Hello everybody, it's Sam from Financial Samurai and in this episode I want to talk about how to retire early with kids Because I truly believe it is nearly an impossible task I've talked about early retirement and financial independence since I started Financial Samurai in 2009 and that was when I didn't have kids and Then when I left in 2012, you know, I struggled here and there with trying to identify as an early retiree So I stopped and I did a lot of consulting work And I wrote on Financial Samurai and did it a lot of traveling and so forth But now that I've been a father for the past two and a half years I truly believe that retiring early without kids is like going for a walk in the park Maybe it's like getting a two or three hour Swedish massage the best massage you can ever have Retiring early without kids seems so easy now.

I just wonder why don't more people get on board? There are absolutely various levels of difficulty for being able to retire early The easiest way to retire early is to have a working spouse If you got no kids to care for you're truly free to do whatever you want All you've got to do is keep encouraging your spouse to keep on providing while you kick back relax go play tennis Drink some Mai Tais and just hang out with your girlfriends or guy friends And that is the best way and I know a lot of people who've done that and I even wrote a post about it called How to convince your spouse to work longer so you can retire earlier It's a little bit far-schooled, but it's true.

People are doing this all the time Another easy way to retire early is to be willing to live in or near poverty in retirement This is the definition of poverty according to the government the federal poverty level limit Ironically being willing to live like a monk is also one of the hardest hardest ways to stay retired Because you might start wondering what's the point of retiring early if you can't live it up with your free time If you got to count every single dollar in your wallet in your bank account Whether you can go to that movie during the middle of the day whether you can go out for drinks or whatnot So it's kind of hard.

I believe to stay retired if you're living so spartanly a Much much harder early retirement achievement is to try to maintain the same standard of living in retirement Which you had while working without some budget sacrifices this route to early retirement is quite difficult nowadays Simple math suggests that it's hard to accumulate enough capital to sustain a middle-class lifestyle Because interest rates have fallen drastically 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.

This is a near impossibility folks unless you're the best saver best investor in the world You are likely not going to be able to accumulate enough capital to generate as much as you did while you were working Do the math folks you now need two million dollars at a two percent interest rate to generate forty thousand dollars in income When in the past you only needed about a million dollars because the ten-year bond yield is at about one point seven percent It's under two percent So why is it so hard to retire early with kids?

Well besides the cost the extra cost of raising children The main reason why it's so hard 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 on the side like I did creating online products driving for uber and lyft coaching youth sports Pet-sitting consulting and freelancing buying rental properties and managing those terrible tenants Actively managing an investment portfolio to try to optimize it for dividend income going to business school part-time So you can earn more and helpfully get a promotion I used to spend 25 hours a week outside of full-time work writing on financial samurai.

I wake up around 5 a.m. Or 6 a.m type for a couple hours go to work just get my face beat up and then maybe check my mobile phone for 30 minutes during lunch break and Then work some more and then come back and have the energy and passion to write more and do more online For another two or three hours and that went on and on until I finally left in 2012 If I'd had adolescent children, then there's no way I'd have spent more than five hours a week on financial samurai Maybe nothing at all being away from my kid for 50 to 60 hours a week Would have made me feel even more guilty to work any longer at home Therefore, I probably would 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 frankly probably more nap time I love napping and I would nap every single day if I could if I was working and actually I did During lunch break when I would go down to my car in the basement and take 20 minutes shut eye, but don't tell anybody So even though not having children while I was working is one of the top retirement regrets Having children while working would probably have delayed my retirement by at least 10 years If not 20 plus years because I know myself and I think having the goal to work until my kid graduates college Would have definitely been top of mind It's also hard to stay retired once kids come After we had a kid our already owner of $1,620 a month health care premiums jumped to $1,800 a month after our son was born for 2020 our health care premiums will rise to about $1,927 a month if we continue to only have one child we're talking over $30,000 a year in health care premiums alone and this does not include our deductibles and Copay out-of-pocket expenses capped at about sixty four hundred dollars Hope we never use them, but come on folks if we do use it It's like thirty thousand dollars a year in health care premiums a year that that's just crazy We could try to and limit our household income to less than 400% of the federal poverty limit Which is eighty three thousand for a household of three to get health care 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 all my life since graduating from college I have aggressively paid into the tax system to support my fellow Americans, and I don't feel bad about it at all I've always been a contributor, and I want to continue that way so to go from being a contributor to Retiring early and then getting health care subsidies.

It just wouldn't feel right In addition to higher health care premiums we obviously have extra expenses for diapers Clothes toys occasional babysitting to help keep our sanity and now he's in preschool and the tuition is $1,950 a month and there's probably two hundred dollars to five hundred dollars worth of other activities such as Fundraisers and donations and so forth that we have to pay as well We're hoping to send our son to public grade school because we find paying 30,000 to 45,000 a year in private grade school tuition to be absolutely ridiculous But the problem is San Francisco has a lottery system a public school lottery system for social engineering purposes It hasn't worked, but that's what our system is so even if you pay 30,000 50,000 in SF property taxes your child has no guarantee of getting into your local neighborhood public school You could end up with your 10th choice 15th choice and have to drive 20 to 30 to 40 minutes across town And it just is a little bit ridiculous and it's another reason why we want to get out of here eventually So I've gone ahead and run the numbers in a detailed post on retiring off 200,000 a year in gross investment income for a family of three $200,000 a year sounds like a lot But it really isn't if you live in an expensive coastal city in this budget, which you should click on the post to see You end up with about $1,400 in cash flow and that's not a lot So I guarantee you that this family living off 200,000 a year and it's not an outlandish budget at all We'll likely have to dip into Principle and that doesn't sound good.

Now. You might look at the budget and think well $1,600 a month for food for three is unreasonable. Okay, let's cut that You might look at the budget and say 9600 annual vacation budget is unreasonable Okay, let's cut that. So let's cut five thousand to ten thousand a year from their budget Guess what if they have another child in other words a second child They are screwed.

There is no way they can afford a second child on a two hundred thousand dollar a year investment income budget Well, they could but a lot of changes would have to be made now. Let's say you don't need two hundred thousand dollars You're like, well, that's just ridiculous I can take care of two children off two hundred thousand dollars a year easy because I'm gonna relocate to a lower cost a Living area and so forth.

Well, let's just run the math Based on various returns or withdrawal rates. Here's how much capital you would need to generate $200,000 in investment income a year and $200,000 a year in investment income So at 1.5% where the 10-year bond yield hit several months ago You would need thirteen point three million in capital or about six point seven million in capital to generate two hundred thousand and one hundred thousand at a 2% rate of return Ten million and five million at 3% six point seven million and three point three million at 4% Five million and two point five million at 5% four million and two million at a 6% withdrawal rate or rate of return You would need three point three million or one point seven million at 7% Two point eight five million or one point four three million and at 8% Two point five million and one point two five million That's a lot of millions folks with the median net worth for Americans under a hundred thousand dollars Coming up with 13 times to 135 times the median net worth in order to retire early with children is not very Realistic be realistic folks do the math look at your numbers If you are retired You also likely have a much more conservative portfolio Because the last thing you want to do is get blown out of the water in terms of losing money in the markets and then having To go back to work and not spend time with your kids Therefore you've probably constructed a more conservative portfolio that might only generate closer to four to five percent a year if you're lucky Therefore you would reasonably and probably need closer to two to five million in order to retire early with kids in America During bull markets like one we are experiencing right now People tend to forget that stocks bonds and other risk assets sometimes decline in value the sequence of risk returns right right now It's like betting on black and hitting black ten times in a row in roulette You're eventually gonna lose and when it comes you're gonna suddenly have to rejigger your retirement investment model Alright now that I've deflated your spirits Here are some solutions I can think of if you still want to have your cake and eat it too Because having kids is really really wonderful But it is really really expensive and really really time-consuming So one make sure you pay yourself first No matter what don't let your desire to provide the absolute best of everything for your kids blow up your path to early retirement To relocate to a lower cost of living area instead of living in a city where the median priced home is over a million dollars Relocate to one of the hundreds of great cities across America where the median home price is closer to the national median of two hundred $40,000 before you relocate though It's best to take a visit first to see if you will feel comfortable and included and it might not be as easy for some Groups of people than others.

Let's be honest Three consider joining the military foreign service law enforcement or any organization that provides a pension You know teachers get pensions too if you join between 18 to 22 years old You can retire as early as 38 to 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 I truly believe joining, you know A service industry is really one of the most underrated things you can do because that pension is worth Gold, I mean it is so valuable.

It blows the private sector benefits out of the water For send your kids to public grade school only unless your kid has a scholarship or you are rich In other words income of at least five to ten times the annual cost of annual private school 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 Because you will be forever pressured by other parents richer parents and also by the kid to spend and donate more Five 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 You know not all private school kids go on to great universities and do great things A lot of them end up just like regular folks or worse Then read up about all the great Americans who went to public school and did just fine Six encourage your kids to help out around the house more to not only save money, but also build their character as well Making kids consistently work for what they think they deserve is one of the greatest life lessons seven swallow your pride and start accepting health care 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 instead of giving 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 so it's time to get yours Next keep the fact that you're taking health care subsidies from the government a secret from your children Otherwise your children might grow up to be entitled and spoiled and decide to leech off you when they are adults for the rest of their lives Next 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 another five more years Next if you're feeling the financial strains of early retirement make your spouse go back to work leave the house Even though having one working spouse and one stay-at-home spouse is not considered being early retiree Sometimes it's worth being selfish and delusional for your own sanity and just tell yourself Hey, I'm an early retiree because my spouse works even though I live off her health insurance and all that good stuff Once you have a working spouse life is kind of easy, you know health care and expense Yeah, it's subsidized by the employer by on average 71% Also a working spouse can also greatly reduce the amount of capital needed to produce early retirement income And finally number 11 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 found that working about 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 Autonomy is the key here folks when someone's telling you what to do for 20 hours a week.

That just doesn't feel great So although life is short life is also very long Don't feel like you have to retire ASAP just because you saw someone else online retire early 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 can save for retirement Before negotiating severance consider taking an easier at your job for one year to see how things go Maybe take a sabbatical as well Take all your vacation days definitely Utilize the full hour for lunch get back to your boss a little later than normal and leave right at 5 p.m Let's see if life might be a little bit better If you didn't pressure yourself so much to work so hard to outperform your peers to get that raise in promotion By grinding less hard you might just start enjoying work a little bit more Further each additional year you work will add to your potential severance check when you finally walk away The severance calculation is generally one to three weeks of severance per year worked In conclusion, I say having kids is worthwhile.

They're the best thing ever that will happen to you But they also put a tremendous strain on your finances. So make sure you put on your oxygen mask first Thanks so much everyone I'd love to hear from you how you plan to achieve financial independence with kids or how you did achieve financial independence with kids And if you enjoyed this podcast, please leave a great review five stars, and I'll talk to you guys later