 with the $1.5M and no health insurance, but with a brand new baby underway whereas other people are not as OK to retire with maybe smaller retirement funds but closer to their FRA. I think I'll come back to read tomorrow to make sure I'm reading this correctly.

Yes, FUEGO's postings here and his site (I discovered his blog by accident last week when reading another young retiree's blog) are very inspirational, but at least I have to stay realistic when pondering on whether I can do it when I read his thoughts/math.

But if you're a MMM type girl you can definitely do it. I applaud your bravery

[Katsmeow]

Quote:

Originally Posted by BumblingtoFI Hello ER forum, 1) We will move out of NYC and buy a $200K house in cash. The house will cost $3,600 / year in maintenance and property taxes. 2) A high deductible health insurance plan will cost $300 / month 3) Our kid will cost $400 / month 4) We will buy a car for 10K and it'll cost $250 / month for insurance and gas 5) We will see a 10% cost of living decrease by moving to a lower cost area and retiring.

1 - I don't have a problem with buying a house for $200k since that would be easy to do in Texas where I live. I don't know anything about the housing market where you are looking at. On the other hand, $3600 a year for maintenance and property taxes may or may not be reasonable. You need to check on how much property taxes are in your area. Also, what do you consider maintenance costs? Lots of people don't count thinks like replacing the dishwasher that suddenly dies or replacing the roof and so on. If you've been living in apartments, you may be significantly underestimating the cost of home ownership.

2 - Maybe the plan will cost $300 a month. I don't know. Assume that it does. However, you may well have medical costs in addition to the plan. First you will have a deductible and out of pocket costs. Sometimes people don't really focus on how much those can be. Prescription costs can be very high. My daughter takes a prescription that is over $800 a month (yes, there is one cheaper alternative and she was on it -- but then had a side effect that led to her switching to the other medication). And, our co-payment is less than the full amount, still it is a lot of money.

And, while you might be healthy now and think your medical needs will remain low, things change. Your child might have a chronic health condition. Your or your husband might develop health conditions particularly over the next 30 years. In short, you need to be factoring the possibility of medical costs in addition to the cost of health insurance. (And, also consider things that aren't always covered by insurance such as eyeglasses, vision tests, dental, etc.)

3 - I have 3 kids. The youngest is 18. I shake my head at the very idea of a child costing $400 a month. I saw your post that you can't imagine what you spend the money on. What that tells me is that you haven't really looked at the cost of raising children.

Yes, I understand your husband will be SAHD and eventually you will retire. Even so, the likelihood is you will likely have at least some childcare costs. There are going to be situations where you either don't want to bring your child to an event (anniversary dinner?) or it would inappropriate to have the child present. You will likely have to spend some money on babysitting at some point.

Still, I grant you that you probably won't have a lot of child care expenses.

I think the biggest problem I have with your $400 number is really 3 factors.

First - your child is not here yet. You have no idea what costs will be needed to raise your child. When my son was 5, I thought he would go smoothly go to public school and then would go to college. I guess I was partly right -- he is a senior in college right now. But, the path to getting there was crushingly expensive. For example, he needed to be in an therapeutic school for several years. Ironically, going to college was a step down in cost for us.

Each of our kids had expenses for genuine needs (not wants) that we didn't know about in advance.

Second - There are costs to having a child that aren't direct costs spent on the house. How big a house you buy, wanting to have a yard for the child to play in, choosing a house in a more expensive neighborhood because you want to be in a particular school district, higher utility costs, much higher grocery costs (yes, small children aren't too expensive -- but teenagers can eat just as much as an adult), higher travel costs. You may think for example that kids don't add much to utility costs, but in the last few years 2 of our kids are no longer at home. Our utility usage went down by a lot.

Third - While I think the item above would account for all of your $400 a month there are direct costs. Clothing - yes, kids clothes aren't that expensive. That is in part because they need so much of it. They grow out of it long before it is worn out. Activities - I was never all that big into having my kids do a lot of costly extracurricular activities but, for example, my daughter does karate at $125 a month. Maybe your child will want to take music lessons or be interested in a sport. I am not saying that children have to be scheduled out the wazoo and never have any free time. On the other hand, kids may want to take part in at least some of the activities that they enjoy and that their friends partake in. Even if you limit these (and I think you should), there is a cost.

4 - Do you plan to have only one car? While I can imagine some retired couples managing with one car, I can't quite find it practical for a couple with a child, unless you live in an area with exceptionally good public transportation. There are just too many times that some of you have to be in different places and having one car will make that difficult. I understand that isn't the case in New York City, but most of the US doesn't have the transportation options of New York City.

$10k for a car -- maybe. Most people want to have cars with higher safety ratings and safety options if their child will be riding in the car. You might be able to find something in that range with careful shopping. $250 a month for insurance and gas seems low. Basically it doesn't sound you plan to do much driving. But parents often end up doing a lot of driving. DH has been retired since 2010 and I semi-retired at the same time and work from home. We still do a lot of driving, mostly because our daughter is still at home. Also, your child will likely eventually have a driver's license. Expect your auto insurance to go up significantly (I'm talking thousands of dollars more a year).

5 - I think you will see a lower cost of living with moving to a different area. The problem I think is that you are comparing your budget going forward (with a child) to your budget in the past (without a child). The two are not remotely comparable. Kids are really, really expensive (not sorry to have 3, but really expensive).

[Bamaman]

Early in my career, I chose to work toward ER by controlling my cost of living. That meant living where housing, property taxes, utilities and state income taxes were ultra low.

After traveling throughout the country for work, I could see living in colder climates was much, much more expensive than living where the weather was milder. My family put quality of life ahead of anything, and that included living in very large houses in great communities.

Do you know you can buy a 4000 square foot house in a beautiful swim/tennis neighborhood in the Atlanta suburbs for $200K-250K? Public schools in selected counties are so good that private schools are not required. It's the same for Houston, Texas.

Other great cities to live in are Nashville, Tennessee and Austin, Texas. There are so many other centrally located cities in the East and South that I cannot note them all.

We moved to NW Alabama for the simple live, and because I have a lake house with a 6 mile sunset view and a bunch of boats.

There are just so many great places to live that don't include 4 months of horrendous weather and cabin fever every year.

[hausfrau]

I am a Mpls resident. If I were you, I'd bump up your house budget to at least $240-260K minimum. That will enable you to live in a modest house (although palatial compared to NYC!) near good schools. $200K won't get you much.

Raising a kid in the city is great though. There is so much to do here (even in the winter!) and there is a fantastic park system and tons of bike trails. Our house has a decent backyard, but we prefer to go to the parks in our neighborhood.

The funny thing about the Twin Cities is even the not-so-desirable areas look pretty well-kept and nice compared to other big cities, so online research can be deceiving if you don't know the area.

I think the maintenance costs are reasonable. We live in a 100-yr. old home and have barely spent anything on maintenance in the last 15 years, although we mostly DIY, so the labor is free. YMMV. The only looming expenses in our future are a new roof and maybe a new coat of blacktop for our driveway, but that's pretty manageable (and expected). We have a 1600 sq. ft. house and our heating/cooling costs are reasonable. Electricity is cheap here too.

Be sure go to the MN Dept of Rev. and look at the property tax charts. We don't pay the "retail" price on property taxes because our AGI is low compared to our property taxes.

Your health insurance assumptions seem low to me. I'd research the health exchange and see what kind of numbers you get.

[Bestwifeever]

Quote:

Originally Posted by aida2003 First of all, congrats on your upcoming new addition!! But second of all, I'm VERY suprised that the response that you're OK to quit. OK, I admit, I skimmed the 1st page only, but I'm sure I'll come back to read the whole thread. So, I just felt an urge to chime in that the OP is fine to retire at 33-34 with the $1.5M and no health insurance, but with a brand new baby underway whereas other people are not as OK to retire with maybe smaller retirement funds but closer to their FRA. I think I'll come back to read tomorrow to make sure I'm reading this correctly. Yes, FUEGO's postings here and his site (I discovered his blog by accident last week when reading another young retiree's blog) are very inspirational, but at least I have to stay realistic when pondering on whether I can do it when I read his thoughts/math. But if you're a MMM type girl you can definitely do it. I applaud your bravery

I voted she should go for it because at their ages I imagine she and/or her DH can easily find a job if things don't work out financially. Not the level of job she is leaving in NYC but good enough to supplement the income from their nest egg. Probably harder for people closer to their FRA to step back into the workforce after trying out retirement for a few years.

[utrecht]

Its costs $250K not including college to raise a kid? We have a son who is about to turn 16 and there is no way that we have spent anywhere near $250K on him. I have no idea where the government pulled that number from. That's $1157 per month every year from being born until 18.

I'd say including allowance, averaging in Christmas and birthday presents, clothing and things like that, its closer to $250 per month. If you don't have child care expenses, kids are actually pretty cheap to raise.

[lereh892]

Re: 250k to raise a kid. How they get the number is they add in things like pro rata portion of health insurance, your house, the car, utilities, etc. If you have a three person household and you spend $4,000 a month, voila--the kid costs $1,333 per month--that's how they do the math.

obviously you would need these things anyway, so they're not truly incremental costs (although one could argue that you got a BIGGER car and house because you had kids).

[daylatedollarshort]

We pay almost $300 extra a month just for car insurance for young adult drivers on our policy and that is with no accidents or tickets for any of us. I've shopped around and can't get that down even with USAA. Believe me I have tried. Our umbrella insurance is another $1K a year since the kids started driving. Our experience has been closer to what Katsmeow wrote in terms of cost of kids, especially when they are older and driving age.

I have price shopped braces, too. I am sure some of the cost is due to a high COL area, but I think all added up we spent easily $20K just on braces over the years, maybe more.