Retire early vs work to leave for kids

[REWahoo]

Helena, please don't try to talk any more people into moving to Texas.

 

[anethum]

And do not worry about your kids taking care of you as you age. Certainly if there is no incentive, they won't.

I cannot let that statement go unchallenged. You honestly believe that kids who take care of their parents are only doing it because there is something in it for them? You couldn't be more wrong. Many, many people have done everything possible to aid their parents as they declined. Some adult children had parents with many faults. Others, like me, had wonderful parents. But we help as best we can, because it is the right thing to do and because we love our parents.

 

[kimcdougc]

I cannot let that statement go unchallenged. You honestly believe that kids who take care of their parents are only doing it because there is something in it for them? You couldn't be more wrong. Many, many people have done everything possible to aid their parents as they declined. Some adult children had parents with many faults. Others, like me, had wonderful parents. But we help as best we can, because it is the right thing to do and because we love our parents.

+1

 

[purplesky]

I am 37 yr old with below numbers

Investments (Vanguard total stock market index): 350K
401K: 130K
Cash: 70K
Total Assets: 550K

I make 280K salary (Silicon Valley / Bay area) and save about 100K including the money that goes into 401K. My wife doesn't work. I rent and plan to continue to rent. I have two kids 8 and 4 yr old.

In 10 years, I should have 1.5 to 2 million total networth to retire by moving to a low cost of living area. I can retire then or work for another 10 years where I would be able to leave each kid a million and still have enough for my retirement.

I am finding it hard to decide what to do. I hated the concept of working and always wanted to retire and have that financial freedom. So retiring in 10 years would really give that to me. But at the same time, I won't be able to leave the kids anything if I retire then. I am sure many of you have been in similar situations. Please advise

Leaving each child a million dollar inheritance is a game changer for their lives.
Think of the peace of mind and economic foundation that offers your kids in their adult lives.

I am in a similar situation with leaving money to my kid.

Retire early or work longer? For now I feel leaving an inheritance is a huge deal.

You are in a great position either way.

 

[MarieIG]

You have plenty of time to think about this. Also, it depends in a large part on the kid. A drug addict is not going to put the money to good use, but a responsible kid is another story completely.

 

[griffithee]

Helena, please don't try to talk any more people into moving to Texas.

Absolutely agree, we dont want no more people in Texas... Stay away from Houston!!!!

 

[GoodWishes]

Thanks for all your replies. 2M with pre-college kids anyway seems to be little bit tricky. How much does the college cost? I believe 35K per year per each kid? So that's 300K total for both kids for 4 years.

How much should I put aside for health insurance plus deductibles? Is 1.5K per month a good estimate?

Our youngest just graduated from a UC this year. As a California resident, UC total cost is almost 35k per year now. A private college can be twice as much like 60-70k per year now.

Did a quick estimate on coveredca, health insurance for a family of 4 ranges from a little over 1k to 2k per month with high deductibles on some plans.

How much college and health care will cost years from now would be anybody's guess.

As many posters have pointed out, so much can change in such a long period of time that probably don't need to over think it for now.

 

[FUEGO]

Unless you annuitize all of your retirement savings, or the market does poorly, you won't die with nothing. Run Firecalc, and see just how many times you wind up with substantial assets. If you want to give them help while your alive you may not have enough buffer to do so safely, at least for awhile, but inheritance is a different issue. If you're really concerned, take out some life insurance.


I also agree that you can worry about it in 9.9 years.

This is my take on it, too. There's 80-90% odds that you'll have a few times what you started with if you're retiring in your 40's and withdrawing at a reasonably conservative 3.x% rate.

 

[EastWest Gal]

Leaving each child a million dollar inheritance is a game changer for their lives.

Think of the peace of mind and economic foundation that offers your kids in their adult lives.



I am in a similar situation with leaving money to my kid.



Retire early or work longer? For now I feel leaving an inheritance is a huge deal.



You are in a great position either way.

+1

I really want to leave an inheritance. It made a difference to my dad, and to me and my sister. But I'm already gifting him the $5500/ year for his Roth IRA, so he can keep what he earns.

The security of having a long lasting, even lifetime rainy day fund, is priceless for a responsible person.

 

[Helena]

Helena, please don't try to talk any more people into moving to Texas.

lol

For the most part, I think the secret is out.

.

 

[prototype]

When I RE'ed, I did not factor/budget in leaving a large (e.g. $1M in today's dollars) inheritance to my kids. I just wanted to make sure (and continue to do so) that I would not outlive my money and have to rely on them for $'s. I paid for their college and now they have good jobs and are building for their 0wn retirement foundations (I think/hope?) .

Odds are there will be significant money (a few hundred K or more each) around for them when I "keel over". Who know's? I still never got my crystal ball working correctly.

 

[mrWinter]

If you are retiring significantly early then leaving an inheritance is kind of a foregone conclusion as I see it. If your retirement timeframe is 25 to 30 years and you have significant bonds, cash, annuities then you can fairly well plan out how you will burn down that stash over two and a half or three decades. If you are retiring at 47 or 50, then your retirement timeframe is so long and you are relying on market returns to keep the money alive, you really aren't factoring in a burn down, you just need a withdrawal strategy that will basically keep your funds around the same level forever. So if you retire with 2Mil, the goal is to withdrawal an amount every year such that the year after, on average, you still have an inflation adjusted 2mil, repeat ad infinitum. Whenever you shuffle off the mortal coil, you leave a pot of the same size. Of course that's just the goal and anything could happen in that long a time frame. Saving more makes you more likely to pass on money, but it's all a crap shoot ultimately anyway.

 

[exnavynuke]

You make $280k and are saving $100k, that means total spending (including taxes) is about $180k. A 4% WR on $1.5M is only $60k/year. Do you really think you'll cut your spending by 66% by just moving?? I'd be very surprised if that was actually what happened.

Either way, whether you want for years just to give the money you earn during those years to someone else is up to you.

 

[brokrken]

I also would not want to move my 14 year old kid to a new state. I would wait until your youngest graduates high school at least and possibly until they graduate college. /QUOTE]

+1 This is our plan; to call it quits when our DD graduates HS. But, I agree with others that a lot can change in the 8 years I have until then. So, I am always flexible enough to adjust that plan.

 

[explanade]

I retired 3 years ago and remain in Silicon Valley. I could sell my townhouse for a huge gain and move elsewhere but have chosen to stay.

I'm spending almost double what I did when I worked but still less than 2% of my savings. In fact I was adding shares through DRIP these 3 years but now I will first try to live on the dividends and distributions.

Regarding the OPs situation, I imagine they could drastically cut back housing costs and state taxes by moving out of CA. That might also change lifestyle and lower cost of living.

Still a long way to go from $180k to $60k for a family of four.

Also, I think 35k may not be enough for college 10 years from now. I know people spending over $60k per year for each kid. They're not going to Ivy League schools but well-regarded private schools.

Only way to limit to $35k is a public state university with resident tuition and bare bones housing.

Maybe invest in 529 plans unless the returns from that 401k has good returns. Assuming the employer matches something like 6% of the contributions.

Of course, probably best to diversify. I know people who invest only in company stock in their 401k. That might work out for a high-flying tech company stock for a few years but over the long term? It might not be as bad as those people who loaded up on Enron stock in their retirement accounts but it's still more risky than diversifying.

 

[John Galt III]

Just be sure to leave a crystal clear will. I've heard of lots of misery caused by rich folks dying without a will.

 

[daylatedollarshort]

I used to think we should leave our kids more. Even basic tract houses where we live cost seven figures these days. But lately I've been thinking there are lower cost of living places where one could build a self sufficient solar home like this:

Solar Decathlon: College students built a $250,000 solar-powered home - Business Insider

It wouldn't be that expensive to live with no mortgage, limited utility bills, and a house that made it easy to grow some of your own food.

 

[explanade]

I used to think we should leave our kids more. Even basic tract houses where we live cost seven figures these days. But lately I've been thinking there are lower cost of living places where one could build a self sufficient solar home like this:

Solar Decathlon: College students built a $250,000 solar-powered home - Business Insider

It wouldn't be that expensive to live with no mortgage, limited utility bills, and a house that made it easy to grow some of your own food.

But if they pursue careers in certain fields, they may have to live in expensive areas.

New graduates in Silicon Valley can get over 6-figure salaries. But still not enough for them to buy homes, at least not right away. Many of them spend the money on nice cars, because a 20% down payment on a small home that is around $1 million or more seems like a distant possibility.

 

[Hermit]

I beg to differ. I plan and hope to leave money to my kids. My parents wanted to leave money to their kids (and did). My grandparents wanted to leave money to their kids (and did). All my friends and family are hoping and planning to leave money to their kids. I find it very atypical to plan otherwise. Not to say it is wrong, just that it is not what I find common among people I know.

You must have lived in a different society than I did growing up. My parents left about enough to buy a new car. That is just what was in their accounts when they passed. I paid for the late DW's father's funeral. Her mother is still alive and she may pass some money to her favorite grandkid, but I doubt that there will be anything for anyone else. When we lived in Virginia there were people we knew with inheritances, but no one here in Colorado. If my kids get an inheritance, it will just be a matter of the situation at the time. It seems quite likely to be the case right now.

 

[daylatedollarshort]

But if they pursue careers in certain fields, they may have to live in expensive areas.

New graduates in Silicon Valley can get over 6-figure salaries. But still not enough for them to buy homes, at least not right away. Many of them spend the money on nice cars, because a 20% down payment on a small home that is around $1 million or more seems like a distant possibility.

Our kids have pretty much figured out that there are six figure jobs in cities with cheaper housing and shorter commutes.

 

[firenow]

I make 280K and after tax it is about 170K. Out of this my expenses are around 80K and thanks to 401K and employer match I save about 100K.

Now I pay 3K for rent and if I move to a low cost of living area and from a 2 BR to a 1 BR and with no kid related expenses, the expenses will be around 60K.

 

[atmsmshr]

I make 280K and after tax it is about 170K. Out of this my expenses are around 80K and thanks to 401K and employer match I save about 100K.

Now I pay 3K for rent and if I move to a low cost of living area and from a 2 BR to a 1 BR and with no kid related expenses, the expenses will be around 60K.

Good heavens! Warren Buffet's tax rate is less than 20% - fire your tax advisor pronto!

 

[Hermit]

Good heavens! Warren Buffet's tax rate is less than 20% - fire your tax advisor pronto!

Warren Buffet does not live in California.

 

[unclemick]

I'd wait for 10 years to pass by and then decide.

So much can happen that there is no sense in trying to plan it now as in both cases you need to work for the next 10 years.

Ditto. Also I had a compound interest curve showing my progress/projection on an 8 1/2 by 11 sheet of graph paper which I kept until it was old and tattered. Hindsight says I could never have predicted the shift in mental attitude/possibilities over time.

heh heh heh - some use compound interest tables.

 

[explanade]

Ditto. Also I had a compound interest curve showing my progress/projection on an 8 1/2 by 11 sheet of graph paper which I kept until it was old and tattered. Hindsight says I could never have predicted the shift in mental attitude/possibilities over time.

heh heh heh - some use compound interest tables.

Yeah my expectations changed over the time over the time I was planning retirement.

One of the first exercises I did was this service (forget the name but it was one made available to workers by my employer) which asked what percentage of your current salary you wanted to have for retirement.

I thought I was being too demanding when I put down 75%.

Of course the market rise changed my expectations over time and now my retirement annual spending has been 70-80% higher, despite it being less than 2% of my savings.

Also reading sites like this one changed expectations too. One of the first things I learned here was to not settle for buying annuities even if they made you feel "safe."