If you are just starting this, I suggest you start at The Introduction – Part 0. Alternatively, you can jump to Our Early Retirement Plan: Where We Are Now (Part 1), Our Early Retirement Plan: My Personal Income (Part 2), or Our Early Retirement Plan: My Wife’s Plan (Part 3).
In part 2, I explained how I can live a retired lifestyle even while I’m technically bringing in an income. In part 3, I detailed how my wife could retire early. Today, I’d like to go through some obstacles we have in attempting to retire early.
- Children and Rising Expenses – Right now we are DINKs (double income no kids). We hope to have children some day. Children aren’t cheap, and there’s a whole slew of costs with them that I haven’t even begun to explore. I know that day care is expensive. I hope to be a stay-at-home dad at least part of the time. That would reduce some expenses from the outset. Additionally, there are some options available to the military for day care.
- Education – With the aforementioned children, there’s going to be an education expense. This is one area where I don’t necessarily believe in frugality. I want to have enough money saved so that if our children can get into a great school, money won’t be a problem. My wife is of the opinion that the child should earn their way through college so they don’t become Lazy like dad. I think we can find a middle ground with this. Again, this is speculation since there are no kids at this point.
- Health Care – This is one of the biggest reasons why people can’t retire early. Fortunately, the military has a great plan that we’ll be eligible for called TriCare. We haven’t looked at the costs of this in detail, but I think it’ll be a cost-effective solution for us.
- Expensive Housing – Whether we choose to stay around San Francisco or move back to Boston, housing is not going to be cheap. This is going to be one of our biggest expenses. Though we could look to live in an area of lower cost of living, I’m partial to the two areas I mentioned because I know I can surround with smart people there. Besides the opportunities that brings, it would be good for potential children to also be surrounded by the same smart people.
- Other Uncertainties – I’m sure there are going to be other obstacles. Life pops up with surprises when you least expect it (of course they wouldn’t be surprises if you expected them).
These are some things that are hard to account for at this stage. Thus any plan that we make has to add quite a bit of padding
There are all sorts of individual expenses involved with children that add up! You have to buy them clothing, strolelrs, cribs, bottles, formula, etc.
Don;t forget any complications your child may have (God forbid!). Medical Insurance may not cover much of it and it could leave you in the hole pretty deep afterwards! That is why you should always have a plan before getting pregnant, including choosing a good healthcare plan with lots of coverage!
Jon Anderson says
You could do education the way my parents did – pay for it all, but don’t give an allowance. I got a job, and once my parents realized I was making enough money they started cutting back on things they used to pay for like books and rent.
Mr. ToughMoneyLove says
I was both surprised and amused about your statement that living in SF or Boston was important so that you could surround you and your children with “smart people.” And I thought New Yorkers owned the market on parochialism. If you have lived and worked in a variety of diverse locations as some of us have, you would understand that there are “smart people” everywhere. In fact, some of them are so smart that they find places to live where the taxes are low, real estate is affordable, and money is not wasted on “big digs” and earthquake repairs. I understand that your hands are tied by your wife’s situation but I hope that when the time comes you will expand your geographic horizons a bit. It would sure make your retirement a lot more affordable. Anyway, I enjoy the series so keep writing.
Aya @ Thrive says
This post reminded me of someone I used to work with. He and his wife are both employed but they hadn’t been considering having a child for another few years. Yet, things don’t always go as expected and they now have a one-year old. They panicked (and still do at times) about the expenses, but all they could do was re-evaluate their finances since the baby is just going to keep growing older. I think its interesting how people can plan and plan for children and it seems like they’ll never have enough money, but once the baby arrives, theres always a way to make do…because you have to.
Lazy Man says
Larry: see Can You Plan for Unexpected Expenses?. I tried to cover that there. Another scenario, more optimistic is what happens if I have a child who is a fantastic ice skater… there’s a big cost there too.
I think my wording was that “I know I can surround myself with smart people there”. There might be a plethora of smart people in French Lick, Indiana (home of one of my heroes Larry Bird), but I’m not sure I can surround myself with them. Outside of this website, I’m incredibly introverted. Meeting one person, regardless of intelligence, is a gargantuan task for me.
I’m in a weird fake baseball fantasy league with a group of incredible smart people from the midwest. In fact they made a point to show their area is destroying the competition. Maybe I could surround myself with them someday, which is something that I didn’t think about.
Mr. ToughMoneyLove says
Lazy Man – Understood. If you share in person as well as you share on here, you should do fine meeting folks anywhere, including French Lick, Indiana. I think having kids helps as well. They cost a lot (I’ve raised 3 and still paying for college for one) but it pays you back in a lot of other ways.
I am also a Bird fan although I think his basketball IQ is way higher than the rest of it.
Lazy Man says
I don’t share in person 1/10 as well as I share online. It’s a skill that I’m working on, but I’m not there yet.
I am a graduate of a state university. I strongly believe that the quality of a person’s education is more closely related to their own abilities and motivation that to the school they attend. Could I have received a somewhat better education at Harvard? Yes, quite possibly. However, by taking my studies seriously and making smart choices in my course selections, I think I received a very fine education.
I see the finance aspect as a bit tricky. I was responsible for all of my college expenses. It wasn’t that my parents didn’t want me to succeed; it was that they simply couldn’t afford it. What I observed in college was that the students who were paying their own way had a tendency to work a bit harder than those whose parents were paying the entire bill. (This is anecdotal – I don’t have hard numbers on this). After all, if I did poorly, it was my money going down the drain.
Later in my college career, I made a few choices to take more difficult courses in order to maximize my value. My business degree required a history class. Most people took an American History class. I didn’t think I would learn enough to get my money’s worth, so I took Chinese History. I learned a lot. I also took several electives within my major department (Accounting) – including the ever popular Advanced Federal Taxation. I also took 18 credits every semester. A full load was 12 credits – so anything above 12 was essentially free (no additional per-credit tuition fees). I was determined to maximize the amount of learning I could squeeze out of my money.
Having said that, my wife and I have started a 529 plan for our 1 year old (great place to put the Bush tax rebates). So she will get at least some help with college.
As far as surrounding yourself with smart people – as long as you avoid American League fans, you should be OK :)
“Health Care – This is one of the biggest reasons why people can’t retire early.”
Earning, Saving and growing money is a no brainer for me, However medical insurance, is hard to swallow when you are self employed.
Frugal Dad says
We had two kids very early (early to mid-twenties), so in some ways we have front-loaded the costs of child raising. Hopefully, once they are raised and through school we can pour on the savings to sneak in an early retirement. Having kids early certainly has an impact–take advantage of your DINK status now to sock away savings.
Miss M says
No kids here yet either, probably the next few years. My best friend had her first earlier this year and we were discussing college planning, she is staying home and with their now limited income they can’t save for an Ivy league education. Living in California there are some great public universities, I graduated from UC Irvine for example. The plan is to save and invest to pay for a UC education, if the kiddo wants an expensive private school they’ll have to pay the difference with student loans etc.
As I posted in Part 3, if your wife wears a uniform, she is more than likely eligible for the 9/11 GI Bill. Serve 10 years after 9/11, she can transfer to you or your kids. If for kids, there is no expiration of when they can use it.
A few thought about leaving the DINK group:
Yes, kids are expensive, but I knew that going in. Maybe it’s because I’m frugally minded, but the costs haven’t been nearly as bad as I was expecting. I’m not (too) frugal about spending on my daughter, I just mean that if you have a good handle on your money before kids, you’ll probably continue to have a good handle on your money after the kids arrive.
You might want to start a 529 now, while you have the extra income, in case you’re less able to fund it when the kids eventually do arrive.
I suspect that you’ll be able to make the stay at home Dad idea work, instead of having to pay for childcare. I telecommute to my corporate job 4 days a week and do blog work on the 5th day. There’s no way I could watch my daughter on the “real” work days, but I have no trouble on the blogging days, since the flexible schedule fits in nicely with naps, quiet playtime, etc. So I suspect that you could make it work as a blogging-stay-at-home dad.
I agree with Mike about starting 529, especially if your state has a good 529 and it provides tax advantages. We contribute to 529 although we are DINKS: we contribute the max amount for tax credit; if we have kids, we will increase contributions; if we don’t have kids, we will transfer into the names of our nieces and nephews.
It really makes me to think that if my parents had thought about financial early like you and your wife did, things would probably been a little different. I didn’t not have a 529 fund so I had to find all kinds of money and jobs to support myself through college. It’s really tough when you don’t have a cushion to fall on when the tuition is steadily increased while your financial aid is continued to reduce. Come to think of it, I am still young, may be I should start thinking about my finance while I was in college so when I was in my 30s I want to be worry about investing not paying debt.