Author Topic: FIRE with young kids?  (Read 5990 times)

petunia4014

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FIRE with young kids?
« on: February 18, 2015, 01:18:27 PM »
I'm wondering about the practical implications of both parents retiring early with young kids (elementary school or younger). Does it change if only one parent retires?

Has anyone here (aside from M and MMM, obviously) done this and how did it work? I'm thinking about concerns with health insurance, but I'm sure I'm not thinking about everything.

Thanks!

MsRichLife

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Re: FIRE with young kids?
« Reply #1 on: February 19, 2015, 07:15:44 PM »
We have a toddler. DH is already FIREd/part-time SAHD. I'll be FIRE in the next year or two. I guess we are the target audience for your questions.

As far as I can figure, the only implications that a young child brings to the early retirement party is a potential need for extra financial security. If I didn't have a young child, my extra layers of financial security would be largely unnecessary. As it stands, cFIREsim says we have 100% chance of 'success' and yet I'm still planning on working for another year or two to build the stache. I'm also planning on bringing in some income from nano-businesses post-FIRE to add another layer of assurance.

There are just so many unknowns when it comes to planning for the cost associated with children that I think it's prudent to err on the side of caution, at least until they've left home. Then...who knows.

What practical implications are you concerned about specifically?

cacaoheart

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Re: FIRE with young kids?
« Reply #2 on: February 19, 2015, 07:37:15 PM »
I'm thinking about concerns with health insurance, but I'm sure I'm not thinking about everything.

For health insurance I'd look at keeping income from investments high enough to qualify for ACA subsidies, provided you're in a state that didn't accept expanded medicare.

For a family of 3 that'd mean making at least $19,790 annually. Required income goes up $4160 for each additional person to be covered.

https://www.healthcare.gov/qualifying-for-lower-costs-chart/
« Last Edit: February 20, 2015, 12:53:23 PM by cacaoheart »

waltworks

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Re: FIRE with young kids?
« Reply #3 on: February 20, 2015, 10:27:35 AM »
We are considering this now, with a 3 year old and 7 mo old. Health care has been a concern, partially because I'm sort of philosophically opposed to taking CHIP and Medicaid when we have pretty high net worth. So I may just work part time to hit the ACA subsidy level (I wouldn't want to really entirely quit working regardless) and hence... sort of pay our way? I'm self employed so at least I'd be contributing something via FICA and feel less bad about it.

I'm not sure that even makes sense, though. Do you just get shunted to medicaid automatically (we'd be in an expansion state) if you make a small enough amount? It looks like I'd have to keep our income over $40k or so a year to hit the non-Medicaid level where marketplace subsidies kick in instead.

I'd also be concerned about finding providers with Medicaid/CHIP but maybe that fear is overblown.

The uncertainty surrounding health care laws is not super fun either. If the entire ACA collapsed and the shit hit the fan, we're not so wealthy that we could pay for everything out of pocket indefinitely if someone got very sick/injured.

-W

brooklynguy

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Re: FIRE with young kids?
« Reply #4 on: February 20, 2015, 12:08:13 PM »
I'm not sure that even makes sense, though. Do you just get shunted to medicaid automatically (we'd be in an expansion state) if you make a small enough amount? It looks like I'd have to keep our income over $40k or so a year to hit the non-Medicaid level where marketplace subsidies kick in instead.

No, you don't get shunted to Medicaid automatically, and this is a real problem for people with unpredictable incomes (because if you are eligible for Medicaid, then you are automatically ineligible for ACA credits).  So let's say you expected your annual income to exceed the ACA-subsidy threshold, and you sign up for a plan on the marketplace on that basis.  But then when the dust settles at the end of the year, oops! -- your income actually turned out to fall just below the threshold.  This means that in fact you were not eligible for the subsidies, so you're going to have to pay full freight (it also means that in fact you were eligible for Medicaid, but that does you no good since it's too late to take advantage of that eligibility for the year that's already elapsed--you already opted for an ACA marketplace plan instead).

But $40k sounds too high -- if you're a family of four in an expansion state, the threshold should be approximately $33k (which is 138% of the federal poverty level).

I plan to FIRE in 3-5 years, which means my two kids will be 5-7 and 9-11, respectively, at the time.  I'm closely watching the Supreme Court case in which the future of the ACA may hang in the balance (this thread is the central clearing house for discussion on that topic).

seattlecyclone

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Re: FIRE with young kids?
« Reply #5 on: February 20, 2015, 03:45:05 PM »
We are considering this now, with a 3 year old and 7 mo old. Health care has been a concern, partially because I'm sort of philosophically opposed to taking CHIP and Medicaid when we have pretty high net worth. So I may just work part time to hit the ACA subsidy level (I wouldn't want to really entirely quit working regardless) and hence... sort of pay our way? I'm self employed so at least I'd be contributing something via FICA and feel less bad about it.

Did you know that there's no requirement for you to work in order to get ACA premium subsidies? Any income that counts toward your AGI counts for ACA subsidies. Traditional IRA withdrawals (including Roth conversions) count, and so do capital gains and dividends in taxable accounts.

An early retiree with money in a variety of accounts can really take advantage of this. Do you need to pump up your income to get above 138% of the FPL and stay out of the Medicaid zone? Sell your most appreciated stocks out of your taxable account to pay your living expenses. Need still more income? Convert part of your traditional IRA to Roth. Are you getting close to your ideal max for the year (200% of FPL is a good target because the cost sharing subsidies drop off significantly past here)? Withdraw some Roth principal or HSA funds to get some spending money that doesn't increase your AGI by one cent.

brooklynguy

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Re: FIRE with young kids?
« Reply #6 on: February 20, 2015, 03:52:25 PM »
Are you getting close to your ideal max for the year (200% of FPL is a good target because the cost sharing subsidies drop off significantly past here)? Withdraw some Roth principal or HSA funds to get some spending money that doesn't increase your AGI by one cent.

Wouldn't a hair over 138% of FPL be the ideal max?  Or did you mean in a situation where keeping your taxable income that low would require tapping too much of your tax-free Roth/HSA capital and you'd rather preserve more of it for a rainy day?

seattlecyclone

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Re: FIRE with young kids?
« Reply #7 on: February 20, 2015, 05:10:40 PM »
Are you getting close to your ideal max for the year (200% of FPL is a good target because the cost sharing subsidies drop off significantly past here)? Withdraw some Roth principal or HSA funds to get some spending money that doesn't increase your AGI by one cent.

Wouldn't a hair over 138% of FPL be the ideal max?  Or did you mean in a situation where keeping your taxable income that low would require tapping too much of your tax-free Roth/HSA capital and you'd rather preserve more of it for a rainy day?

If you can stay right above 138% for the long term, that's the ideal as far as ACA subsidies are concerned. For other purposes (i.e. converting enough pre-tax IRA money to Roth each year to max out your standard deduction), you may find a higher amount of income to be optimal. The differences in ACA subsidies between 138% and 200% are not that great. Past 200%, the cost sharing subsidies drop off dramatically and the premium subsidies decrease slowly until the cliff at 400%.

brooklynguy

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Re: FIRE with young kids?
« Reply #8 on: February 21, 2015, 07:42:25 AM »
If you can stay right above 138% for the long term, that's the ideal as far as ACA subsidies are concerned. For other purposes (i.e. converting enough pre-tax IRA money to Roth each year to max out your standard deduction), you may find a higher amount of income to be optimal. The differences in ACA subsidies between 138% and 200% are not that great. Past 200%, the cost sharing subsidies drop off dramatically and the premium subsidies decrease slowly until the cliff at 400%.

Yep.  Note, though, that the value of the subsidies depends on the cost of your insurance in your area.  According to the Kaiser subsidiary calculator, in my zip code, the difference between 138% and 200% results in a difference in premium subsidies alone of almost $2000 per year for a family of four.

seattlecyclone

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Re: FIRE with young kids?
« Reply #9 on: February 21, 2015, 10:20:38 AM »
The value of the subsidies varies depending on your area, but they're set to make the second-cheapest silver plan have a net premium equal to a fixed percentage of your income. So I think that should mean that the change in subsidy as you go from 138% of FPL to 200% of FPL should be the same everywhere (except perhaps Alaska and Hawaii since they use a different number for FPL).

brooklynguy

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Re: FIRE with young kids?
« Reply #10 on: February 21, 2015, 11:45:04 AM »
Yes, you're right -- I wasn't thinking about this correctly.  The higher dollar value of the subsidies in high-cost areas only matters if you are comparing the subsidized cost to the unsubidized cost, but the net effect should be that the out-of-pocket premiums end up the same everywhere (assuming you purchase the second-cheapest silver plan -- for other plans, the amount you actually pay could vary by area depending on the variability in the pricing of the other available plans).

Close to $2000 per year for a family of four (I think the actual number the calculator gave me was a smidge under $1900) is a relatively significant differential, but as you said it would have to be weighed against the benefit of maxing out tax-free Roth conversion space for the race against the RMD and other relevant factors.

petunia4014

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Re: FIRE with young kids?
« Reply #11 on: February 22, 2015, 09:08:34 AM »
Thanks for all your thoughts.

MsRichLife, I'm not sure what other implications I'm concerned about. I definitely hear what you are saying about the unknown costs associated with raising kids. We have two, both relatively young. I'm worried I have no idea about what they will cost when they are older.

The thoughts on ACA and healthcare are interesting. Lots to think about and I had no idea about all the moving pieces of the puzzle.

I've got lots to think about and I appreciate all your perspectives on this!

EscapeVelocity2020

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Re: FIRE with young kids?
« Reply #12 on: February 22, 2015, 10:10:04 AM »
There is a world of difference between one SAHP and both SAH, in my humble opinion.  First, from a practical perspective, the single SAHP has to deal with more isolation and challenging themselves, beyond the fact that their job is now not as 'appreciated' as an income producing job.  I'm doing a 'Cliff Notes' version of a response, so don't jump all over me that I am being male chauvinist, but I think it's easier for the wife to SAH vs. the husband.  If both parents SAH, there is the medical insurance angle, but there is a whole host of new expectations about how wealthy you are, how much free time you both have, etc.  Our neighbors deflected all this by starting a small (money-neutral) business, but it is still very confusing to the 'mainstream' to have both parents at home raising a young family.

But I highly recommend one SAHP, these are precious years that can never be recovered.  And young children need a lot of attention.  However, where things got interesting for us recently, is that young children grow up and don't need quite so much parenting (we have a 9 y.o. and 11 y.o.).  My wife has gone back to work this year and does not want to stop, even though (again IMHO) life was better overall when she didn't work.  I think she is looking ahead 2 - 3 years and realizing she needs 'something of her own' as the kids hit their teenage years and get wrapped up in all their own drama :)

Good luck, I'd be interested to hear more about your situation if you'd fill in how you got to FIRE.

waltworks

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Re: FIRE with young kids?
« Reply #13 on: February 22, 2015, 10:52:53 AM »
Yeah, I think we will continue running my (very small) business and my wife will help out with it, but it only takes up ~25 hours a week as it is, and I'd probably step that back a bit. So maybe 15 hours/week for me and 5-10 for my wife. We'd both stay home but we'd have an answer to the "what do you do?" question. I'm thinking just bluntly stating "retired" is probably a dumb move.

In our case, neither of us has ever made much money but we never spent any either. We also were lucky to have very small amounts (about $20k total) in student loans and good health. So my wife will be "retiring" basically out of grad school. I don't think I ever made more than about $40k/year after taxes, and I spent my 20s pretending to be a "professional" athlete (while really paying the bills with my $18k grad school stipend)... but it just adds up if you don't spend it, and I've been saving what I can since I was about 10. End result: we get to spend lots of time with our little kids and ride our bikes and travel. What a world.

-W