33, Pregnant, and Getting Close to ER

[BumblingtoFI]

Hello ER forum,

It's nice to get to know this community! Looks like there is a lot of great information here.

I'm 33 and live in NYC, getting ready to retire in the next couple of years. I'm interested in a sense check on my numbers and assumptions. The basics are that I got a fantastic job in finance right out of college and have been working there ever since. DH is a freelance architect. We are expecting our first baby at the end of May and DH plans to be a stay at home dad after the baby is born. Our net worth is $1.5M, which breaks down to $350K in 401K, and the rest invested 90/10 into taxable stocks/bonds.

We spend ~64K per year now, which includes $2,100 / month in rent ($25K /year). We save around $150K per year after taxes.

The FIRE calcs say we can retire forever by the end of 2015 with something like a 98% success rate, but I'm making a whole lot of assumptions:

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.

Questions:
1) Do any of these spending assumptions seem crazy?
2) Anything missing? I've done both an itemized budget and a "top down" estimate by adding/subtracting retirement costs from current spending. The "top down" estimate is higher so I'm going with that, but it has a huge amount of excess for silly expenses we pay for living in NYC (like car rentals to go hiking, occasional $14 cocktails, etc.)

We have a lot of uncertainty in our lives given baby on the way and there are a lot of unknowns in this plan (for example, we haven't decided on where we want to move). For now it seems sensible to keep working/accumulating, settle in with the new baby, and keep working on the ER plan.

Any feedback is very much appreciated!

 

[someguy]

Are you planning to keep working after the baby comes and if so, does it include health insurance? How long do you plan to keep working?

 

[BumblingtoFI]

I do plan to keep working at least for a year or two after the baby comes. Work provides great health insurance and three months of paid maternity leave.

 

[someguy]

I do plan to keep working at least for a year or two after the baby comes. Work provides great health insurance and three months of paid maternity leave.

Based on this, I assume your medical budget is good while you're working, but I think it's low once you stop. Unless your employer offers retiree coverage, I'd expect a private or ACA plan for a family to cost more than $300/mo for premiums, plus it'll be high deductible so you may have significant out of pocket, especially with a young child (or children).

DW and I pay premiums of around $500/mo for a mid-level ACA plan. I'd expect it to be higher for a family plan. Plus out of pocket costs. Others with kids can chime in, but if I were you, I'd budget at least $1,000/mo.

 

[Bestwifeever]

Wow, you have done an amazing job in your personal finance as well as in your career. Do it. If it doesn't work out for any reason, one or both of you can go back to work part or full time.

 

[ER1970]

Welcome to the forum! Your financial achievement is very impressive given your young age, and you seem to balance your career and personal life very well (not easy in NYC).
Having said that, however, I'm not concerned about your savings but more about your budget. It seems bare boned and VERY low (even if you move to a lower COL area).
1. Where do you plan to move to, that you can buy a $200k house that's in a good neighborhood with decent diversity/culture/school? Don't forget the cultural shock since you have lived in NYC for so long! The things that you hate about NYC right now, will soon be something you miss a LOT when you sit in a suburban house all day.
2. As someguy pointed out, your budget for ACA us extremely low. You also need to budget in OOP medical expenses, dental expenses (especially for the kid), plus rapid increases in ACA premium that seems to be the trend right now.
3. $400/m on a kid? That's a VERY conservative budget. It's doable when it's a baby perhaps, but when he goes to daycare/preschool and on, it will likely double triple that amount. And what about college fund? What if you have a second child?
4. $10k car is cheap, but you will need 2 cars living in a suburb. Also what about fixing the car, gas, maintenance, car insurance....?

The bottom line is, you are still very young and just starting a family. There are lots of uncertainties (hence expenses) ahead. Numbers on your savings are great, but your budget and expectations going forward are a bit unrealistic. Is it possible for you and your husband to work another 10 years? That will give you a much better cushion financially.

 

[Meadbh]

You are doing an amazing job of LBYM. Congratulations on the upcoming arrival! I don't know where you got the numbers for your baby budget, but it seems low to me (I am an ex baby doctor) and be aware that babies' expenses grow as they get into more activities (see ER1970's post above). I presume DH will be doing all childcare, because $400 per month won't go very far with that. One way to minimize baby expenses is to breastfeed for as long as possible. Not only does it eliminate the cost of formula, it makes your baby healthier and minimizes healthcare costs.

 

[EastWest Gal]

Ex or nearly-ex baby doc here too. Budget for child is at least 50% too low. And congratulations on your new family BTW.

Family advice:

Simple money/time saving tips: cloth diapers with diaper service since you are in NYC. I did it in Silicon Valley much easier to get your diapers delivered to your door. Breastfeed. Way better for you and baby. And it saves about $1500. A pump costs <$300 at babies are us. Get a Medela.

Buy used baby and early child clothes. Go for cotton. Don't waste money on detergents made for babies. Scent free/dye is fine. Plastic food storage containers and and pots and pans are excellent toddler toys. No stuffed animals-they are a hazard and a waste.

Start the 529 plan soon after baby is born. I ended up spending $150K for my son in college, most from the 529 plan granddad started. High school is expensive, depending on activities. High school trips are worth their weight in gold. Save extra so you can chaparone (it means you get to go too).

One last thing: you never know what you'll get with a child. If you're lucky, the fruit will resemble the tree.


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[BumblingtoFI]

Hi Everyone, thanks for the congratulations and encouragement! It's a fair point that the budget may be a bit bare bones and health insurance costs low, but here is some additional color on where I'm sourcing some of this information:

1) Housing: Our top choice for location is Minneapolis, MN, where a small house for $200K near public transportation is pretty realistic. We've been living in incredibly small apartments in NYC our entire adult lives, so even simple things like a backyard or second bedroom seem like insane luxuries.

2) DH and I are both healthy and I think the philosophy of paying for most things out of pocket with a high deductible plan for disasters makes good sense. Root of Good (who posts as FUEGO here, for example has three kids and pays $166 / month for health insurance Be Your Own Insurance Company | Root of Good.

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.

4) We plan to buy a used unfancy car, use it sparingly, bike, and preferably live near public transportation. Having never owned a car this estimate is just based on online car cost estimates and a high deductible insurance plan.

Again, thanks for the feedback! Since we save so much currently I definitely am vacillating between "flip the switch, you only live once" and "X more years makes this plan so much more secure"

 

[daylatedollarshort]

It sounds like you have a good plan, especially since one or both of you could go back to work if you need to or each possibly work part-time. We started out thinking we'd both work full time from home, and then as the years go by and our semi-ER plan has worked out okay, we've upped our hiking and museum days more and more and worked less and less.

The thing we've found is that being home really reduced our basic living costs. We cook a lot more from scratch, have solar and LED lighting, got rid of most cable TV options (we get basic cable with Internet service) shop at Costco and ethnic markets, got rid of the landline, actually bought nicer cars (better repair records and higher MPG) and a hundred other things that really added up.

 

[Bigdawg]

Bumbling, good choice going to Mpls. Both DH and yourself should be able to find housing near public transportation. Also job market will be good for both of your professions if you need to go back to work. Lots of culture and activities in the twin cities with all the colleges/Universities, museums, galleries, etc... Good luck. FYI, colder than NYC.

 

[BumblingtoFI]

It is incredibly reassuring to hear everyone's feedback.

EastWestGal, thanks for the specific tips! I'm definitely on board with cloth diapers, used clothes, etc. There seems to be a craigslist bonanza in our area. I was a pretty active high schooler so very much hear you on high school activities being worthwhile but expensive. Coming from the perspective of having involved but poor parents I found the experience of collaborating to pay for activities from a young age to be very rewarding.

daylate, I suspect our COL will go down as well, so I guess that's another implicit saftey built into the plan.

I agree that going back to work part time is a pretty solid contingency plan if the market underperforms or things are more expensive than expected. DH may want to go back just because he loves architecture. When we're settled and the baby is in school I love the idea of teaching a class too.

 

[flyingaway]

I read FUEGO's blog and, if I am not mistaken, he has a portfolio of about $1.5M. His wife is still working and may retire in a year or so. His situation is very similar to yours, except he has three kids. It is doable. But moving from a high paying job (with the associated expenses) to FUEGO's life will require some shocking adjustments. On the other hand, you can always come back to work if you want to in the future.

 

[phil1ben]

All good points including the lack of a college fund. I have two sons in college and it runs north of $100,000.00 per year. The one additional point I want to make is that this is not an irreversible decision. Try things out, acclimate yourselves with your new location, see how your assumptions have worked in three years. Since you are still young your husband could go back to work part-time if need be. I know many architects that work from home allowing them the flexibility that the profession often requires through feast and famine. It is healthy to change things up and try something new. Give it a try.

 

[6miths]

Great work. You are doing very, very well. I wondered about your 90/10 equity/fixed income asset allocation. You (and the rest of us) have been the beneficiaries of an amazing run since 2008 and it seems unlikely to go on forever. It is good that you have marketable skills and could go back to work to supplement things if we did take a hit. I have to admit that I would probably go a bit more conservative at this point. Unless the plan is to back off on ER if the market tanks. Your DH seems to be in a great position to do this since he is used to doing freelance work and he enjoys it - seems in fact like he may just want to keep his hand in at a lower level.

As an ex-OB, I would also strongly endorse the breast-feeding suggestions. Huge benefits - psychologically and physically for mom and baby as well as financially. And convenience can't be beat! (and no I am not saying that because I am a guy). Get a good electric pump (our Lactation Consultants recommend Medela too) and you can get DH into the act as needed.

And have you budgeted for baby number 2? These things have a way of happening. DW (the baby doctor) would still be going today if she had her way.... Grandchildren can't appear soon enough! (Yes I know, be careful what you wish for!)

Great work and good luck with the plan!

 

[aaronc879]

All good points including the lack of a college fund. I have two sons in college and it runs north of $100,000.00 per year.

It won't be near that much for a public University in Minnesota. Here's an example:
Estimated costs for the 2014-15 academic year.

Expense Category In-State
Tuition/Fees $13,626
Books/Supplies $1,000
Room/Board $8,554
Transportation $194
Personal/Misc $2,000
Total $25,374

 

[daylatedollarshort]

Our kids go to public schools and we manage our AGI so tuition after financial aid is free at the 4 years. Plus they have internships and do tutoring for spending money. So we only have to pay for food, room and board, cars costs, cell phone, etc. We do pay for books and other costs but I think we get tax credits for at least some of those costs.

 

[Moemg]

Congratulations on the baby & doing an awesome job saving . Your plan seems doable . Do you have family near by ? Once a baby comes family can be very beneficial for help & support .I do think your budget is a little low on almost all counts .

 

[BumblingtoFI]

flyingaway: Yep, RootofGood is an incredibly helpful data point for me but also quite different in that he changed one thing (working) when he retired and we'll be changing a whole bunch of things at once to pull this off. We're not living such a wild and crazy lifestyle though and can get to the 30-40K range of spending by just taking out rent.

phil1ben/aaron: the other thing I get nervous about with, say, fully funding a 529 plan now is that both my brother and I got very generous scholarships when we went to college. A plan to contribute modestly, assume he'll be partially responsible, and see how he turns out feels about right.

A couple of people have raised the question of a second child. Not sure yet, DH and I both had siblings and loved the experience. We're going to see how kid one turns out and go from there.

6miths: Yes to breastfeeding! Work has hospital grade pumps and a lactation room, so it should be relatively straightforward once I go back to work. Insurance also pays for one at home

And you are right that 90/10 may be too aggressive. I've been thinking of my pre-retirement investment strategy as just swinging for the fences the past few years but perhaps an allocation closer to 80/20 or 70/30 makes sense. I have a pretty high risk tolerance though

 

[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.

 

[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]

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.