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Have the net worth, but not the income.
Old 06-11-2012, 09:42 AM   #1
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Have the net worth, but not the income.

Hi. I started out on these boards in 2006. Learned a lot. Took some great advice then life got insane and we got lazy about RE.

About us: I'm 34. DH is 41. No kids. We'd like to retire yesterday So time to get serious about getting our ducks in a row. We've managed to stash lots of money away, but we do a rubbish job of having it provide income for us.

Goals: To figure out what we need to do to ditch the paychecks for passive income. Really concerned about the health insurance piece; especially as we're thinking we want to have kids.

Looking forward to spending lots more time here.
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Old 06-11-2012, 09:57 AM   #2
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So you have between $2.575 million and $2.91 million depending on whether you count the home equity. Just using rules of thumb, you can pull $80,000 to $116,000 from these investments each year. Is that enough to fund your projected lifestyle? How does that compare with what you want to spend or currently spend?

One comment on investments - you have almost half your financial assets in cash, probably earning very little. Think about whether that is the best investment to get you where you want to be.
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Old 06-11-2012, 10:05 AM   #3
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You can retire yesterday.

Welcome (back) to the boards!
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Old 06-11-2012, 10:20 AM   #4
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The OP was asking about turning assets into passive income. There there is a problem with today's environment. The equity index funds will generate less than 2% if you stay with the broadly diversified funds. CDs are barely paying 1% if you go out almost three years. After that you have the option of a SPIA which would be a horrible mistake at your ages.

Your only real option is to have faith that things will return to "normal." FIRECalc assumes "normal" over a long time frame and this current situation, if it continues indefinitely, guarantees massive retirement failures that were based on FIRECalc.

I you believe "normal" will return "soon" you are ready to retire. If not, keep working. We all have to decide when the reward exceeds the risk.
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Old 06-11-2012, 11:01 AM   #5
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Hi. I started out on these boards in 2006 so says my old SN anyway. Learned a lot. Took some great advice then life got insane and we got lazy about RE.
Hi Gillette, and welcome back to the ER Forum.

I wouldn't want anyone reading this thread to think that we normally allow more than one username per member, so I"m just posting to mention that I have sent you a PM about it and we will get this figured out via PM (personal message). Thanks.
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Old 06-11-2012, 11:29 AM   #6
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Hi Gillette, and welcome back to the ER Forum.

I wouldn't want anyone reading this thread to think that we normally allow more than one username per member, so I"m just posting to mention that I have sent you a PM about it and we will get this figured out via PM (personal message). Thanks.
Sorry about that. I looked around for a way to change the SN on the old account, but didn't see anything so I created a new one. I'm well known on a different message board by my old SN. Trying to be a little more incognito here. I'll send you a PM though.
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Old 06-11-2012, 11:56 AM   #7
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Sorry about that. I looked around for a way to change the SN on the old account, but didn't see anything so I created a new one. I'm well known on a different message board by my old SN. Trying to be a little more incognito here. I'll send you a PM though.
I was told they always catch the double dippers but you made it too easy.
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Old 06-11-2012, 12:05 PM   #8
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One thing to think about........kids! I had one later in life and can't believe the expense and limitations it put on retirement. They HAVE to go to school, you probably would want a college fund.......the house has to be bigger to accomodate them....the list goes on and on.

So, think through how many kids you want and what YOU feel your obligation will be in those areas, such as housing and college funds. They say each kid costs $275,000 to raise.....that's looking to the past.....looking towards the future, you might have to double that cost.

but......they are worth it.....at least my DW and I think so.
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Old 06-11-2012, 12:16 PM   #9
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$275K per kid, through 4 years of college is not realistic. If they go to a public, in state college, figure at least $450K from birth through graduation. If you want them to go to a private college, up it to more like $600K to $750K. And that's in today's dollars and does not include private schools for K through 12. Both options have nowhere to go but up .

We also think they are well worth the cost - of course we haven't gotten to the stage where we will find out if THEY are willing to change our diapers .
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Old 06-11-2012, 12:16 PM   #10
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One thing to think about........kids! I had one later in life and can't believe the expense and limitations it put on retirement. They HAVE to go to school, you probably would want a college fund.......the house has to be bigger to accomodate them....the list goes on and on.

So, think through how many kids you want and what YOU feel your obligation will be in those areas, such as housing and college funds. They say each kid costs $275,000 to raise.....that's looking to the past.....looking towards the future, you might have to double that cost.

but......they are worth it.....at least my DW and I think so.
I dunno. We have 3, and at $275K each that would be $825K for the 3 of them. If someone came along and offered me a choice - take the cash or the 3 kids, I'd have to think about it.

Edit: I didn't see beowulf's post. At $600K per kid, @3, that's a cool $1.8M. No choice there - I'd take the cash.
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Old 06-11-2012, 01:15 PM   #11
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Here you go: Cost of Raising a Child Calculator | BabyCenter

This calculator includes things like a few grand for housing the child--oops, forgot to spend that! Another grand for transportation for 8-year-olds--oops, forgot to spend that! And I don't think the tax breaks are included. Reminds me of the economists' calculation of the value of the stay at home parent.

Gillette, are you in the UK per your profile? Is health insurance a concern for you?
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Old 06-11-2012, 01:22 PM   #12
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$275K per kid, through 4 years of college is not realistic. If they go to a public, in state college, figure at least $450K from birth through graduation. If you want them to go to a private college, up it to more like $600K to $750K. And that's in today's dollars and does not include private schools for K through 12. Both options have nowhere to go but up .


You and I must live in alternative universes. We put two daughters through public universities, paid for their weddings and our combined costs for both were probably 1/3 of what you estimate for a single child.
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Old 06-11-2012, 01:31 PM   #13
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You and I must live in alternative universes. We put two daughters through public universities, paid for their weddings and our combined costs for both were probably 1/3 of what you estimate for a single child.
+1 REWahoo, I'm in your alternative universe. Had I read cost estimates such as those earlier in this thread, before getting pregnant, my lovely sweet daughter would have never existed.
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Old 06-11-2012, 01:35 PM   #14
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You and I must live in alternative universes. We put two daughters through public universities, paid for their weddings and our combined costs for both were probably 1/3 of what you estimate for a single child.
I can't even get close to that number.

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Here you go: Cost of Raising a Child Calculator | BabyCenter

This calculator includes things like a few grand for housing the child--oops, forgot to spend that! Another grand for transportation for 8-year-olds--oops, forgot to spend that! And I don't think the tax breaks are included. Reminds me of the economists' calculation of the value of the stay at home parent.
I think Feever is on to something, that might be "theoretical economic cost" and not out of pocket cost. In economic costs those amounts aren't so bad because DW made about the same each year doing things she didn't get paid for, so they pretty much even out.
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Old 06-11-2012, 01:37 PM   #15
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.....

Gillette, are you in the UK per your profile? Is health insurance a concern for you?
Her OP said her house was $335k so she's probably NOT in the UK unless she is living in a shack.
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Old 06-11-2012, 01:47 PM   #16
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You don't necessarily have to generate passive income to live on. There's really not much difference in generating $100K in passive income vs. having your investments increase by $100K and withdrawing that amount. There's nothing wrong with the passive income strategy, but don't get hung up on it. What you really want is the best return, with an acceptable amount of risk. At this point, I would still be trying to build up the nest egg, while also figuring out what your income needs will be, especially if you do have kids. The large chunk in the money market probably isn't helping build up the nest egg, though maybe that's just a short term strategy while watching the market.
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Old 06-11-2012, 01:50 PM   #17
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Her OP said her house was $335k so she's probably NOT in the UK unless she is living in a shack.
I do live in a shack in the UK but it's only temporary. 1 year work assignment.

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Gillette, are you in the UK per your profile? Is health insurance a concern for you?
Currently in the UK. Health insurance will be a concern though since it's temporary.
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Old 06-11-2012, 02:00 PM   #18
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So once you return to the US let's say you sell the house you don't intend to live in and buy the house you do intend to live in, let's say you have $2.5m of financial assets. At a 3% withdrawal rate that would provide ~$75k of income. Since there are many families who live reasonably well on that, I would say whether you can pull it off depends where you live and the lifestyle that you need to have.
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Old 06-11-2012, 02:04 PM   #19
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Regarding the side discussion on kids.

They say kids are expensive, but I think like most things in life you adjust spending accordingly. Some also say that if you always bought a car 2 years old and drove it for 8 years instead of the same car new every 2 years you'd be able to save $300,000-$400,000 over your life. That may be true by the numbers (with certain expectations on growth)... but in reality, if you didn't spend that money on the car it likely would have gone somewhere else.

People who can save... tend to still be able to save with kids. People who can't save, tend to still not be able to save without kids. As long as a family is comfortably above the poverty line, I don't think having one or two children will change retirement plans as much as some of these calculators can lead us to believe.

I have 3 yr old and an 8mo old, so I'm certainly not into the expensive part yet, but I'd estimate approx 12-18 months less ER for every child I have. I'm willing to work to 55 instead of 50... just to enjoy being a grandparent to many grand kids someday (hopefully)

Remember, having children is not something you can get a do-over on when you reach retirement. Well, I guess some have the option... most do not. If you want to have children, don't let the cost deter you... it'll all work out in the end.
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Old 06-11-2012, 03:32 PM   #20
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Regarding the side discussion on kids.

They say kids are expensive, but I think like most things in life you adjust spending accordingly. Some also say that if you always bought a car 2 years old and drove it for 8 years instead of the same car new every 2 years you'd be able to save $300,000-$400,000 over your life. That may be true by the numbers (with certain expectations on growth)... but in reality, if you didn't spend that money on the car it likely would have gone somewhere else.

People who can save... tend to still be able to save with kids. People who can't save, tend to still not be able to save without kids. As long as a family is comfortably above the poverty line, I don't think having one or two children will change retirement plans as much as some of these calculators can lead us to believe.

I have 3 yr old and an 8mo old, so I'm certainly not into the expensive part yet, but I'd estimate approx 12-18 months less ER for every child I have. I'm willing to work to 55 instead of 50... just to enjoy being a grandparent to many grand kids someday (hopefully)

Remember, having children is not something you can get a do-over on when you reach retirement. Well, I guess some have the option... most do not. If you want to have children, don't let the cost deter you... it'll all work out in the end.
I'll echo this sentiment. We are on kid #3 (1.5 months old right now). I have not run the numbers and don't have a good estimate of what the kid will cost through age 22. But I have a feeling it won't extend the FIRE date by more than 12-18 months. We'll end up with about a $3000 tax break during our working years for the extra kid. Add to that the many low(er) income programs we will qualify for during ER (free/reduced student lunches, obamacare health insurance, etc).

We still drive our Honda Civic and Accord even with 3 kids. It is a squeeze but doable for now. A minivan may be in the future but isn't outrageously expensive vs the small or mid size cars we already own (and would own anyway in order to carry adults in them occasionally).

Our house is a 4 bedroom (the 2 oldest currently bunk in the same room). No plans to upsize the house. Possibly repurpose an office or 2nd living room to accommodate the third child at some point. This is about as much house as we would probably have even without kids, since the DW wanted a yard and a certain amount of space anyway.

Other than college costs, we don't expect a lot of major expenses, and the tax benefits largely outweigh the marginal costs of kids for us. But we are very frugal apparently.

As for health insurance, obamacare health insurance premiums (if the current law remains law after this summer) are tied to family size. Earn less than $90k with a family of 4 and your premiums will be subsidized to some extent. This is one leg of our ER stool and should make our health insurance premiums not exceed $1000 or so per year while the kids are on the plan.
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