Having Kids Is The Best Way To Decumulate Wealth When FIRE

If you are a FIRE adherent, then you have likely mastered the art of saving and investing aggressively. While your neighbors and colleagues splurge on new cars, fancy vacations, and clothes, you are quietly deploying your excess cash flow into index funds, private investments, and real estate. You buy every dip. You dollar cost average through bear markets.

Over time, something unexpected happens. You begin to love investing more than you love spending.

That love affair with investing is one of the main reasons FIRE works. You train yourself to delay gratification. You learn to enjoy watching your net worth grow faster than your consumption. Eventually, spending money on yourself can start to feel almost wasteful, even when you can easily afford it.

However, once you reach FIRE, a new challenge emerges. You must learn how to decumulate your wealth in a healthy, sustainable way. If you do not, you risk dying with far too much money relative to the life you lived. After a lifetime of saving and optimizing, flipping the mental switch to spend more is surprisingly difficult. You cannot simply wake up one day and become a carefree consumer.

What I have realized after being a father for almost nine years is that there is a remarkably effective solution to this problem.

If you want to decumulate wealth more easily in FIRE, have children. And if you already have children, consider having more children if you want to really spend more money.

For years, I’ve considered myself frugal, occasionally to a fault. This has led me to believe I needed to spend more aggressively, even if I don't want to. Yet after running the numbers, I realized I’ve been far more spendy than I thought since 2017. All it took was a change of perspective.

Most Expenses Go Toward Raising Kids

At the beginning of each year, FIRE parents tend to run through a familiar checklist.

• We estimate our annual investment income and projected expenses.

• We review our investment outlook for real estate, stocks, and private investments, which remain our two primary risk assets.

• We determine the appropriate size of our Pressure Release Valve, the amount we are comfortable spending beyond our base budget.

• We get a free financial review of our investments with Empower or any trusted advisor to sanity check our assumptions. The check up is free if you link more than $100,000 in investable assets to your Empower dashboard.

When I recently reviewed our household expenses, something jumped out immediately. Roughly 60 to 70 percent of our annual spending is now directly attributable to raising our two children and supporting my wife as the primary caregiver. Only about 30 to 40 percent of our spending goes toward my wife and me as individuals.

Put differently, we are spending about 100 to130 percent more per year than we would comfortably need to if it were just the two of us. That realization alone helped me understand why decumulating wealth no longer feels forced. It feels natural.

Kids Are Fantastic for Making You Spend More Money

To illustrate the point more clearly, let us walk through some hypothetical numbers.

My wife and I could live comfortably on $10,000 a month in San Francisco if we did not have children. Here is a basic budget.

• $5,000 for rent for a two bedroom place

• $2,000 for food

• $2,000 for entertainment

• $500 for transportation

• $500 for miscellaneous expenses

That is a great lifestyle with no kids. I'm not sure we'd actually spend this much, but I'm trying to be conservative here.

Since we are already financially independent, we do not need to save for retirement. To cover $120,000 a year in after tax expenses, we would need to generate roughly $150,000 in gross investment income.

Using a 4 percent to 5 percent withdrawal rate, that implies a required investment portfolio of approximately $2.4 million to $3.75 million.

Now let us layer children on top.

Needing a Bigger House With Two Kids

A two bedroom, two bathroom condo works fine for a family of four on vacation. That is exactly the size of the in-law unit I remodeled in Honolulu so we have a more comfortable place to stay when visiting my parents.

But living full time in a two bedroom place with two children is suboptimal. One of our children does not sleep well and will reliably wake up the other if they share a room. Over time, sleep deprivation becomes a real cost.

Naturally, most families with two kids want at least a three bedroom, two bathroom home, if not a four or five bedroom house. Based on the rental properties I own in San Francisco, I know that a three bedroom home on the west side rents for around $7,500 a month, while a five bedroom, four bathroom home can easily cost $10,000 a month or more.

I also want a dedicated home office to write. That pushes me toward the larger home to raise kids. The extra bedroom and bathroom for visiting friends and family is another benefit.

Just like that, housing costs jump by roughly $5,000 a month, or $60,000 a year.

Hooray for decumulation.

Kids Need to Eat Healthy

Our admittedly generous $2,000 a month food budget jumps to about $3,000 a month once you add two more mouths to feed.

Yes, we could reduce our own food spending. But food is expensive now, especially in coastal cities. Eating out and ordering delivery have become meaningfully pricier over the past few years. When you have kids, you also tend to prioritize healthier food options, which often cost more.

That is another $12,000 a year in spending. We are now at $72,000 a year in additional decumulation.

Kids Need to Be Transported in a Safe Vehicle

From 2014 through 2017, I drove a Honda Fit that I leased for $240 a month. I loved that car. It was nimble, inexpensive, and could fit into parking spots that larger cars simply could not.

However, the doors were paper thin, and there was very little buffer between the rear seats and the back of the car. Once we had our first child, there was no way I would feel comfortable driving that vehicle with a baby in the back.

When the lease ended, we returned the car and bought a $60,000 Range Rover Sport in cash. If you convert that purchase into a lease equivalent, it works out to about $1,000 a month.

That means our transportation costs increased by roughly $760 a month, or $9,120 a year.

Without kids, we would happily drive a small, inexpensive car indefinitely. With kids, safety takes precedence.

We are now up to $81,120 a year in extra spending.

Travel Gets More Expensive With Kids

Travel costs increase significantly once you add children.

A studio hotel room with one king size bed is no longer viable if you want a relaxing vacation for a family of four. Airfare alone adds $2,000 to $3,000 a year for two additional economy tickets if you travel twice annually.

Then there is lodging. If you travel 50 days a year, upgrading from a studio to a one bedroom or two bedroom suite can easily cost an extra $500 to $1,000 per night.

That translates to an additional $25,000 to $50,000 a year.

Let us be conservative and assume kids add $27,000 a year in travel expenses. That brings our total incremental spending to $108,120 a year. Once international travel becomes more frequent, airfare alone could add another $5,000 or more annually.

Kids Enjoy Enrichment and Extracurricular Activities

Even if you have abundant time, you cannot teach your children everything. Many parents choose to invest in extracurricular activities like music lessons, martial arts, sports, or dance.

These lessons often cost $40 to $100 per hour per child. If each child averages 50 hours of instruction a year, that is $2,000 to $5,000 per child, or $4,000 to $10,000 annually for two kids.

We are now looking at $112,120 to $118,120 in additional spending. I consider this the basic core extra spending, equivalent to a 100% increase in spending.

Although if you are FIRE, you can certainly run your own Daddy Day Camp and teach many skills yourself to save money. So far, I have spent at least one hour a week since my kids were three teaching them tennis, pickleball, soccer, swimming, and how to ride a bike. But I am not enough as I don’t have endless energy.

Healthcare Premiums Goes Up With Kids

If we didn’t have kids, our monthly health insurance premium would be about $2,000 for a Silver plan with a $2,000 per-person deductible and coinsurance. However, with two children, our health insurance premium jumps to roughly $3,000 a month, or 50% more.

Unless you earn less than 400% of the Federal Poverty Level in retirement, you are not getting healthcare subsidies. You end up paying what I consider an usurious amount of money just for the privilege of paying even more once you actually need care.

The only “good” thing about paying an extra $1,000 a month for health insurance is that it’s only 50% more for 100% more people, rather than 100% more. Further, kids tend to see healthcare providers more often than adults with established immune systems, which means there is at least some incremental value.

However, as kids get older, costs can rise further. They may need glasses or contacts, hearing care, surgeries, braces, and other orthodontic work. As a result, your medical bills could easily increase by another couple thousand dollars per child.

We're now looking at at least another $12,000 a year for healthcare expenses for two children as a FIRE couple. In total, the extra annual spend due to kids is now $124,120 to $130,120. I consider this the basic core extra spending, equivalent to over a 100% increase in spending compared to if we were DINKS.

Independent Grade School Education (100% Optional)

If your net worth and passive income allow, you may consider independent grade school education. After all, education is key to helping children launch independently into adulthood.

In San Francisco, the cheapest religious schools run about $12,000 a year. Most independent schools are closer to $45,000 annually. While all the non-parochial high schools I see cost $55,000 a year in tuition. For two children, that is an extra $24,000 to $115,000 a year.

Add that to the prior expenses and total incremental spending rises to between $148,120 and $245,120 per year.

That represents 123 percent to 205 percent more annual spending than the original $120,000 baseline my wife and I would need on our own. Total household spending now ranges from $268,120 to $365,120.

We now need between $5.36 to $9.13 million in investments to sustain your FIRE lifestyle with two kids at a 4% or 5% safe withdrawal rate. Of course, this isn’t even counting the $250,000 – $1 million per child for four years of college education!

Again, these are hypothetical numbers, but not far off for the typical middle class family living in an expensive city like San Francisco or New York City. Here in San Francisco, the city has launched free child care for a family of four making less than $230,000 a year. Meanwhile, those earning up to $310,000 a year will receive a 50% subsidy.

In other words, earning $300,000 – $350,000 gross in an expensive city like San Francisco is firmly middle class for a family of four. One of the benefits of having a mayor who grew up extremely wealthy is that he doesn't flinch at higher income numbers.

The Balance Between Spending and Being Responsible

Let us say you have a $10 million net worth, with $8 million invested outside your primary residence. On paper, a 4 percent to 5 percent withdrawal rate should comfortably support this level of spending for decades.

In reality, most people I know would want 50% to 100% more to feel truly secure while spending at this level. It’s almost always more. The irony is that many people with $10 million or more in their 40s or older are also actively searching for ways to decumulate wealth without guilt.

They know they are already near the top 1 percent net worth amount. Therefore, they want to live more fully while still behaving responsibly.

Children solve this psychological problem elegantly.

When you spend money on your kids, it does not feel as indulgent. It feels purposeful. It feels honorable. You are investing in people you love more than anything in the world.

In contrast, most FIRE followers would struggle to consistently increase personal spending by even 20 percent. Spending 50 percent more on yourself every year would feel excessive. Spending 150 percent more would be impossible.

Children open the floodgates.

The Most Satisfying Ways to Decumulate

In my experience, the most effective way FIRE parents decumulate wealth is by upgrading their housing. A nicer home may not make you happier day to day, but it often increases satisfaction as a provider. Watching your children run freely in a safe neighborhood with space to play is deeply rewarding.

Your bigger house will usually come with higher property taxes and ongoing maintenance costs, which consistently put pressure on your finances. Just as you must diligently save and invest on your way to FIRE, a house forces you to diligently spend on your way out.

The second most gratifying splurge is a reliable, safe vehicle. Cars depreciate, but they offer convenience, flexibility, and peace of mind that families value immensely. They are a must for families. I only fully appreciated how much we rely on a car every day once mine started causing me endless electrical problems.

The most debated expense remains independent education. If you find a great private school that fits your child and is close to home, it can be invaluable. However, if you do not earn at least seven times the net annual tuition per child and are not yet FIRE, the tradeoff may not be worth it.

But from a decumulation point of view, spending on tuition is a great way to get rid of your money. It’s like paying $10 for a bottle of Evian when there is endless tap water to drink for free. There's no guaranteed pay off for either.

Doing a Solid Job Decumulating

After reviewing our finances, I now realize we are doing a great job decumulating our wealth. We are spending at least 120 percent more every year than we would have if it was just my wife and me.

The one area where I could spend more is upgrading to a new family car. But after spending $1,750 and over a month repairing our 2015 Range Rover Sport with only 67,500 miles, I cannot bring myself to do it yet.

If another correction or bear market occurs, we accelerate our net worth decumulation. However, I suspect the real challenge will be spending instead of investing when that inevitable decline arrives. “Unfortunately” for decumulation purposes, the stock market has had a good run since our first child was born in 2017. Therefore, our net worth is higher despite our increased spending.

As a parent, you eventually realize that money is no longer primarily for you. When you analyze your expenses honestly, you may discover that you already spend as much or more on your children than on yourself.

And if your goal is to decumulate wealth in FIRE, that might be exactly how it should be.

Reader Questions

If you are already financially independent, what has been the hardest part about actually spending more money without guilt?

For FIRE parents, what category has surprised you the most in terms of how much more you spend once kids entered the picture: housing, transportation, education, or travel?

Do you think spending more on your children brings greater long term satisfaction than spending the same amount on yourself? Why or why not?

For those still on the FIRE path, would the increased cost of children change your target number,? Or do you view kids as part of the decumulation plan once independence is reached?

Start The Year Off Right With A Free Financial Checkup

One tool I’ve leaned on since leaving my day job in 2012 is Empower’s free financial dashboard. It remains a core part of my routine for tracking net worth, investment performance, and cash flow.

My favorite feature is the portfolio fee analyzer. Years ago it exposed that I was paying about $1,200 a year in hidden investment fees. This money is now compounding for my future instead of someone else’s.

If you haven’t reviewed your investments in the last 6–12 months, now’s the perfect time. You can run a DIY checkup or get a complimentary financial review through Empower. Either way, you’ll likely uncover useful insights about your allocation, risk exposure, and investing habits that can lead to stronger long-term results.

Stay proactive. A little optimization today can create far greater financial freedom tomorrow.

Empower is a long-time affiliate partner of Financial Samurai. I've used their free tools since 2012 to help track my finances. Click here to learn more.