Targeting 2025 with small kids

[BoredAtWork]

Been lurking reading the great insights and knowledge from this forum. Thanks for providing an amazing resource for this topic. All this reading has really motivated me to assess my situation to try to retire early as soon as possible. Would appreciate any feedback on my current plan:

36 years old. Spouse 36. Two kids (6 and 3). We are planning to leave our current state to relocate closer to family in a slightly lower cost of living state when we are 40. Since that would necessitate leaving my current company of 10+ years and symbolically lines up with 2025 and turning 40 it all seems to indicate we should try to target that time to early retire. I’ve been quite lucky in the career having the following investable assets with these as conservative low end of range estimates by 2025:

$7.5M with fully paid off mortgage. There are a range of outcomes here because have equity that will fluctuate over next few years. I feel confident will at least have this amount though with current savings levels.

90% in taxable investment accounts
10% in tax deferred retirement accounts
No real estate (mortgage will be fully paid off by 2025) besides primary residence.

Problem is our spending is high. Currently $300k after tax. With mortgage paid off but adding significantly higher health insurance, can probably get spending down to $270k if we wanted to maintain same lifestyle, which we do. I estimated health insurance for a family of four at $30k per year.
Not sure state we are relocating to will really be noticeably cheaper.

Running FIRECalc and early retirement now.com excel on safe withdrawal rate, this looks like we would be borderline. With a 50ish year longer time horizon need safe withdrawal rate to be 3.25% or 3.50%.

I’m not opposed to working part-time or going back to work if I must in retirement so that feels like the fallback if we need it. Been grinding 11-12 hours per day for entire work career. The job has gotten pretty boring and uninspiring yet still requires a ton of hours. On call 24/7 for crises that come up, which frequently interrupts weekends and kid activities. Not trying to be a whiner because I make a very lucrative wage and have been extremely fortunate but I want to get out of the rat race sooner rather than later to enjoy the kids growing up more.

Thanks everyone for all that you do providing feedback. Would appreciate any perspective you have!

 

[pacergal]

You have saved an amazing amount of money, congratulations.
However, for that long of a retirement, with young kids, your budget and spending is where your plan will succeed or not.
Looks like you need to get it down a bit from where you currently are.

Forum FAQ has this thread:
Some Important Questions to Answer Before Asking - Can I Retire?

Answer those honestly to help with your planning.

 

[ivinsfan]

You mind if I ask what you spend 300K on?


Since this your very first post here, I'm just reading along...for entertainment purposes.

 

[Vacation4us]

What do you have today? Projecting future net worth may or may not pan out. Healthcare for a family of 4 for at least 20 years is expensive.

40 is definitely a young retiree. My concern would be your kids and the work ethic they may or may not develop.

 

[BoredAtWork]

Thanks for the responses.

Approx $5M today. Feel good about at least getting to $7.5M by 40 unless there are major stock market corrections that then don’t bounce back (a very real possibility).If I’m way off and can’t get there by 40 then will keep the grind going.

Spending $300k: it is pretty embarrassing because I don’t feel like we are overly materialistic people. No one vice really stands out we sink a ton into. The combination of private school for kids, golf club membership, pricier cars, lots of kid activities, wine collecting, donations to our church, eating out a lot, traveling, etc.

Work ethic for kids is definitely a concern. I do think they’ll have seen for a decent chunk of their lives me working a lot. I’ve thought if I early retire I’ll spend a lot of time managing the investment portfolio and likely doing some consulting. Perhaps being naive but hoping that would show them I’m still “working.”

 

[luv2hunt]

Congrats on having such a large accumulation at such a young age. Have you estimated your taxes after you quit working? I imagine you have very large capital gains built up and in order to fund annual spending that you will incur capital gains taxes? If so you will really need more than 300k/yr. Personally I would want to stick to 3% SWR if planning for 50+ yrs and agree you seem borderline at that spend rate assuming $7.5M

 

[livingalmostlarge]

You should probably do it now. Before the kids get any older. Are you sure you will want to move the kids when they are 10 and 7? It'll be harder as they get more established?

That being said how much lower COLA is where you are moving to? It could make all the difference. If you moved now and with $5M would it be possible? I mean that generates $250k. Maybe a different job with lower income and stress?

Also you say your lifestyle isn't materialistic but private schools, golf membership, pricier cars, wine collecting, etc? If you moved to LCOLA what do you predict these same things would cost you? Maybe you could trim $100k off and spend $200k because private school is $25k instead of $50k per kid. You can do $20k golf instead of $40k. Just a stirring pot of thoughts for spending.

 

[BoredAtWork]

My thinking on taxes may be completely wrong. I do have a lot of capital gains built up. My total luck and fortunate timing was getting a small piece of equity in a startup years ago that got bought out. Took those proceeds and put into the market that has been ripping higher the last couple years and that's how it has gotten up to the level its at. So in that $5M is a ton of long-term capital gains. I assumed (maybe wrongly) that running FIRECalc or Safe Withdrawal Rate calcs the withdrawal rate was intended to represent what you will spend after tax.

So let's say I take the spending in retirement down to $250k. If that is after-tax, then assuming it is 100% long-term capital gains (or qualified dividends) and for simplicity no state income tax and standard deduction, that would be approximately 10% in blended tax rate. Means would really need to withdraw from portfolio $250k / 90% = $278k. Assuming wanted a 3.25% withdrawal rate due to 50 year retirement horizon, this would imply need an investable portfolio of $8.55M. Is that the right way to think about it?

Thank you for the suggestion on trying to make the move sooner with the kids. It is a good idea. The COLA difference is probably 5%. And you may be right that many of these luxury spends I'm doing will actually be a lot cheaper and I'm conservatively assuming my spend level is basically the same when it may not need to be. I think my big takeaway is I need to find a way to either get spend down to approximately $200k or rationalize working at least part-time for a number of years.

 

[luv2hunt]

So let's say I take the spending in retirement down to $250k. If that is after-tax, then assuming it is 100% long-term capital gains (or qualified dividends) and for simplicity no state income tax and standard deduction, that would be approximately 10% in blended tax rate. Means would really need to withdraw from portfolio $250k / 90% = $278k. Assuming wanted a 3.25% withdrawal rate due to 50 year retirement horizon, this would imply need an investable portfolio of $8.55M. Is that the right way to think about it?

Yes, that is how I think about it - spending to include taxes. One thing I noticed missing in your post is social security which should be something even if it gets reformed. Obviously you will have to wait years to get it.

I would also agree the earlier you do the move the easier its going to be on the kids. My kids are 13/10 now and we recently were looking to move to a lower cost of living area. We decided against it mostly due to not really wanting to uproot the kids from friends/schools. We will instead wait until the youngest is at least in college.

 

[livingalmostlarge]

I think that you might want to see what your budget would look like in the new city. I mean rough budget. How expensive home? Paid for or mortgage? Property taxes, insurance, health insurance, private school, etc. If you are moving closer to family you probably can sketch out where you want to be. I would make a plan that you are "moving" next year. See what house you can get. I'd then do a 10 or 15% buffer on the budget.

What's the breakdown of investments? LTCG will be 23.4%. Also will you put any into something like rentals or just the stock market? You might be doing Roth conversions as well.

Plus 1 more year of working might give you buffer for any of this and the kids won't be a lot older. Also depending on what you have now would you be adverse to moving and earning a lot less? Or only one of you working?

 

[fancy free]

40 is definitely a young retiree. My concern would be your kids and the work ethic they may or may not develop.

I retired at 42 with two children. They are young adults now and have an excellent work ethic. Why wouldn't they? Lack of parental example? Work ethic can be demonstrated by more than paid work.

 

[tb001]

My thinking on taxes may be completely wrong. I do have a lot of capital gains built up. My total luck and fortunate timing was getting a small piece of equity in a startup years ago that got bought out. Took those proceeds and put into the market that has been ripping higher the last couple years and that's how it has gotten up to the level its at. So in that $5M is a ton of long-term capital gains. I assumed (maybe wrongly) that running FIRECalc or Safe Withdrawal Rate calcs the withdrawal rate was intended to represent what you will spend after tax.

So let's say I take the spending in retirement down to $250k. If that is after-tax, then assuming it is 100% long-term capital gains (or qualified dividends) and for simplicity no state income tax and standard deduction, that would be approximately 10% in blended tax rate. Means would really need to withdraw from portfolio $250k / 90% = $278k. Assuming wanted a 3.25% withdrawal rate due to 50 year retirement horizon, this would imply need an investable portfolio of $8.55M. Is that the right way to think about it?

Thank you for the suggestion on trying to make the move sooner with the kids. It is a good idea. The COLA difference is probably 5%. And you may be right that many of these luxury spends I'm doing will actually be a lot cheaper and I'm conservatively assuming my spend level is basically the same when it may not need to be. I think my big takeaway is I need to find a way to either get spend down to approximately $200k or rationalize working at least part-time for a number of years.

For a long term fire plan imo you really have to understand the variables and how they may change your plan.

Look at real taxes over time using a tax calculator—kids help, death of a spouse hurts. They may easily change but at least you’ve taken it into account.

If you’re looking at holding a mortgage into retirement, take this into account with the breakout spending tab. A large mortgage at a capped interest rate (ie not subject to inflation) can change your success rate significantly.

Think about expenses carefully over time. What happens to insurance rates when you have teenage drivers. Medical insurance rates as you age, etc... extra costs for older kids—braces, activities, first car.

Nothing will be perfect, but I think it’s important to get a grasp on how all of these things change the success profile of your plan. For us (not 100% retired yet) healthcare has been the biggest wildcard, with prices rising much faster than inflation. Thankfully, we over budgeted elsewhere and the market performance has given our assets a nice boost which helps.

The other thing to keep in mind is that when you’re running long cycles on firecalc, you have fewer cycles to model. Just make sure you’re not missing important ones, like the 60s stagflation. And look at the dips that occur, how long it takes to build your resources back up and how much you have left at the end of your cycle.

I think we came up with 3.28% withdrawal rate for a 45 yr cycle, but we also model in SS. If we breakout our mortgage, we can take out 3.5% and still be at 100% success rate.

 

[BoredAtWork]

All great thoughts and advice everyone!

I plan to pay off mortgage at time of retirement or in my case at time of relocation will simply not take on a mortgage for the new home. Earlyretirementnow.com convinced me on the benefits of doing that mainly due sequence of returns risk from keeping a mortgage.

Social security I have conservatively modeled in on FIRECalc and earlyretirementnow.com. I'm skeptical of how much benefit I'll get by time reach 70ish and I'm really trying to focus on a proper withdrawal rate at start of retirement to begin with and will view any social security I get much later on as gravy.

Healthcare costs I've assumed $30k per year for solely premiums, which based on looking at some quotes seems on the high side.

I've also run numbers through Personal Capital's retirement planner tool. It's harder to understand what their modeling is but it shows a success rate that they've said is within the range they recommend (for whatever that is worth). I find Personal Capital's budgeting and spending tool much more useful. Very cool how it sorts all your expenses automatically into different categories and you can look at range of months and history to analyze your spend. Definitely would plan to rigorously use that tool as get closer to retirement and during retirement.

My taxable investment funds are almost entirely in an "aggressive" Personal Capital portfolio that is roughly 85% equities, 10% alternatives and 5% bonds. 401k, IRAs, Roths, are 100% in equities.

Tax rate in retirement I've modeled out based on current legislation. The 3.8% Medicare Surtax would marginally come into play on any investment income over $250k so will be small or possibly $0. L/T Capitals Gains blended rate at my proposed income would be ~10% (0% up to ~$80k, 15% from ~$80k to ~$250k income).

 

[tb001]

Our healthcare is running us almost 40k for a family of 4, but we’re still on cobra. We could get a cheaper plan through aca but deductibles would still bring it up significantly given our usage. It was closer to 30k two years ago, so we’ve seen huge increases.

I’ll look at the ern analysis. We go back and forth on the mortgage.

 

[livingalmostlarge]

Our healthcare is running us almost 40k for a family of 4, but we’re still on cobra. We could get a cheaper plan through aca but deductibles would still bring it up significantly given our usage. It was closer to 30k two years ago, so we’ve seen huge increases.

I’ll look at the ern analysis. We go back and forth on the mortgage.

Why is your medical so expensive? That other poster with family of 6 (4 kids) is $36k/year in annual expenses. which is less than what you are paying for your medical for a family of four? Why is there such a discrepancy of medical premiums?

 

[ivinsfan]

Why is your medical so expensive? That other poster with family of 6 (4 kids) is $36k/year in annual expenses. which is less than what you are paying for your medical for a family of four? Why is there such a discrepancy of medical premiums?

Really? the other poster had a wife that was continuing to work for HI...

 

[tb001]

Why is your medical so expensive? That other poster with family of 6 (4 kids) is $36k/year in annual expenses. which is less than what you are paying for your medical for a family of four? Why is there such a discrepancy of medical premiums?

We’re on cobra, which is 36k in premiums for us. We have a good ppo plan. Add in another 4K in oop and meds, which is typical for us so far, and we easily get to 40k.

DH has a complex medical condition and our kids have needed extra OT/PT, so that probably adds to our costs, but even moving to aca it will be expensive.

 

[StuckinCT]

Thanks for the responses.

Approx $5M today. Feel good about at least getting to $7.5M by 40 unless there are major stock market corrections that then don’t bounce back (a very real possibility).If I’m way off and can’t get there by 40 then will keep the grind going.

Spending $300k: it is pretty embarrassing because I don’t feel like we are overly materialistic people. No one vice really stands out we sink a ton into. The combination of private school for kids, golf club membership, pricier cars, lots of kid activities, wine collecting, donations to our church, eating out a lot, traveling, etc.

Work ethic for kids is definitely a concern. I do think they’ll have seen for a decent chunk of their lives me working a lot. I’ve thought if I early retire I’ll spend a lot of time managing the investment portfolio and likely doing some consulting. Perhaps being naive but hoping that would show them I’m still “working.”

I recently posted and attracted some comments on reducing spending and I have exactly the same spend level that you do at $300k at 49, DH 39.

Bottom line is that I feel the same way you do- I am on the board of the YMCA and give $5-10k a year, belong to a country club, drive a suburban /BMW with three kids who go to public schools and the monthly outlay is 21k without taxes. I built in a little buffer in the retirement budget but there is not much to cut except the club.

It adds up quick. Nice job on saving 5 bills in your mid 30s, you are well on your way..