33, Pregnant, and Getting Close to ER

[AnIntentionalRoad]

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.

The way you spend your money on kids will vary greatly from family to family based on your means and values. When I was a kid my parents got by spending very little on us and we turned out fine.

But here are a few expenses we've had recently for our kids that we could never had forseen as younger parents(we have 2 kids in school):
- Braces and dental care for daughter: 12k
- Sports and activities: 800/mo
- Clothing, toys, etc: As much as you care to spend.
- Restaurants and vacations: 20-30% more, at least once they become middle schoolers and aren't eating on kids menus.
- Saving for college: $$$

Yes, these are all wants, not needs, so you'll have to decide on each(and other wants that will materialize).

Parenthood is an expensive proposition in our culture.

Sent from my SM-T237P using Early Retirement Forum mobile app

 

[dadu007]

BumblingtoFI,
Take a look a the "Crime" section under "Neighborhood Info" of that Trulia listing and I think (unfortunately) you will get your answer. Over 10 break-ins in the surrounding blocks over the last month and a half.
Also the house was built in 1910; I would venture it is a real fixer-upper.
Truth be told, I'm a suburbs kind of guy and I would have no tolerance for the uncertainty in this type of neighborhood, especially with a newborn.
Sorry, that's probably not the answer you were looking for!

 

[Bryan Barnfellow]

I don't think you mentioned life insurance. Be sure to factor in an adequate level of term coverage so that your child is protected. What about travel? It's a big wonderful world with a lot to see!

-BB

 

[mystang52]

I did NOT do any comprehensive financial analysis of your numbers. But I think that while 1.5 million sure seems substantial (and is for your age), there are a "gazillion" things that can happen for such a long retirement. These can slowly/steadily reduce that stockpile.
A simple thing like wanting a better, less austere, lifestyle will impact your budget. Real-life things such as major home repairs likewise can force you to withdraw funds above and beyond what you budget for. And of course having a child is one ongoing major expense........never mind the very real possibility of wanting/having a second child.
I suggest you give this a whole-lotta [more] thought and analysis before making that decision.

 

[bingybear]

do you have enough quarters credited to qualify for SS and Medicare? While we don't know the future of these things, health insurance gets significantly more expensive as one ages.

 

[rodi]

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.

The $12,500 (for myself and 2 sons, DH is on a different plan) max OOP is above/beyond the insurance premiums. I had $6k budgeted, since that is significantly HIGHER than previous years averages of total medical bills. But we haven't had hospitalizations in previous years. I also set aside $30k for emergency - with the idea of refilling that bucket as it gets used.

Sure I could budget that we'll hit Max OOP each and every year. But I don't think that's realistic. We're fairly healthy and don't go to the doctors a lot. But... both kids had issues this year that are atypical. If one of us gets an ongoing condition that makes it likely we'll hit the OOP each and every year, we'll cut back in some other area, change our insurance to a more comprehensive one at the next open enrollment, and deal with it.

I don't consider this year a typical year - but it's the type of thing you have to plan for. In our case I have medical emergency fund as my planning.

 

[explanade]

Sounds like basic expenses could be covered but as many have pointed out, there are potentially many unforeseen expenses which could crop up.

But beyond those, it seems like there's very little discretionary spending planned for, like vacations or maybe some hobbies or activities, not just for the kid(s) but for the parents too?

Also not much said about why getting out of a lucrative career so early. Burned out? Are there other things that you specifically plan to pursue which you couldn't with the career?

Have you thought through about other aspects of retirement besides meeting just the basic living expenses?

 

[daylatedollarshort]

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.

In California the cutoff is around $90K for grant money for a family of 4 (varies year to year so I don't know the exact the amount for 2015) and that is AGI, not gross income. Income inside our retirement plans does not count nor does house or business appreciation. For older homeowners like us who bought when house prices were less crazy and are covered under Prop 13 for property taxes it is a pretty good deal.

Every time kiddo #1 would bring up private college or out of state we'd print out the Payscale reports on salaries by college and by major and say if you can make a good case for going somewhere more expensive than free, especially considering the starting and mid career salaries of the many good public schools we have here, let us know and we will consider it.

 

[ivinsfan]

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.

Agree with you completely, not sure where the OP pulled the number for MSP, but she has underestimated what it will take to buy near transit, with good schools..the close in transit spots are very popular with all the young professionals in the area and the prices reflect that. That area never collapsed much and is rising quickly in price. MY DD and SIL live in such an area.

 

[BumblingtoFI]

Hey everyone! There are a lot of great and interesting points of view here, and I'm picking up that some of my assumptions may be a bit rosy. I have a bunch of questions that'll take a bit of time to wade through but wanted to address the questions about travel and the big "why" question.

1. Travel is most certainly already in our budget, and I am thinking we'll spend the same amount on travel we do now (~$4K per year) just do it slower. We're somewhat thrifty travelers now but end up making more expensive choices to save time.

2. What do I want to do in retirement? For first few years after retirement I just want to spend time with my baby and let the dust settle from 10 years of uninterrupted work. My job is about as good as you could get but it also consumes a huge amount of my time and energy every week. And after that? I want to write a novel, hike more, teach a class, give away career coaching, cook a lot, and have the luxury of learning without it being tied to a profit motive.

Thanks to everyone for the interesting feedback today!

 

[MichaelB]

2. What do I want to do in retirement? For first few years after retirement I just want to spend time with my baby and let the dust settle from 10 years of uninterrupted work. My job is about as good as you could get but it also consumes a huge amount of my time and energy every week. And after that? I want to write a novel, hike more, teach a class, give away career coaching, cook a lot, and have the luxury of learning without it being tied to a profit motive.

That's a great set of objectives and a whole lot to look forward to. Good luck and welcome to the forum.

 

[Fred123]

I'll chime in here to say that you might want to reconsider some of your assumptions. You can certainly take *some* time off, but I'm dubious about your financial ability to permanently retire. Just a few considerations:

1) Home maintenance costs generally run about 1-2% a year and the property tax rate in Minneapolis is about 1.5%, so best case you can expect to spend at least $5K a year on housing expenses, not including utilities.
2) According to the USDA, it costs on average about $250K to raise a kid and that doesn't include college. If you add current costs for a public university to this and assume that you will qualify for some financial aid, that goes up to perhaps $300K. That increases your monthly child rearing costs to over $1000/month and, of course, if you have more kids that will increase.
3) Others have mentioned that your estimate for HI also seems low, though you will probably qualify for ACA subsidies. Still, with a high deductible plan, all it takes is an ER visit or two to blow through the deductible.
4) You have to plan for > 50 years of retirement, and I don't think the methodology behind FireCalc is reliable for very long retirements. You might want to some other retirement calculator (like Fidelity's Retirement Income Planner).
5) I'm guessing that you could safely withdraw, at most, about 2.5% of your portfolio per year for such a long retirement. That leaves you a little over $30K/year (after deducting $200k for your house purchase). Can you live on that?

At this point, you're probably sorry that you asked for any advice!

 

[ivinsfan]

I'll chime in here to say that you might want to reconsider some of your assumptions. You can certainly take *some* time off, but I'm dubious about your financial ability to permanently retire. Just a few considerations:

1) Home maintenance costs generally run about 1-2% a year and the property tax rate in Minneapolis is about 1.5%, so best case you can expect to spend at least $5K a year on housing expenses, not including utilities.
2) According to the USDA, it costs on average about $250K to raise a kid and that doesn't include college. If you add current costs for a public university to this and assume that you will qualify for some financial aid, that goes up to perhaps $300K. That increases your monthly child rearing costs to over $1000/month and, of course, if you have more kids that will increase.
3) Others have mentioned that your estimate for HI also seems low, though you will probably qualify for ACA subsidies. Still, with a high deductible plan, all it takes is an ER visit or two to blow through the deductible.
4) You have to plan for > 50 years of retirement, and I don't think the methodology behind FireCalc is reliable for very long retirements. You might want to some other retirement calculator (like Fidelity's Retirement Income Planner).
5) I'm guessing that you could safely withdraw, at most, about 2.5% of your portfolio per year for such a long retirement. That leaves you a little over $30K/year (after deducting $200k for your house purchase). Can you live on that?

At this point, you're probably sorry that you asked for any advice!

On the other hand, it's fun to dream and it's better to ask for input sooner, rather then later!

 

[soupcxan]

Personally I would be very uncomfortable retiring with only $1.5M for two 34 year olds plus a newborn, even if you also have a paid off $200k house. $1.5M at 3% WR is $45k/year before taxes for three people. No way would I do that.

 

[calmloki]

+1. We have 30 years less retirement to cover, no kids, a higher net worth - and I still stew over what ifs. SWMBO's mom lasted well into her 90s, so I'm looking at covering 30 more years for SWMBO. We are pretty darn thrifty, but I figure our investments only do a point better than inflation and I don't want to be forced to live as we currently choose to live. I'm finding myself with the knowledge to take care of various repairs but lacking the desire or stamina. That means spending more going forward just to take care of things I now do myself. Rather major health issues crop up quite unexpectedly - Oh! Want a dental implant rather than a bridge? That'll be $5000/tooth. Chewing is a good thing.

My totally uninformed opinion would be that if one leaves a high powered, high salary, great job in New Yahk City for a few years it is not liable to be there when one wants it again - wouldn't want to count on just picking back up after an extended hiatus.

EDIT: love the house though - our kind of old place with the varnished wood and 8" baseboard. You noticed the normal old house total lack of workspace next to the stove and the dearth of outlets and overhead lights on dangling electric cords, yes? I guarantee a lack of grounded outlets and probably knob and tube wiring. Real estate agent photos crack me up with their wide wide angle lens. Doors look 4" wide, that little parlor with a couch that about stretches from wall to wall is maybe 9 1/2' wide, but sure looks good in the picture. Again, really like old houses, but that puppy will give you something to do with your retirement time chasing fix-ups and repairs.

 

[daylatedollarshort]

We have a conservative asset allocation and are conservative with our savings in general so we probably would not have planned to retire forever in our thirties, with kids, on that size of portfolio.

But if you have low expenses and one or both of you are willing to work part-time, do contract work, become self employed, start hobby jobs or some kind of low key family friendly careers and make another $20 - $30K a year or so at less intense jobs, that could work out really well. Over time that would give you another $1M+ for extras and future kid expenses as well as increase your future SS benefits.

Juliet Schor (author of The Overworked American, The Overspent American and Plentitude) calls this downshifting:

Downshifting - Wikipedia, the free encyclopedia

We've never had million dollar or half million dollar a year type jobs to give up so not working full time and testing out working less never involved a huge risk for us.

 

[CaliforniaMan]

Congratulations! You have done an AMAZING job acquiring such a net worth at your age. However, having raised two kids in suburbia, I think you have substantially underestimated the costs. And at your young age, you have many more years in retirement than tools like FireCalc and others are designed to model. What about working another 5 years? That way you could accumulate a better buffer, and still choose a home and neighborhood to live in before you kid starts 1st grade, so they can grow up in the same neighborhood. Not yet even having your baby, and trying to make such a drastic change, I think you are jumping the gun a bit.

 

[FUEGO]

Hey BumblingtoFI! Congrats on the baby - that'll be quite a big change in your life probably more than moving half way across the country.

In general, I think your plan is doable, especially if you stick it out another year or three and keep piling up the $$.

The $3600 for housing expenses might be low if you include insurance. We're at $3600/yr for maintenance and taxes, plus another $800 for insurance (1800 sf in Raleigh NC).

$400/mo for kids should be plenty. Although $4000/mo could also be plenty. The sky is the limit when it comes to kid expenses.

Your health insurance looks like a decent estimate assuming you'll be on the ACA subsidies.

It looks like you already found my blog. If you haven't see it, check out my "Developing a retirement budget" article on how we came up with our $32k/yr retirement budget. It sounds like you're using the same methodology as me - take your current baseline expenses and then adjust up for additional retirement costs and down for work (or in this case, NYC specific) costs that will end.

As for college, I'm just now starting to look at our options, and found out there's a thing called "Net Price Calculators" for colleges all over the nation. Google that plus the school you're interested in. I plugged in our stats and found that the kids might not need anything from us to get through college ($12000/yr from grants and loans, plus we/they chip in a few thousand from working). Then there are tax credits and merit scholarships. You'll also have 18 years to let your current $1.5 million grow, so you'll probably have extra money by then to help pay for college if necessary.

What's the likelihood of you or your spouse finding decent work in Mpls or wherever you end up should you need to refill the FIRE stash? I assume freelance architect translates well to other areas depending on what aspects he's in, and finance could too (although probably not with NYC/Wall St salaries).

 

[BumblingtoFI]

FUEGO - Thanks for the input! I think a year or three of additional work makes a lot of sense, particularly since I get this summer off for maternity leave. I realize "off" is not a very good descriptor of the first three months of having an infant, but at least it'll be an interesting input when I think about retiring.

Thanks for the references, I'll check out both the article and the Net Price Calculator.

While I realize marketable skills age quickly and as soon as I leave I'll likely never make the same money again, I also have generic skills like people management that could be employed in a variety of settings. I'm also somewhat well connected to the hedge fund community in Minneapolis, and think the "glitz" of a New York brand name firm would make it fairly easy to find employment again for the forseeable future. Another angle I'm considering is whether my current job would let me work remotely for part of the year or part time, which might make my remaining years of work more palatable.

A few questions from earlier in the thread:

1. 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 whatever we spend on a house 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.

2. Why would you recommend life insurance? Our kid will inherit a $1.5M trust if we pass away; how much more could he need?

3. I'm confused about the riskiness of this plan and the advice that it's better to have a 2.5% withdrawal rate. Doesn't the 3-4% SWR math work regardless of how long you are in retirement?

Thanks again for all the input!

 

[FUEGO]

FUEGO - Thanks for the input! I think a year or three of additional work makes a lot of sense, particularly since I get this summer off for maternity leave. I realize "off" is not a very good descriptor of the first three months of having an infant, but at least it'll be an interesting input when I think about retiring.

That approach makes sense. Enjoy the time off with the baby.

Thanks for the references, I'll check out both the article and the Net Price Calculator.

You're welcome! You're close to FIRE if not there already.

 

[Fred123]

3. I'm confused about the riskiness of this plan and the advice that it's better to have a 2.5% withdrawal rate. Doesn't the 3-4% SWR math work regardless of how long you are in retirement?

Thanks again for all the input!

No, the original 4% SWR rule-of-thumb dates back to the Trinity study from the mid-90s, which reported that a 4% SWR gives you a 95% chance of having a net worth > 0 for a 30 year retirement. In other words, this SWR assumes that you are depleting principal. Since you are planning for a 50 year retirement, your SWR has to be lower. A ballpark guess would be that you could only tap your account at 60% (30/50) of the SWR of a 30 year retirement. And many retirement planners (such as Wade Pfau) who model this now think that, because of persistent low returns, the SWR should be less than 4% for 30 years. So 2.5% is probably optimistic for a 50 year retirement. But you really need to model it with a more sophisticated tool than FC (such as the previously mentioned Fidelity Income Retirement Tool).

 

[Fred123]

Sorry, meant to say persistent low bond rates.

 

[sheehs1]

2. Why would you recommend life insurance? Our kid will inherit a $1.5M trust if we pass away; how much more could he need?

Your child won't inherit it if you and your spouse are spending it to live on or if any surviving spouse is spending it. But I gather that may not have been your point per se.

Typically, it is recommended in your situation with a young baby that you get a 20 or 25 year term life insurance policy on yourselves in the event something happens. This gets your children past college age and launched.

It doesn't have to be for 1.5M. Term life insurance is cheap at your ages and you can pick any amount you feel is reasonable should you decide to do this.

Whatever the amount, it helps replace any income that was produced and may be needed going forward. Even if one spouse is not currently working - he/she may start working and loosing that income and/or having expenses go up may be a jolt. It protects the surviving spouse, provides some breathing room so they don't have to worry quite so much about the money side.

Rather than thinking about what happens if you both go at the same time, think about the situation IF something happened to your spouse or if something happened to
you. Insurance can help mitigate some of the risks of loosing a spouse.

 

[rodi]

1. 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 whatever we spend on a house 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.

I do not consider my home as part of my assets for SWR/retirement asset purposes. I consider the expenses of my house in the budget... but since you can't spend a house without selling - and you need to live somewhere... I don't count it.

That said - I *do* consider it in LTC planning. If my husband or I ends up needing LTC - the other could downsize and use the equity difference to pay for LTC. It helps that our house is a significant chunk of our networth - so significant equity could be extracted to pay for LTC.

 

[BrianB]

Hi! I see lots of comments on the money side of things, but here are some comments on the Twin Cities from someone who has lived here for 20+ years.

Minneapolis & its 'burbs are the trendier, "hip" cities. St. Paul is the political capital and more stoic. I am strongly in favor of the Minneapolis side!

Ignore anything outside the actual city or first-ring suburbs. You don't want to be a 30 minute drive from everything, do you?

Downtown Minneapolis living would be great but $200k won't buy you anything.

Northeast Minneapolis ("Nordeast") has some great ethnically diverse areas, you can probably buy a small pre-WW2 bungalow in OK condition for $200k.

Southeast Minneapolis has two new light rail lines that are spurring development & gentrifying the surrounding areas. Mostly large two-story houses that are gorgeous but can be money pits if you aren't careful.

First ring suburbs might be worth considering. Robinsdale / New Hope / St Louis Park and others are mostly post-WW2 bungalows & ranches. Not a lot of charm for an architect, but reasonable living with easy access to all parts of the metro area. Public schools are pretty good - likely better than you are used to in NYC.

We (self & DW & DD) have lived in a $150k (current value) townhome in St Louis Park for over 15 years and we love it. 5 minute drive or 15 minute bus to downtown, new shopping & entertainment redevelopment within walking distance and very good public schools including IB & immersion options. Five linked lakes within walking distance with walking & biking trails make it a surprisingly green urban area.

Minneapolis winters can be brutal but April to November are beautiful.

Good luck!