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

[bongo2]

A recent discussion around if $2M is enough to retire led me to think we should update a poll from a couple of years ago.

What amount of money would be enough to make you personally feel comfortable retiring in the United States with no supplementary income, pension or medical benefits assuming you are 40 with a 40 year-old spouse and two children ages 10 and 12.

 

[tryan]

We fit the bill (family of 4 no pension/medical). RE with 2.5M in 2005. Then got cut in half ... now on the mend.

We pretty much decided someone needs to get health bennies (BC/BS jumped over a 1k/mo ... was nearly HALF that in 2005). No movement yet thou.

 

[FUEGO]

We will be roughly the hypothetical family. Hope to FIRE within 10 years, we'll be right at 40 years old, with a 13 year old and a 14 year old. $2 million is roughly what we will have including houses, cars, etc. So maybe $1.8 million in the portfolio. That is budgeting $1000 a month on average for health insurance premiums from age 40-65. 1.8 million invested would allow pulling $63,000 a year at 3.5%. We may do it on less and keep "go back to work" in the back pocket.

 

[Leonidas]

I retired, with all of the things you excluded, at 45 with two kids aged 12 and 16.

Playing with the calculator, with $2 million, I could replace my pension (provided I got a good rate of return and the market didn't crash as it did a few years after I left), and health insurance. The thing that would kill the deal for me is not having a supplementary income. That extra money, on top of a diet-cola'ed pension, is what makes my lifestyle as pleasant as it is. The pension pays the basics easily, but the money for the extras that make life nicer, that comes out of the portfolio.

So, I think $2M would get it done, but it would not result in a retirement lifestyle I would want to undertake. I don't think our spending habits are extravagant (although compared to some of the really serious LBYM'ers out there it is). We clip coupons, shop sales, etc., and so on. But I'm not about to start recycling dyer sheets. I LBYM, but not freakishly so.

While I think I could do it on $2M, life in retirement would be very different from what I dreamed about. For my planning purposes, I had some things, that many would consider "extras" or even "frivolous", that were on my "must be able to do" list. And because I'm cautious and wanted a lot of wiggle room for disasters, my "number" was roughly double the given amount.

If I had really wanted to stop working, was willing to cut out some of the more expensive "extras" ("sorry kids, you got to pay your own tuition"), then I think a number closer to $3M would more to my liking. But, I didn't factor in much fudge factor there at all, and the recession and stock market disaster would have wreaked havoc on at least my ability to sleep well, if not my lifestyle (mac and cheese for dinner again!)

 

[FUEGO]

I'll add that I would feel much better with $2 million and today's stock valuations versus $2 million after 3-4 years of big upward surges in the stock market. It's hard to apply any real numbers, other than to say that I wouldn't exactly be jumping to pull the trigger if my portfolio had just doubled from 1 to 2 million over a short period of time.

 

[ziggy29]

Assuming no change in the health care status quo, I don't think I'd be comfortable withdrawing more than about 2.5% a year starting at age 40, so needing $50K a year in current expenses, I'd say $2M. That's based on our current situation, lifestyle and income needs; YMMV, obviously.

 

[crazy connie]

It all depends on the lifestyle and expenses. Rural living with paid for home and a simple life with gardening and some hunting and fishing greatly reduces need for high cash flow. Two kids who can snag scholarships for the local State U following 2 years at Community College can get an education that will be 10's of thousands less. A temperate climate reduces utilities vastly. So, the devil is always in the details and reconciling wants vs. needs. Remember, that many live on $40K a year or less.

 

[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

 

[REWahoo]

We haven't heard from Jarhead in months. Guess the golfing weather must be great - or he's having trouble digesting all that wheat bread he's been eating...

 

[youbet]

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.

I liked it best when the "doing it on peanuts" poster would end with the disclaimer that "oh yeah, DW is still working and makes $six figures plus extensive fringe benefits!

Just a little omission in the original story of high living on low dollars..........

 

[REWahoo]

... "oh yeah, DW is still working and makes $six figures plus extensive fringe benefits!

I thought the term was 'French' benefits...

 

[Amethyst]

Originally Posted by youbet
... "oh yeah, DW is still working and makes $six figures plus extensive fringe benefits!

and then ReWahoo piped up:
thought the term was 'French' benefits...

Have you guys been talking to my husband again?

 

[bongo2]

Assuming no change in the health care status quo, I don't think I'd be comfortable withdrawing more than about 2.5% a year starting at age 40, so needing $50K a year in current expenses, I'd say $2M. That's based on our current situation, lifestyle and income needs; YMMV, obviously.

Ziggy, are you saying $50k if you had two children, or $50k is what you need now?

haha: so true. . .so true.

 

[Kabekew]

If you need $50K a year for expenses, that means you need to figure withdrawing $65K+ a year because of all the taxes. Or is that $50K pre-tax?

 

[Rambler]

My kids are now in college, I am paying tuition for 4 years, all expenses for the first year, then books and rent after that (with it being their responsibility to earn money for food, play money and other essentials). I could not do all of that on 2m, nor could I do it on what I have now (quite a bit more). I voted 5m, because there wasn't an option for >5m.

I'll be punching out about 6 months before DD finishes college and maybe 6 months after DS finishes (assuming I don't get booted or burned out before then...not likely but you never know). At that point I will have just turned 51. My target SWR is <3%, and I am generously estimating expenses incl tax to be around $140k. I probably don't need that much, but DW and I want to be able to do some of the things we are not able to do now because of my overseas assignment, and with property taxes on the McMansion so high, no pension, no megacorp health insurance, and our desire to have a medium sized RV (read that as about 10-12k per year in depreciation and upkeep expenses), that we feel we need about that much to keep from being worried about eating cat food. That said, I could pull the plug now if I didn't have the desire to pay for the kids tuition, downsized the McMansion a bit, and got rid of the RV plan. At the end of the day, if I can't pull the trigger at age 51 with 3% or less SWR, then I will adjust my budget...maybe a travel trailer instead of a motorized RV, so that my SWR does end up around 3%, or perhaps I will do a little consulting work on the side, if that option seems to be available at the time.

Everyone's situation is different, but that's ours. Back to the original question though, I don't think I would want to pull the plug with two kids at home and only 50k to cover everything (at 40 I wouldn't go over 2.5-2.75% SWR). If I felt like I could go back to work anytime I wanted, maybe I would go part time or semi-retired, but for me, I doubt that I would be able to get the kind of position I have now if I had been completely out of the workforce for a couple years, let alone 5-10 years.

YMMV, of course.

R

 

[LOL!]

In 2006, I would've voted $2MM.

In 2007 I would've voted $2.5MM because a 20% decline would still leave me with $2MM.

Now in 2009, I'm thinking about $3MM because a 33% decline would still leave me with $2MM.

If you need $50K a year for expenses, that means you need to figure withdrawing $65K+ a year because of all the taxes. Or is that $50K pre-tax?

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.

 

[Lusitan]

Too many variables for me to answer the poll in a meaningful way.

Does the portfolio include the value of real estate, i.e. are we to assume that the living expenses need to cover a mortgage or rent, or are those expenses eliminated by a paid-off home?

Do you want to pay for your children's undergraduate education, or do you want them to pay for it on their own? Do you want to finance advanced degrees for them as well, or do you draw the line at undergrad?

Do you live in a place where you're happy with the public schools, or do you want to send your kids to private school for some reason (religious preferences, etc.)?

How far do you need to travel to visit family, i.e. are annual trips abroad to visit close relatives "back in the Old Country" important to you? Or are large travel expenses more discretionary?

Do you really, truly plan on never doing paid work again? Or is the FIRE plan more along the lines of stepping off the treadmill, quitting the rat race, and maybe finding work or a small business that you enjoy and can do on a part-time basis?

Are you healthy enough to obtain private medical insurance at a reasonable rate, or do you have an existing condition that would make it much more expensive?

And then, of course, there's the basic question of what material lifestyle do you want ("need") ... keeping in mind of course that even the lower middle class American lifestyle is far wealthier than the vast majority of the world's population.

Depending on all those variables, I could see 0.5 million being enough for some, and 5 million not being enough for others.

 

[Texas Proud]

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

ROFLOL....

 

[Katsmeow]

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?

 

[bongo2]

Too many variables for me to answer the poll in a meaningful way.

Does the portfolio include the value of real estate, i.e. are we to assume that the living expenses need to cover a mortgage or rent, or are those expenses eliminated by a paid-off home?

Do you want to pay for your children's undergraduate education, or do you want them to pay for it on their own? Do you want to finance advanced degrees for them as well, or do you draw the line at undergrad?

Do you live in a place where you're happy with the public schools, or do you want to send your kids to private school for some reason (religious preferences, etc.)?

How far do you need to travel to visit family, i.e. are annual trips abroad to visit close relatives "back in the Old Country" important to you? Or are large travel expenses more discretionary?

Do you really, truly plan on never doing paid work again? Or is the FIRE plan more along the lines of stepping off the treadmill, quitting the rat race, and maybe finding work or a small business that you enjoy and can do on a part-time basis?

Are you healthy enough to obtain private medical insurance at a reasonable rate, or do you have an existing condition that would make it much more expensive?

And then, of course, there's the basic question of what material lifestyle do you want ("need") ... keeping in mind of course that even the lower middle class American lifestyle is far wealthier than the vast majority of the world's population.

Depending on all those variables, I could see 0.5 million being enough for some, and 5 million not being enough for others.

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. All those other questions are optional for the responder. What lifestyle would you personally want? Do you want to send your children to private school? Are you comfortable not paying for your children's college? Would you be comfortable cutting it close and taking a chance of needing to go back to work?

Yes, the $X would include any value in real-estate or home equity, so up to you to use that money for a home or invest it elsewhere. Assume you and your family don't have any conditions that make it abnormally difficult to get health insurance.

 

[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]

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]

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!]

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 .