How much to RE today with two young kids and no pension/medical bens?

[beowulf]

"Someone pays w-a-a-ay too much in income taxes. We will probably pay less than $10K in income taxes with an income north of $150K. "

Maybe I'm naive, but I don't see how that's possible unless a large portion of the $150K is non-taxable or you have a huge amount of deductions. Even if the full amount is from the sale of stock, mutual funds, etc. and you get the 15% rate, it would still be a tax burden of at least $15K plus state and possibly local income taxes. That doesn't even touch property taxes of various types, which are totally dependent on where you live.

We are basically looking at the same retirement income number and I am setting aside $30K for taxes at all levels. We live in a VA suburb of DC and all taxes are high.

How do you pay so little??

[FUEGO]

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Originally Posted by Katsmeow I think that health insurance can be the real killer here. To budget $1000 for health insurance basically assumes everyone stays healthy and can get insurance for a reasonable price from the private market. In a state high risk pool (Texas) for that age and 2 kids the cost is north of $20,000 for a plan with a $5000 deductible oer person as I recall. Now maybe that kind of plan won't be needed but over a 25 year period, who know?

Instead of the $12000 a year I have budgeted, $20,000 a year (on average) is doable with the ER budget I have. It would require some tradeoffs though.

At some point, I could find something to do that has health insurance if the costs went much north of $15k-20k a year. But realistically, if things get that bad for the typical employer plan or private plan, we will see a public option.

But it is definitely the biggest "unknown" for us. It could be $1000 a year with a publicly subsidized plan where I will look "low income" or it could be more than $20,000 a year with no public choice and paying 100% out of pocket. For me, I have roughly ten years to see how things turn out. My guess is costs will continue to rise until some public plan is passed that will make access to health care cheaper for me individually (or rather as a family).

As others have mentioned, the question of "how much is enough" really depends on what you want to spend and how much you plan to spend on kids. The $2 million figure (in total net worth) would include a paid off house, a couple cars, at least tuition and books for 4 years per kid at a state university plus a little spending money, and a portfolio large enough to pay for health insurance, some low budget international and domestic travel, a couple of cheap cruises a year, and our relatively modest lifestyle with a sufficient margin of safety to most likely not land us in the poor house or back working. At least that is the plan.

[FUEGO]

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Originally Posted by haha I miss the old days of the board when some people would always pipe up with how they raised 10 kids, sent them all to Harvard, ate like kings, and had fun all day long, on much less than $1 million. Then John Galt would add that these people were way over-financed.

A million just doesn't go as far as it used to.

[LOL!]

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Originally Posted by restonham Maybe I'm naive, but I don't see how that's possible unless a large portion of the $150K is non-taxable or you have a huge amount of deductions. Even if the full amount is from the sale of stock, mutual funds, etc. and you get the 15% rate, it would still be a tax burden of at least $15K plus state and possibly local income taxes. ... How do pay so little??

No state income tax.
2 kids = more deductions, tax credits and tax rebates
Charitable and other itemized deductions.
$44K contributed to 401(k)s
FSA
Carryover capital losses
No interest income. Only qualified dividend income.
Also remember if you sell your taxable stocks, that most of that is return of capital which is tax-free, but I have only capital losses so I didn't include any capital gains in this.
Don't forget a married couple with 2 kids can have something like $52K in income without paying any taxes.

[beowulf]

LOL - Thanks, that does make it more realistic. Our state taxes in VA run at 5.6% of everything over $17K and that adds up quickly. For us, almost all our non-pension income will be from 401K's and 403b's, so pretty much everything we get will be fully taxable. At least we won't have to pay SS tax . No kids at home and not a whole lot to deduct, but we'd rather have the income and pay taxes than not have it and not pay taxes .

[Leonidas]

Quote:

Originally Posted by FUEGO The $2 million figure (in total net worth) would include a paid off house, a couple cars...

Not to restart a old-worn out discussion, but when I did the numbers I was figuring similar to you, but I did the housing differently. I still have 9 years on my mortgage (and if I did it at 40 that would be 19 years), so I just added mortgage payments into my figures. But for this exercise I didn't add the house into my number at all. I mean, you don't get any income off the house unless you sell it or rent it, right?

Quote:

Originally Posted by LOL! Also remember if you sell your taxable stocks, that most of that is return of capital which is tax-free, but I have only capital losses so I didn't include any capital gains in this.

I can see your point regarding your particular situation with capital losses, but most people are going to have capital appreciation on stocks they've held long term. There's a whole bunch of capital gain in there that will be taxed - I would hope most people fall into that category anyway.

[FUEGO]

Quote:

Originally Posted by Leonidas Not to restart a old-worn out discussion, but when I did the numbers I was figuring similar to you, but I did the housing differently. I still have 9 years on my mortgage (and if I did it at 40 that would be 19 years), so I just added mortgage payments into my figures. But for this exercise I didn't add the house into my number at all. I mean, you don't get any income off the house unless you sell it or rent it, right?

Right - I usually don't include a house in what my portfolio needs to be since drawing income from the house via renting out a room or reverse mortgage is somewhere around Plan H. I guess I should say "I would feel comfortable with $1.8 million in my investment portfolio PLUS a paid off house".

But in my thinking, in 8 more years my house will be paid off, so housing costs will drop a lot. If I still had a mortgage I would just add the amount left on the mortgage to what I needed to FIRE.

[Martha]

Quote:

Originally Posted by haha I miss the old days of the board when some people would always pipe up with how they raised 10 kids, sent them all to Harvard, ate like kings, and had fun all day long, on much less than $1 million. Then John Galt would add that these people were way over-financed. Then someone would accuse Jarhead of moonlighting as a wheat bread fueled gigolo. Then we could all go back to arguing about paying off the mortgage until one of us got banned. It was like one of those survivor shows. Ha

Ha!

[Lusitan]

Quote:

Originally Posted by bongo2 The spirit of the poll was to ask how much money you would personally need with the restriction that you live in the US and have a family ... Assume you and your family don't have any conditions that make it abnormally difficult to get health insurance.

OK gotcha. I voted.

[tryan]

Quote:

Quote: That is budgeting $1000 a month on average for health insurance premiums from age 40-65 I think that health insurance can be the real killer here. To budget $1000 for health insurance basically assumes everyone stays healthy and can get insurance for a reasonable price from the private market. In a state high risk pool (Texas) for that age and 2 kids the cost is north of $20,000 for a plan with a $5000 deductible oer person as I recall. Now maybe that kind of plan won't be needed but over a 25 year period, who know?

A grand/month healthcare isn't gonna cut it today for a family of 4. Starting in Oct our BC/BS monthly premium is $1085 with a 3k/yr family deductible. Add to this the lousy precription coverage, co-pays, and no dental coverage; you're looking at $1500/month minimum (if you're HEALTHY!). FWIW we have no preexisting conditions (yet).

[FUEGO]

Quote:

Originally Posted by tryan A grand/month healthcare isn't gonna cut it today for a family of 4. Starting in Oct our BC/BS monthly premium is $1085 with a 3k/yr family deductible. Add to this the lousy precription coverage, co-pays, and no dental coverage; you're looking at $1500/month minimum (if you're HEALTHY!). FWIW we have no preexisting conditions (yet).

I came up with the $1000 a month for health ins. about 4 years ago when initially developing an ER budget forecast. Clearly that number may need some revision! But I think the actual rates vary greatly between states, and I don't think basic coverage is quite that expensive where I am unless we are stuck in the high risk pool. I added in our projected dental/out of pocket costs elsewhere in the budget, so the $1000 figure is just for health insurance premiums.

The hypo per the OP only requires private insurance on the children for another 6-8 years (when they will be 18). So after that it would just be insuring two adults (assuming affordable insurance is available through the university for college students, which our local Uni's do have).

I will be surprised if there is not a viable alternative to private health insurance within 10 years.

Ultimately I can fall back on insurance plan B, which is enroll at the local state U, and get dirt cheap student coverage for families. Right now tuition plus fees plus family insurance premiums would work out to just around $500-600 a month, but I have to take a class or two (which I wouldn't mind anyway, and could do over the internet).

[cardude]

Quote:

A grand/month healthcare isn't gonna cut it today for a family of 4. Starting in Oct our BC/BS monthly premium is $1085 with a 3k/yr family deductible. Add to this the lousy precription coverage, co-pays, and no dental coverage; you're looking at $1500/month minimum (if you're HEALTHY!). FWIW we have no preexisting conditions (yet).

We pay $491 per month for a family of 4, healthy, in our 40's, BC/BS. Found the policy at ehealthinsurance.com. High $5000 deductible however.

[W2R]

Votes on this poll have been as low as $500K.

Assuming a 3% SWR, due to an early retirement that will last over 25 years, the family could withdraw only $15,000/year from a nestegg of $500K, and that is *before* taxes. That would be $1250/month before taxes, so maybe $1000-$1100 per month after taxes?

Kids are a responsibility and deserve more than that if you can provide it, IMO.

[REWahoo]

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Originally Posted by Want2retire Votes on this poll have been as low as $500K. Assuming a 3% SWR, due to an early retirement that will last over 25 years, the family could withdraw only $15,000/year from a nestegg of $500K, and that is *before* taxes. That would be $1250/month before taxes, so maybe $1000-$1100 per month after taxes? Kids are a responsibility and deserve more than that if you can provide it, IMO.

W2R, if we are talking about retiring in the US, I totally agree.

But we have posters living in all sorts of places around the world - places where $500k will go a long, long way. I can believe in some places this size nest egg could be enough to comfortably support a family of four for the duration.

[Lusitan]

Quote:

Originally Posted by Want2retire Votes on this poll have been as low as $500K. Assuming a 3% SWR, due to an early retirement that will last over 25 years, the family could withdraw only $15,000/year from a nestegg of $500K, and that is *before* taxes. That would be $1250/month before taxes, so maybe $1000-$1100 per month after taxes? Kids are a responsibility and deserve more than that if you can provide it, IMO.

To each his own. I think 500K is too low for me, but I won't knock someone else who thinks it's right for them. Some people have skills and lifestyles that would probably allow them to live quite happily on what many would consider "too low" of an income (e.g. the know-how to build and repair your own things, and love of running your own small organic homestead farm).

Food for thought: even at 15K per year, your children are better off than 85% of the world's population (based on a per-person annual income of $3,750). Whether they "deserve" more is a personal and moral decision.

[FUEGO]

Quote:

Originally Posted by Want2retire Votes on this poll have been as low as $500K. Assuming a 3% SWR, due to an early retirement that will last over 25 years, the family could withdraw only $15,000/year from a nestegg of $500K, and that is *before* taxes. That would be $1250/month before taxes, so maybe $1000-$1100 per month after taxes? Kids are a responsibility and deserve more than that if you can provide it, IMO.

Seriously, who would pay tax on $15000 a year in income? With child tax credits, the govt would probably be mailing YOU a check each year! And I imagine you could qualify for a number of low income government programs that don't test for wealth but just income (I think children's medicaid-based health insurance is one, for example).

With a paid off house and a simple lifestyle in a low cost of living area, it isn't that hard to imagine. Plus, if they are going to ER on $500,000, they may take a little more risk and draw more than 3% from the portfolio. 4% gets you $20,000 a year and isn't a lot less than our family of 4 spends right now (assuming a paid off house, again).

Time spent with children may be more important than money spent on children. Until they are teenagers, at which point they never want to see you and always want you to buy them something (so I have heard).

Quote:

Originally Posted by REWahoo W2R, if we are talking about retiring in the US, I totally agree. But we have posters living in all sorts of places around the world - places where $500k will go a long, long way. I can believe in some places this size nest egg could be enough to comfortably support a family of four for the duration.

The OP's hypo said "retiring in the United States", so I assumed we couldn't consider Plan A being retiring to a low cost of living foreign country. Maybe Plan A is retire in the US, then Plan B could be go to Thailand/Mexico/etc if the portfolio takes a dip.

In that case, $500,000 may be fairly reasonable for a modest lifestyle abroad for a family of 4 (as long as you didn't travel back stateside a lot).

For us, moving to a place where $500,000 would afford a nice lifestyle would probably be plan E, and be preceded by Plan D that includes "go back to work". The wife's choice, not mine! But we do speaka tha language of a few low cost retirement locations (spanish, thai, laos) if it ever came down to it.

[Lusitan]

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Originally Posted by FUEGO Seriously, who would pay tax on $15000 a year in income? With child tax credits, the govt would probably be mailing YOU a check each year! And I imagine you could qualify for a number of low income government programs that don't test for wealth but just income (I think children's medicaid-based health insurance is one, for example).

Very true. Add in a dose of Obamacare and it doesn't look too shabby at all.

[FUEGO]

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Originally Posted by Lusitan Very true. Add in a dose of Obamacare and it doesn't look too shabby at all.

I think obamacare is an inevitable result eventually. If health insurance premiums rise at 7% or 10% a year, that means they double in 10 years or 7 years, respectively. That means your $1000 a month will be $2000 a month pretty soon.

[tryan]

Poverty for a family of 4 in the US is $22,050 ... I'ld rather w*rk.

2009 Federal Poverty Guidelines

Quote:

$491 per month for a family of 4, healthy, in our 40's, BC/BS. Found the policy at ehealthinsurance.com. High $5000 deductible however.

Wow, that's good. I looked at a 10k deductible last year (after my rate jumped to $914) ... but the monthly premium was over $700. Not worth it IMO. Must vary quite a bit state to state.

[FUEGO]

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Originally Posted by tryan Poverty for a family of 4 in the US is $22,050 ... I'ld rather w*rk. 2009 Federal Poverty Guidelines

I assumed a paid off house plus the $20,000 a year in income from your $500k portfolio, so your imputed income from living in the house rent free would push you well over the poverty threshold. Once the kids are out of the house (without you paying for college unfortunately), your income including imputed income from owning a paid off house would place you at roughly 2x the poverty level income.

Agreed though, I'd rather work too (which is what I plan on doing). $20k a year would afford us the bare necessities with very little margin of error, limited capital goods replacement, and constrained lifestyle with little dining out, little social entertaining, and no vacations.