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

[Leonidas]

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?

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]

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]

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]

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]

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]

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]

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]

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]

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]

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).

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]

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]

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

$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]

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.

 

[Lusitan]

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.

I see that the OP amended the rules (last post, first page) so that for this poll, any real estate equity should be lumped into the portfolio value. So I guess if we want to play by the rules we need to consider that the portfolio would need to generate enough to cover housing as well.

500K does seem pretty small under that assumption. Perhaps not impossibly so (with two boys sharing a room you could get by with a small 2 bedroom house somewhere in a low-rent or low property cost state) but tighter than I'd want to cut it.

Also, I see we're also supposed to assume no problematic medical conditions, so we factor that in for the health insurance issue.

Didn't Joe Dominguez from Your Money or Your Life fame live in a multi-family commune or something hippy like that? I know there are people out there still into that stuff. I won't knock 'em if that's the lifestyle they want ... at the end of the day I'm sure some people could get by just fine and be happy with half a million dollars as a FIRE stash for a family of four.

Peace and love, y'all.

 

[FUEGO]

I see that the OP amended the rules (last post, first page) so that for this poll, any real estate equity should be lumped into the portfolio value. So I guess if we want to play by the rules we need to consider that the portfolio would need to generate enough to cover housing as well.

500K does seem pretty small under that assumption. Perhaps not impossibly so (with two boys sharing a room you could get by with a small 2 bedroom house somewhere in a low-rent or low property cost state) but tighter than I'd want to cut it.

Ouch - $500k including your house equity?? That would leave me with roughly $350k in the current house, or $450k if I moved the family into the dinky 1 or 2 BR condos down the street (and the wife remained married to me in spite of this). We could maybe squeeze out an existence in the dinky 2 BR condos, but it would require our 2 daughters to share a room. It would work, but at the end of the day, I'd rather just work 4-5 more years to almost double the portfolio and stay in our current house.

Interesting thought experiment though. We will be closing in on the $500k mark fairly soon, and that is the number I assumed we would require at the bare minimum to do a Thailand/Mexico type expat lifestyle with little margin of safety (the first level of FI). An interesting psychological milestone whereby, once reached, you know you COULD be FI if you were to make some serious sacrifices (mainly the DW would be making those sacrifices).

 

[Lusitan]

An interesting psychological milestone whereby, once reached, you know you COULD be FI if you were to make some serious sacrifices (mainly the DW would be making those sacrifices).

Yeah - I think that's really an important milestone, knowing that you COULD do it if you wanted to. I think when I reach that point, it will give me a different outlook on my j*b. (I'll get back to you whether I take a more positive attitude, or lose all tolerance for the shenanigans and throw in the towel for an expat bum lifestyle! )

 

[NW-Bound]

We will be closing in on the $500k mark fairly soon, and that is the number I assumed we would require at the bare minimum to do a Thailand/Mexico type expat lifestyle with little margin of safety (the first level of FI).

Pretty darn good for your age! I would hang in there a little longer to get a bit more though, particularly for people with young children. Remember that once you are free, having to come back to work is going to be a LOT tougher for your psyche than the first time.

 

[FUEGO]

Yeah - I think that's really an important milestone, knowing that you COULD do it if you wanted to. I think when I reach that point, it will give me a different outlook on my j*b. (I'll get back to you whether I take a more positive attitude, or lose all tolerance for the shenanigans and throw in the towel for an expat bum lifestyle! )

Pretty darn good for your age! I would hang in there a little longer to get a bit more though, particularly for people with young children. Remember that once you are free, having to come back to work is going to be a LOT tougher for your psyche than the first time.

It certainly is a good feeling to have. But we definitely plan on sticking it out another 10 years or so, just to get enough to have a very safe withdrawal rate, plenty extra to cover health insurance unknowns, and plenty extra "just in case" since we have family nearby that may need some help from time to time. And then we have 2 kids under age 5, so there are many unknown kid costs.

We just started saving for college for the kids, and that amount will probably end up being around 10% of our net worth when we ER.

Not sure I agree 100% about the "harder to come back to work after you leave". I think if I went into an extremely early ER (at age 29 right now), I would know that returning to work would be a potential need at some point. I would probably maintain my licenses for a while at least, and keep in touch with those industry contacts whose company I enjoy. I think after a couple years off to "recharge the batteries" I might actually like* returning to work just for a little challenge. But if I went into an early ER and thought that I was hanging up the spurs for good, I would probably find it psychologically difficult to go back to work.


* as in, they pay me a lot of money

 

[Lusitan]

I think if I went into an extremely early ER (at age 29 right now), I would know that returning to work would be a potential need at some point .... I think after a couple years off to "recharge the batteries" I might actually like* returning to work just for a little challenge.

This is exactly how I feel. For me, getting to FI is primarily about jumping off the treadmill, checking out of the rat race, and taking as much time as I want to consider my next move.

There's a chance my next move will be to never do paid w*rk again, but I don't see that being a necessary outcome, especially for someone in their 30s or early 40s. This is why I'm OK with targeting what some would consider an unreasonably low FIRE stash, with a young FIRE age.

Think about it -- although we're a very fortunate and/or hardworking group of people who can entertain thoughts of FIRE that are inconceivable to most people, there are thousands of young people born into wealth who could live material lifestyles far beyond what even the wealthiest among us could ever enjoy. But most of these rich-kids don't "FIRE at 21" with their trust funds, they usually do something and often end up earning money for it. (The ones who don't usually end up unhappy, drug-or-alcohol-addicted basket cases.) I think that's part of the natural human condition, to want to be productive in some way, although being FIRE means you can pick and choose exactly how much and in what ways you want to produce.

So I don't think, if I hang up my spurs at 38 years old, I will be crushed if I decide that I want to earn some more money down the road at some point above and beyond what my SWR is giving me.

 

[NW-Bound]

Not sure I agree 100% about the "harder to come back to work after you leave".

It depends on the type of work. Full-time work after a long hiatus is going to be bad, although if the alternative is hunger then one certainly can find the motivation. Besides getting soft and accustomed to the easy life, the danger is that one may lose the business contacts or fail to keep up-to-date if in certain technologies.

If it is part-time work, then it's not so bad. I have been doing that for the last 6 years, both at home and consulting at megacorps, averaging between 500 to 1000 hrs/yr. The work is sporadic and most of the time is part of larger R&D efforts, meaning longer-term efforts and not in a fire-extinguishing panic mode, so I do have some leeway in being able to take time off. Not everybody's works fit in the above criteria, and I am grateful to have this arrangement. My work has been slow the last couple of months, hence my postings here more often. However, it may be picking up here, and I may be absent again from this forum (I am not a multi-tasker).

I cannot take off for a 6-month trek across the world because of the part-time work, but have found out that I cannot be a perpetual traveler anyway. So, little is lost. And the money helps reduce the WR on the "incredible shrinking portfolio" too.

 

[FUEGO]

It depends on the type of work. Full-time work after a long hiatus is going to be bad, although if the alternative is hunger then one certainly can find the motivation. Besides getting soft and accustomed to the easy life, the danger is that one may lose the business contacts or fail to keep up-to-date if in certain technologies.

....


I cannot take off for a 6-month trek across the world because of the part-time work, but have found out that I cannot be a perpetual traveler anyway. So, little is lost. And the money helps reduce the WR on the "incredible shrinking portfolio" too.

I guess you have to be a smart guy, ready to "reboot" your career, and willing to roll w/ the punches if you want to get back in the game after a long break in employment. But there are certain phases in the economic cycle where I imagine finding employment would be extremely easy (when times are really great, employers can't find any good workers, and "fogging a mirror" constitutes adequate skills and experience).

Unfortunately those good economic times will be inversely correlated to large drops in your portfolio value, so jobs will be least available to those seeking to re-enter the workforce when they need to the most (during difficult economic times).

 

[jdw_fire]

I guess you have to be a smart guy, ready to "reboot" your career, and willing to roll w/ the punches if you want to get back in the game after a long break in employment. But there are certain phases in the economic cycle where I imagine finding employment would be extremely easy (when times are really great, employers can't find any good workers, and "fogging a mirror" constitutes adequate skills and experience).

Unfortunately those good economic times will be inversely correlated to large drops in your portfolio value, so jobs will be least available to those seeking to re-enter the workforce when they need to the most (during difficult economic times).

so, just thinking off the top of my head about the specific case of handling portfolio shock, then maybe the thing to do is think outside the box and live off your "dwindling" portfolio (even though it makes your portfolio size very uncomfortable) during that down turn and then (cus you have to) return to the work force in the good times (when all you need to do to get a job is "fog a mirror") to fortify your porfolio. like i said, off the top of my head.

 

[FUEGO]

so, just thinking off the top of my head about the specific case of handling portfolio shock, then maybe the thing to do is think outside the box and live off your "dwindling" portfolio (even though it makes your portfolio size very uncomfortable) during that down turn and then (cus you have to) return to the work force in the good times (when all you need to do to get a job is "fog a mirror") to fortify your porfolio. like i said, off the top of my head.

Yes, I think this is the clear solution. Make sure you have enough to at least weather a steep economic downturn (like the one today). Then when things pick up in a few years (maybe 5 or 10), get back in the saddle and make some more money. I almost think you could get hired on during the beginning of the boom cycles and take an early buyout package during economic declines and play the economic cycles with your earned income.