Starting a family and retiring early

[lifeanon269]

Hi I'm Life and I just wanted to share my plans regarding early retirement to hopefully get some reassurance that I'm on a good path. My wife and I are 33 and we're pretty blessed to be in the financial situation we're in. About a year ago I got a new job that pays very well, especially for the area we live in that has a very low cost of living.

I've been doing a lot of reading lately regarding early retirement and I really want to jump start it and have been coming up with a plan to retire in 13 years. My wife wants to start a family (hopefully just one kid) and that has been difficult to plan around. Here is some brief info about our current financial situation:

Combined annual salaries: 145k (I make 100k, she makes 45k)
House: 1000sqft 80k (72k mortgage, $760 monthly payment)
Transportation: 17k interest free loan on a 2014 Nissan Leaf (3 years left), she has no car loan
401k: $100,000 current balance, maxed contributions

My plan is for the both of us to retire in 13 years. I'm come up with several plans. Some of them include my wife working with child care costs included and some of them include her leaving work without needing to worry about childcare costs. We don't have much debt at all and the plan is to spend 3 years paying off our debt. I receive pretty nice annual bonuses that I can used to completely pay off our debt (not including mortgage). My wife has a student loan and a dental loan for braces she recently received. During those 3 years, we'll be saving up $2000 a month while using the bonuses I receive to pay off our debts.

At the end of the three years, we should have about 60-70k saved up one top of the on going 401k contributions which should be north of 150,000k by then. After those three years are up and our debts paid (all except for mortgage), that's when our real push for retirement begins. Like I said, there are a couple paths that include either my wife staying home with a child (yet to be born) or her continuing to work and us paying for childcare.

Ultimately, there really isn't too much of a difference between the scenarios. The only main difference is that if my wife quit working after having the child (she wants a baby right now), then that means I might need to work for a couple more years (which is fine, I actually enjoy my job quite a bit). I figure childcare costs would be about $1000 a month if she were to continue working.

Currently, I max my contributions to my 401k at $18k a year, but I am thinking about cutting that in half so that I contribute more to another investment account that will allow me to withdraw early.

So here is our budget breakdown (very conservative numbers), with the first set of numbers being for if my wife continued to work with us paying childcare and the second set if she stayed home with our child:

After 3 years of paying off our debts while saving at the same time:

~$50-60k in savings
~$150,000k in 401k

Take home pay:      $6,600      $4,600
Monthly Expenses:   $2,545      $1,545
Monthly Extra $:   $1,000      $1,000
Annual Bonuses:      ~$12,000   ~$12,000
Monthly Savings:   $3,055      $2,055
Monthly 401k Contr:   $650      $650
Total Annual Savings:   $56,460      $44,460

My annual bonuses will go straight into my retirement savings. I've cut down my 401k contributions since I won't be touching that account until I'm ~65 and I have a decent head start in it already. If I want to retire early, then I really need to start increasing my savings in an account I can withdraw from early in my mid-40's.

With that said, am I on track to retire in 13 years? If I put some conservative numbers into firecalc.com based on this plan, it says I have a 100% success rate. After 13 more years of contributions and no withdrawals until I'm 65 years old, my 401k should have about $843,000 in it (at 5% interest). In 13 years, at the time I'd be looking to retire, my other savings account should total about $660,000. I figure my annual withdrawal rate would be about $30,000 in today's dollars. My outside savings would need to last me from ~46 yrs old to 65 and my 401k would need to last me from 65 til death. I'm a healthy vegan, so I could live quite a while, lol.

What type of investment account should I use? I was thinking about just putting it into a no hassle Vanguard index fund. Since my savings would be with after tax dollars, would using a Roth IRA be a good idea to avoid taxes in my early retirement? I still have a lot to learn regarding investing and early retirement in general, but I'm reading and soaking it all in. I am usually a very frugal person in general and thankfully my wife is onboard with all of this. We're fortunate enough to be in the situation we're in. I have two pensions, one from my current employer and another from a previous employer of 10 years. I haven't included any of that in any calculations frankly because I have no idea how much it would actually be. Any additional extra earned from those or social security later on will just be extra padding and wiggle room. Do you think this is a good plan? Obviously, deciding whether or not in 13 years whether it is a good time to retire depends entirely on the market and economy at the time, but I'm just curious if I at least have a good plan outlined that I can set myself on the path toward.

Thanks for taking the time to read this. I appreciate any feedback or tips!!

[frugaldrummer]

Just some non-financial advice:

If you want to have a child, do it now. Seriously. At 33 your wife's fertility can start to decline and the risk of Birth defects is rising. You can't assume that you will automatically get pregnant when you want. I got pregnant quickly with my first child at 30 but then had 3 miscarriages before having my second child at 34.

Second, since you are a vegan, you MUST take supplemental B12. Despite the misinformation you might read on the internet, bioavailable B12 only is found in animal foods. B12 deficiency in you can affect sperm quality. In your wife it can cause permanent serious brain damage to the baby.

[BuffaloStache]

Hey LifeAnon! Looks like you are in a decent spot and are starting to make a plan- always a good thing! There were some things in your post that struck me though:

1. You list a "Monthly Extra $:   $1,000 ". Where is that coming from? I'm more just curious than anything.

2. I'm assuming you meant low-cost index funds instead of a savings account in your original post, right?

...If I want to retire early, then I really need to start increasing my savings in an account I can withdraw from early in my mid-40's....

3. The plan seems fairly solid overall, so long as you think you have a good estimate on your monthly expenses (e.g; I'm still formulating my FI plan, but my goal is to track expenses for at least 2-3 years before I know for certain what they will be). If you put a $660k Portfolio into firecalc.com for 19 years (the duration you'll need from age 46-65), you get a 100% success rate. So that seems good.

4. I'm still pretty new at this, but I've started my investments basically following this MMM guide: http://www.mrmoneymustache.com/2011/05/18/how-to-make-money-in-the-stock-market/. The only difference I would recommend is using the"Admiral Shares" index funds when you hit $10k or more balance in your account, since the Admiral Shares versions of the index funds have lower fees. It's the perk you get for putting larger sums of money into Vanguard.

5. As far as non-financial child advice, it's really a personal decision. However, I would definitely take frugaldrummer's advice to heart. I am in a similar situation and lament the fact that I didn't learn about mustachianism until later in life (late 20's; ~2 years ago). But that doesn't change the fact that there is a scientific likelihood of higher rates of birth defects/complications/etc. when a child is born to an older (over 35) mom. We decided to stretch our FI plan out to 15 years, thinking the extra 2-3 years were worth it to have a child and pay childcare costs. YMMV

[little_brown_dog]

Just some non-financial advice:

If you want to have a child, do it now. Seriously. At 33 your wife's fertility can start to decline and the risk of Birth defects is rising. You can't assume that you will automatically get pregnant when you want. I got pregnant quickly with my first child at 30 but then had 3 miscarriages before having my second child at 34.

Second, since you are a vegan, you MUST take supplemental B12. Despite the misinformation you might read on the internet, bioavailable B12 only is found in animal foods. B12 deficiency in you can affect sperm quality. In your wife it can cause permanent serious brain damage to the baby.

+1 to this. Too many of us responsible-types mistake appropriate family planning (ex: not having a baby till you are financially stable) for trying to have a baby at the perfect time financially, emotionally, professionally, etc. But the reality is, mother nature often does not follow our best laid plans. I was a healthy, active, and perfectly fertile 26yr old and had no problem conceiving repeatedly, but had miscarriages before we were able to have our first. Now, we are on cycle 3 of trying to conceive #2 and no luck yet. At 29 this is not a big deal and we can just enjoy the process for a while. At 35 it might be a different story.

As far as veganism and pregnancy go, it is possible to have a healthy vegan pregnancy but your wife really needs to know exactly what the heck she is doing. I am vegetarian and was vegan for a while, so I understand how important veganism can be to a person. In addition to the B12 issue, vegan diets are typically low in fat, which isn't a big deal in adults but can pose a huge issue for fetuses and infants/toddlers. Fat is an absolutely essential nutrient for healthy brain development and growth in a fetus. Low fat diets, even if they are otherwise healthy and vegan, are NOT good for babies (in the womb or outside it). If she wants to get enough fat, she needs to be plowing through tons of avocado, olive oil, nuts, and other high fat vegan foods on a daily basis if she is pregnant. Otherwise, I strongly recommend she go lacto-ovo during pregnancy/breastfeeding to benefit from the natural fats and B vitamins present in dairy and eggs in addition to her vegan sources.

Good luck!

[lifeanon269]

Thanks all. I was really looking more for financial advice more than anything else. My wife and I just got married this year, so it isn't exactly like we've put off having a child. My wife also isn't vegan, only me.

BuffaloStache, thanks for the financial advice. The $1000/month "extra $" was really just a number that I came up that I used because I haven't started this plan yet and just needed a ballpark number to use. That isn't a number that will actually get used up each month and any left over will carry over to the next month. Some of that could even include saving month into an "emergency fund" and some of it could include miscellaneous/discrentionary spending. It is the money that, when in retirement, if we every went through a recession, it could be cut down to $0 and we could still make ends meet. So the number is more flexible than it is static. Going into the plan it is just the number I decided to use.

Yes, I'll definitely be looking to invest in a Vanguard index fund with low-expense ratios. Thanks for the link to the stock investing article. I'll definitely read through that as that is something along the lines of what I'm looking for.

Ultimately the way I see it going into a plan like this is that there really isn't any downside. Even if I have to work a couple extra years because the economy didn't perform as well as I'd like, by limiting expenses and being frugal, you will always be in a good position financially. So I'm just going to go into this plan with flexibility and optimism that someday I'll be thankful I made the choices I did. The most important thing is that I actually put things into action, not was numbers a calculator projects my retirement age will be. I just wanted to make sure that I'm putting the right budget into action and investing my money wisely.

Thanks all!

[CanuckExpat]

Hi lifeanon,

It sounds like you are doing great. If you posted a detailed spending breakdown people might be able to help you optimize even further.
With extra to invest after maxing out your 401k, I would suggest putting money in a traditional IRA (if available at your income level), otherwise a Roth IRA (if available at your income level, otherwise backdoor Roth), then put money in a "megaback door Roth", if your workplace retirement plan is set up to allow it, then pour anything left over into a taxable investment account.

For non financial advice, don't worry too much about having unprotected sex now, you can keep having non procreative unprotected sex and enjoy it until the time is right for you (hey other people brought up unprotected sex first). Fertility and such might be a concern, but it's slightly overblown, and you can decide how big a deal it is for you. As they say, life is what happens when we are busy making other plans.

[BuffaloStache]

Ultimately the way I see it going into a plan like this is that there really isn't any downside. Even if I have to work a couple extra years because the economy didn't perform as well as I'd like, by limiting expenses and being frugal, you will always be in a good position financially. So I'm just going to go into this plan with flexibility and optimism that someday I'll be thankful I made the choices I did.

This- 1000 times this. Your future self will have nothing but praise for you if you put a plan like this into action :-). Good luck!

[lifeanon269]

It sounds like you are doing great. If you posted a detailed spending breakdown people might be able to help you optimize even further.
With extra to invest after maxing out your 401k, I would suggest putting money in a traditional IRA (if available at your income level), otherwise a Roth IRA (if available at your income level, otherwise backdoor Roth), then put money in a "megaback door Roth", if your workplace retirement plan is set up to allow it, then pour anything left over into a taxable investment account.

Thanks CanuckExpat. I was thinking about investing a little in a RothIRA to avoid some taxes after I retire since this will likely be after-tax money I'll be investing anyway, but I was worried about the early withdrawal penalties since I'd be withdrawing before age 59 1/2. Plus, the contribution limits are fairly low anyway that I wasn't sure if it would be worth it for such a short investment period. I know you can withdraw your contributions without a penalty as long as you don't touch your interest earnings though.

Correct me if I'm wrong on any of that.

So I was just thinking of using a taxable investment account and putting the money into a Vanguard index fund.

Also, since I am mainly worried about saving enough money to start retirement early before I'm 65, then I really need to start saving up money into an account that will get me from my mid-40's until I'm 65-ish. So what I am actually going to do is stop maxing out my 401k (still investing enough for employer match and all) and instead start investing more after taxes into this new account. I'll get hit more on taxes each year though. But, I'm not sure how to avoid more taxes while still allowing myself to withdraw money for early retirement in my 40's.

[CanuckExpat]

Also, since I am mainly worried about saving enough money to start retirement early before I'm 65, then I really need to start saving up money into an account that will get me from my mid-40's until I'm 65-ish. So what I am actually going to do is stop maxing out my 401k (still investing enough for employer match and all) and instead start investing more after taxes into this new account. I'll get hit more on taxes each year though. But, I'm not sure how to avoid more taxes while still allowing myself to withdraw money for early retirement in my 40's.

Don't stop maxing out your 401k! Poke around on the boards or online, you will find ways of accessing that money if needed, somebody already posted one link. We can argue till we are blue in the face about future tax changes or closing roth conversion loop holes etc, but you make a $150k, the tax savings alone should be enough reason to max out your 401k. Just keep maxing out your 401k.

A taxable investment account is great and gives you lots of flexibility. You make $150k, there is no reason you can't max out your 401k, put 5k into a IRA (traditional or Roth), and put a lot of money into a taxable account each year. Get on it!

[EscapeVelocity2020]

Sounds like a good start.  I'd second the opinion to continue to max the 401k for yourself and would also urge you to consider getting your new spouse (congrats!) to max her 401k, maybe by reorganizing the finances.  You will benefit more from the lower tax bills now than investing after-tax.  You can then convert the 401k to a tIRA at retirement and begin partial conversion to Roth when you are in a lower bracket.  This also has implications for ACA subsidies and college scholarship (FAFSA).  Being that we're talking 13 and 18 years from now, I wouldn't get too hung up on what-if's.  Having the larger after-tax net worth (paying the lowest income tax) is almost guaranteed to win.

I would also agree with folks giving the OK to let the childbearing begin.  Being young is an invaluable asset on so many fronts.  We had our first at 30 and second at 32.  That means I'll be 50 when the second is off to college - I wouldn't want to be too much older...

Lots of things are bound to change as your plan plays out, don't get too caught up in waiting and expecting things to fall into place, and try to make the most of all of it.  I guarantee that you'll learn and grow and change a bunch as you go.  Who knows, maybe you'll happen upon a lifestyle-business along the way that gets you to FI faster and maybe even makes ER irrelevant...   

[tonysemail]

welcome to the forums :)

yup, definitely max out that 401k and figure out how to withdraw it later.
even in the worst case, saving 25% on taxes today will offset that penalty that you're worried about.

fertility is a valid concern.
if you want to get yourself worried, then start researching the costs of fertility treatments and child adoption.

[CanuckExpat]

if you want to get yourself worried, then start researching the costs of fertility treatments and child adoption.

Or contemplate that the worst case is you get to have a retirement free of changing diapers and tantrums..
It's win win :)

[a1pharm]

Sounds like a good start.  I'd second the opinion to continue to max the 401k for yourself and would also urge you to consider getting your new spouse (congrats!) to max her 401k, maybe by reorganizing the finances.  You will benefit more from the lower tax bills now than investing after-tax.  You can then convert the 401k to a tIRA at retirement and begin partial conversion to Roth when you are in a lower bracket.  This also has implications for ACA subsidies and college scholarship (FAFSA).  Being that we're talking 13 and 18 years from now, I wouldn't get too hung up on what-if's.  Having the larger after-tax net worth (paying the lowest income tax) is almost guaranteed to win.

I would also agree with folks giving the OK to let the childbearing begin.  Being young is an invaluable asset on so many fronts.  We had our first at 30 and second at 32.  That means I'll be 50 when the second is off to college - I wouldn't want to be too much older...

Lots of things are bound to change as your plan plays out, don't get too caught up in waiting and expecting things to fall into place, and try to make the most of all of it.  I guarantee that you'll learn and grow and change a bunch as you go.  Who knows, maybe you'll happen upon a lifestyle-business along the way that gets you to FI faster and maybe even makes ER irrelevant...   

+1

Keep maxing your 401k, and consider having your wife make at least 18k after having a kiddo to max her 401k, too.  Then max out Roths for each of you (or traditional if you're eligible). THEN shove the excess money into a taxable account. Use your bonuses to pay off debts, then direct them to paying the mortgage down.  Use bonuses and tax returns to fund any big purchases.  Finally, consider HDHP so you and your wife can max HSAs and you are set!

In summary, max out 401k, Trad/Roth IRAs, and HSAs for each of you, then any excess into a taxable account to bridge your finances while you're Roth conversion ladder matures.  You should be able to be free well before 13 years if you can do this and get your house paid off.  Good luck!

[lifeanon269]

Thanks all for the great advice. So it seems like the consensus is to definitely continue maxing out my retirement accounts and after my 401k is maxed, I'll max out a RothIRA, and then the rest into an after-tax investment account. We haven't decided on whether or not my wife will be working or not, but either way we should be able to make this work!

[BuffaloStache]

Good luck! and be sure to let us know how things go.