Do you want to retire early with kids? I’m sorry, but it is nearly an impossible task. Retiring early with kids is at least three times harder than retiring without kids.
I’ve been writing about retiring early since 2009 (FIRE movement). It was hard enough for just my wife and I to retire early without kids. But retiring early with kids is a whole other level of difficulty.
Retiring early with kids has become especially difficult due to rapid inflation in education and healthcare costs. Further, interest rates have come way down due to the pandemic. As a result, it takes a lot more capital to generate the same amount of risk-adjusted income.
Everybody can retire when their investment income is enough to cover their basic living expenses. Passive income is the key to making this happen. But when it comes to retiring early (before 60), there are different levels of difficulty.
Five years after I retired early in 2012, we had our first child. When our daughter was born in 2019, I declared that I failed at early retirement. The reason? I wanted to boost our net worth and earn even more passive income to take care of my growing family.
Easiest Way To Retire Early With Kids
The easiest way to retire early with kids is to have a working spouse. It sounds kind of funny. But if you have a working spouse, you have the option of staying at home to raise the kids. But as any parent will attest, being a stay-at-home parent is one of the toughest jobs in the world!
Read, How To Convince Your Spouse To Work Longer So You Can Retire Earlier, to learn the secrets from several early retirees I interviewed who used this strategy.
Another easy way to retire early with kids is to be willing to live in or near poverty in retirement. Ironically, being willing to live like a monk is also one of the hardest ways to stay retired. You might start asking what’s the point of retiring early if you can’t live it up with your free time. Your kids also won’t be able to experience every opportunity possible.
A much harder early retirement to achieve is one that maintains the same standard of living in retirement which you had while working. Without some budget sacrifices, this route to early retirement is difficult.
Nowadays, simple math suggest that it’s hard to accumulate enough capital to sustain a middle-class lifestyle. Yet, just like proponents of the Roth IRA, there are plenty of misguided people who think their investment income will be higher than their average working income.
Once you have children, you suddenly realize that retiring early without children is like going for a walk in the park. It seems so easy, you wonder why more people don’t get on board!
Let’s take a look at the subjective and objective reasons why retiring early with children is nearly impossible. Then we can discuss some potential solutions.
Why It’s So Hard To Retire Early With Kids
Besides the extra costs for raising children, the main reason why it’s so hard to retire early with children is due to them sucking up all your remaining time and energy outside of work.
Every early retiree I know spent hours outside of their day jobs finding ways to make more money to save and invest more. Examples of what they’ve done include:
- Starting a blog
- Creating online products
- Driving for Uber and Lyft
- Coaching youth sports
- Pet sitting
- Consulting / freelancing
- Buying rental properties and managing them
- Actively managing an investment portfolio
- Going to business school part-time
I used to spend ~25 hours a week outside of full-time work writing on Financial Samurai. If I’d had adolescent children then, there is no way I’d have spent more than 5 hours a week writing. Being away from my kid for 50 – 60 hours a week would have made me feel even more guilty to work any longer at home.
Therefore, I would probably have devoted 70% of my time outside full-time work to my kids and wife, 20% with friends and playing sports, and the remaining 10% to Financial Samurai or personal naptime!
Even though not having children while I was working is one of my top retirement regrets, having children while working would have probably delayed my retirement by at least 10 years, if not 20 years. Having a goal to work until my kid graduates college would have definitely been a consideration.
It’s Also Hard To Stay Retired Once Kids Come
The other reason why it’s so hard to retire early with kids is that costs keep on going up.
After we had a kid, our already onerous $1,620/month healthcare premiums jumped to $1,800/month after our son was born. For 2021, our healthcare premiums will rise to $2,250/month. We’re talking $26,000+ a year in healthcare premiums alone. This does not include our deductibles and co-pays. I’m sure in 2022, our healthcare premiums will go up by at least another $150/month.
We could try and limit our household income to less than 400% of the Federal Poverty Limit ($83,000 for household of three) to get healthcare subsidies, but then we wouldn’t have enough to comfortably live on. Besides, we would feel bad getting subsidies from the government when the purpose of the Affordable Care Act is to help those who are financially struggling.
In addition to higher healthcare premiums, we now have extra expenses for diapers, clothes, toys, occasional babysitting help to keep our sanity, preschool tuition at $2,000/month (no universal pre-school in SF), and potentially private grade school tuition down the road.
Private Or Public School
We are hoping to send our son to public grade school because we find paying $30,000 – $50,000 a year in private grade school tuition to be extreme. But the problem with the SF public school system is that it is based on a lottery system for social engineering purposes.
Even if you pay $30,000 a year in SF property taxes, your child has no guarantee of getting into your neighborhood public school. You could end up with your 15th choice and have to drive 25 minutes across town.
Sure, to save money, we could take him out of preschool, say goodbye to our friends and network, move to a lower-cost area of the country, and start a new life in the heartland of America. But to move just to save on costs seems simplistic. We are also very invested in the SF Bay Area due to our property portfolio.
As a result, changes are afoot! Starting in 2018, I decided to become more entrepreneurial online to generate more income. If we are to send our kids to private language immersion school, then we would need to build our passive income closer to $300,000 a year.
Once the pandemic hit in 2020, I decided to “go back to work” full-time with Financial Samurai. I’ve used the pandemic to generate a lot more wealth and income. Alas, I’m burning out and plan to re-retire again under the Biden administration.
We are planning on sending our son to a language immersion preschool in Fall 2021+. The school lasts until the 8th grade. If he loves it, we’ll keep him there. If not, we’ll find another school.
Retiring Early With A Family On $200,000 A Year
Now let me share with you a realistic budget on how quickly $200,000 a year in investment income goes for a family of three. Please note that investment income is mostly taxed lower than earned income. In other words, you would need to earn 5 – 10% more in W2 wage income to match investment income.
As you can see from the budget, this family of three is only left with about $1,432 a year in cash flow. Although I’ve budgeted $3,000 a year for miscellaneous costs, emergencies happen all the time. I have no doubt this family will regularly have to dip into their principal if they have no other income sources.
Retiring Early With Kids Requires A Lot Of Capital
A $650,000 mortgage sounds like a lot of debt to still carry as early retirees. However, their home is valued at $1.5 million for a loan-to-value ratio of only 43%. They have a 3.5% 30-year fixed mortgage which they are paying down extra principal each month.
If they hadn’t bought a home back in 2005 for $930,000, they probably would still be renting and not building any home equity either. Owning your primary residence to eventually pay it off is generally a good idea.
Some may say the food budget of $1,800 a month for three is unreasonable. But we’re talking spending $60 a day for three on breakfast, lunch, and dinner. That’s $20 a day per person. It’s hard to get a lunch for under $10 nowadays. Therefore, this family regularly eats in.
Sure, they could reduce their $9,600 annual vacation budget. But flying to Hawaii during nonpeak season will cost $1,650. Then lodging at $300/night will cost another $2,100 for a week. Then, of course, there is food and entertainment. A week in Hawaii for three could easily cost $5,000 – $6,000.
Although this early retirement couple could cut expenses by $5,000 – $10,000 a year and still be OK, there’s one expected cost they can’t cut. The cost of another child!
Having a second child will ruin this $200,000 a year retirement income-earning couple’s budget. For one, they might need to buy a bigger house. They also might need to buy a newer, bigger, and safer car given even more is at stake when driving. Then, of course, there are all the monthly costs that go into raising a child, including childcare and preschool.
The only practical solutions to this financial quandary are to either not have a second child or not retire early.
Related: Why $5 Million Is Barely Enough To Retire Early With A Family
The Amount Of Money Needed To Retire Early With Kids
OK, despite the detailed budget, some of you still don’t think $200,000 in investment income is necessary to raise one or two children in early retirement. Let’s cut the investment income down to $100,000.
Based on various returns or withdrawal rates, here’s how much capital you would need to generate $200,000 / $100,000 a year in investment income:
At 1.5%: $13,333,333 / $6,666,666
At 2%: $10,000,000 / $5,000,000
At 3%: $6,666,666 / $3,333,333
At 4%: $5,000,000 / $2,500,000
At 5%: $4,000,000 / $2,000,000
At 6%: $3,333,333 / $1,666,666
At 7%: $2,857,142 / $1,428,571
At 8%: $2,500,000 / $1,250,000
With the median net worth for Americans under $100,000, coming up with 13X – 135X the median net worth in order to retire early is not very realistic. Be realistic folks.
If you are retired, you likely have a much more conservative portfolio. Therefore, you’ve probably constructed a more conservative portfolio that might only generate closer to 4% or 5% a year, if you’re lucky. Therefore, you would probably need closer to $2,000,000 – $5,000,000 in order to retire early with kids in America.
During bull markets, people tend to forget that stocks, bonds, and other risk-assets sometimes decline in value. It’s prudent to lower your safe withdrawal rate in retirement.
How To Retire Early With Kids
Now that I’ve deflated your spirits, here are the only solutions I can think of if you still want to have your cake and eat it too:
- Make sure you pay yourself first, no matter what. Don’t let your desire to provide the best of everything for your kids blow up your path to early retirement.
- Relocate to a lower cost of living area. Instead of living in a city where the median-priced home is over $1,000,000, relocate to one of the hundreds of great cities where the median home price is closer to the national median of $250,000. Before you relocate, it’s best to take a visit first to see if you will feel comfortable and included. Relocating will be harder for some.
- Consider joining the military, foreign service, law enforcement, or any organization that provides a pension. If you join between 18 – 22, you can retire as early as 38 – 42 with a pension. Even if you work for 10 more years to get a bigger pension, you can still retire much earlier than 60.
- Send your kids to public grade school only. Unless your kid has a scholarship or you are rich (income at least 5X – 10X the annual cost of annual tuition), private school tuition is a huge financial drag. The amount you could spend on your kid once they’re in private school is endless. You will forever be pressured by other parents and the school to spend and donate more.
- Make yourself feel better about not sending your kids to private school by selectively reading perspectives from parents who sent their kids to private school and regretted their decisions. Then read up about all the great Americans who went to public school and did just fine.
- Encourage your kids to help around the house more to not only save money but to also build their character as well. Making kids consistently work for what they think they deserve is one of the greatest life lessons.
- Swallow your pride and start accepting healthcare subsidies intended for the financially struggling. To do so, you may have to rejigger your portfolio to produce less income and focus more on capital appreciation. To make yourself feel better about taking, look into all the ways other Americans have succeeded by taking advantage of the system. Also, tell yourself that you’ve already paid into the system while working.
More Tips On How To Retire Early With Kids
- Keep the fact that you’re taking healthcare subsidies from the government a secret from your children. Otherwise, your children might grow up entitled and spoiled and decide to have you subsidize them as adults.
- Negotiate a severance. Given pensions are rare for early retirees, it’s only logical to try and negotiate your own pension through a severance. There is no downside to trying given you plan on leaving anyway. Without my severance, I probably would have worked for at least five more years.
- If you’re feeling the financial strains of early retirement, make your spouse go back to work. Even though having one working spouse and one stay at home parent is not considered being early retired, sometimes it’s worth being selfish and delusional for your own sanity. Having a working spouse will solve the healthcare expense. A working spouse can also greatly reduce the amount of capital needed to produce early retirement income.
- If you don’t wish to fool yourself into thinking you’re retired while your spouse works, then take on some part-time work to supplement your income. I’ve found that working 20 hours a week is the optimal amount of time for intellectual stimulation. Earning an active income is rewarding if you can do so in moderation and with autonomy.
Don’t Feel Like You Have To Retire Early ASAP
Although life is short, life is also very long. Don’t feel like you have to retire early with kids just because you saw someone else retire early with kids. You’re suffering from the classic “new car in your neighbor’s driveway” envy syndrome.
Each year you delay retirement is one less year you have to pay for retirement and one more year you get to save for retirement.
Before negotiating a severance, consider taking it easier at your job for one year to see how things go. Take all your vacation days. Utilize the full hour for lunch. Get back to your boss a little later than normal. Leave right at 5 pm.
By grinding less hard, you just might start enjoying work more! Further, each additional year you work will add to your potential severance check when you finally walk away.
Having kids is worthwhile. But they will put a tremendous strain on your finances. Make sure you put your oxygen mask on first. My whole point of retiring early is to spend more time with my children. But man, it’s been tough to stay retired given all the costs and responsibilities that come with being a dad!
If You Want To Retire Early With Kids
To help you retire early with kids, stay on top of your wealth with Personal Capital, the web’s #1 free personal finance app. Since 2013, I’ve used Personal Capital to track my net worth, analyze my investments for excessive fees, and run my finances through their Retirement Planner to make sure my future cash flow is good.
Retiring early with kids is nearly possible, but it can be done with enough planning. And if you really want to retire early with kids, you may need to shoot for $10 million or more thanks to inflation!
Build More Passive Income!
Finally, if you want to retire early with kids, you must focus on building as much passive income as possible. Our plan is to try to consistently generate $300,000 a year in passive income to provide for our two kids.
One of the ways we are doing so post-pandemic is by investing in real estate crowdfunding. Real estate should benefit investors as we enter an inflationary environment. Inflation acts as a tailwind for real estate values and whittles down the real cost of debt.
Real estate currently generates roughly $150,000 of our estimated $300,000 a year in passive income. My favorite real estate crowdfunding platform is Fundrise, the creator of the diversified eREIT funds. It’s free to sign up and explore.
My other favorite platform is CrowdStreet. CrowdStreet focuses on individual deals in 18-hour cities. 18-hour cities tend to have faster growth rates, lower valuations, and higher yields than 24-hour cities. CrowdStreet has an incredible pipeline of offerings and occasionally offers speciality funds as well.
I’ve personally invested $810,000 in a real estate crowdfunding fund to earn passive income and diversify my holdings. Below is my estimated passive income streams for 2022. Notice how real estate and real estate crowdfunding account for the majority of our retirement income.
How To Retire Early With Kids is a Financial Samurai original post. For more nuanced personal finance content, join 50,000+ others and sign up for the free Financial Samurai newsletter. Financial Samurai is one of the largest independently-owned personal finance sites that started in 2009.
between what their business appears to be worth on paper and the price they would actually like for the business. Now i know that sounds a little arbitrary, but this
I attended a good private preschool. As a result I sat in kindergarten bored out of my mind. The rest of school wasn’t much better. In grade school I had one teacher who let us self-pace and I completed the work for nine weeks in less than two weeks. Spend the remainder of the time reading, best year ever!
There needs to be online self-paced learning for kids who work well under these circumstances. It also needs to skip the endless monotony of repetition unless it is needed. I could have easily graduated high school by 12. A few students in each class year may flourish in this environment or may find it works for specific classes and it lowers the classroom size as an immediate affect.
From what I understand there are some home schools with online content which allows self-pacing. I don’t know how much of the needless repetition is involved or if they allow skipping of grades but they should. I recall at least 80% of what classroom time was spent on was review and repetition. Kids who don’t need this find it incredibly boring. I used to sneak books in and read while the teacher did the boring reviews. If I were caught I offered to stop doing it if I scored lower than an A on a test. At a certain point I stopped doing any homework unless it meant failing a class. The first day I’d always ask (if not told) how much of the grade was weighed on homework versus tests. Not everyone needs to do the homework (pointless repetition if you already know the topic).
It is ridiculously short sighted to assume one’s age dictates their ability to learn. And it is just as ridiculous to assume just because a child isn’t conventionally smart that they need remedial assistance on everything. It may be a different learning style or disinterest in the topic.
At 6 I made the decision to not have kids because I didn’t want to impose this same crap on an innocent human being.
Financial Samurai says
May I ask what you ended up doing with your life after HS?
Being able to graduate by 12 is incredible!
Laraba Kendig says
My solution was to homeschool my own kids to avoid exactly this. I was bored out of my mind in public school. Now I have 9 kids and have homeschooled them. They progress at their own speed and it is really fun to be their mom and see them learn different things.
My three boys are blowing up my budget.
So hard to say no to out of school activities that they love and are available for them.
We want the best for them, to excel, and don’t want them left behind.
Currently, I find myself saying that these next 10-15 years my kids experiences are the higher priority, over retiring early.
Financial Samurai says
I would agree. It’s hard for a parent to deprive their kids of every opportunity, if they can afford it. Therefore, we tend to spend and push back our retirement savings. It is only logical.
Make it count when it counts the most. We only have a limited time with our kids!
Incremental Returns says
As somebody originally from a state where pre-school is free for all children, that $30k line item seems obscene. But now we live in Seattle and have to deal with it. Not sure the higher pay is really worth it.
Money Ronin says
Great article. I started saving for my kids college 529 plan before they were born. They were born around the depths of the Great Recession. Although nerve racking to have two more mouths to feed while seeing my net worth cut if half, I was done saving for their 529 in 8 years due the subsequent bull market. I have enough money for one kid to go to a public school and the other for private school. Sometimes in life you just have to pick your favorite. Haha.
I “retired” 6 years ago with a working spouse, so that works out great. My wife has to work until she’s 80, but I’m set. If she leaves me, I’m totally asking for alimony and child support; maybe then I could hire a kid chauffeur and homework tutor instead of working for free like an idiot. In the mean time, my retirement hobby of investing has grown our net worth faster than we ever did when I was on the corporate payroll.
I know most retirees use a fairly conservative rate of return (4%) because they want to make sure their nest egg lasts a life time. I’m a relatively young retiree with an even longer retirement to fund, but I have a very different attitude. I shoot for returns of 8% to 10% (in recent years, I’ve gotten double digits). I want to maximize my long-term returns and can bear the short-term volatility. I am willing to adjust my lifestyle as needed and even return to work in some capacity. Heck, I wasn’t supposed to retire this early anyway, so this is all a windfall.