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Hey peeps. It’s Friday again and that means another reader case!
This one immediately caught my eye because it slaughters two sacred cows.
Cow #1: Kids are expensive
Cow #2: You can’t become FI if you don’t have a high-paying STEM job.
This reader case is proof that you can raise four kids on just one postal worker’s salary and still be ahead (e-mail has been edited for brevity):
“Hello Firecracker & Wanderer!
First and foremost, THANK YOU BOTH! xoxoxo I am soooo thrilled to have found the 2 of y’all. I immediately I loved y’all style from jump. Thanks for taking the time to explain the madness to ordinary to slow people like myself whose brain runs circles trying to keep up and self-educate for further growth.
I became a Postal worker at 20 yrs old and had 4 kids along the way so my husband is a stay-at-home parent who works side gigs at random to have money saved—which does stack but is not usually counted for.
So the 3 main questions I have are:
1) Why do you estimate for 25 yrs of retirement when estimating how much money we are aiming for in the portfolio? I’m aiming for a 118 yr life span ☺ and I aim to be retired at 50-yrs-old (hubby 51) or the latest 55-yrs-old (hubby 56).
I am now 36 (hubby 37) so I need to know the money will last!
2) How do you get “portfolio growth” to get your estimates? I am assuming I need to get an investment acct somewhere—planning on following the investment course just haven’t gotten around to it because I’m still lost on basics or just a lil’ overloaded.
3) How many years will it take us to become FI? Is it achievable before 50?
Please help me with our Case Study! We would love to one day meet up and say hello at the Chautauqua events and enjoy the experience there as well as being FI sooner rather later. Feel me! Okay, on to the madness:
Salary:
$58,252 gross
$74,270 gross w/ overtime
$46,595.63 net salary after tax
Expenses
~$2,200/mo = $26,400/yr
Debt
~$4,000 medical bills
Assets
$62,000 still owe on house
$5,000 (2) cars
~ 2004 Honda Civic and 2003 Ford Taurus
Savings
$3,000 cash
$4,557/yr TSP -$60,100(ytd)
$2,432/yr Roth -$5,500(ytd)
* I aim to max out TSP but not sure how to get there and not be broke AF!
Thanks for all the help and enlightenment!
Sincerely,
Aiming for Fi”
Well, AF, I have to say, kudos to raising 4 kids on just $26,000/year. Holy shit! That’s less than what most people spend on just one person. The only time we’ve ever met other families with expenses this low is the World Schoolers, who travel the world with their kids to reduce their living expenses. But you’re doing this while living the US? Wow. I’m going to have to get some parenting and budgeting tips from you .
Okay so first to answer your questions:
1) Why am I multiplying the expenses by 25? Am I projecting only a retirement period of 25 years?
2) How do you build a portfolio to get the 6%/year average return in my portfolio growth projection?
3) Is it possible for you to become financial independent before the age of 50?
Question 1:
This is a common misunderstanding of the 4% rule. The 4% rule was derived from the Trinity study, which simulated retirement throughout the entire history of the market. They pretended a retiree started with a bucket of cash at every year through history, and simulated what would happen if they withdrew a certain percentage and left the rest invested. 4% of the withdrawal rate left the portfolio intact with a 95% success rate. (We wrote a whole post about it here).
So by taking your expenses and multiplying by 25, I’m not projecting a 25-year life span. I’m reverse engineering how much your portfolio size needs to be in order to allow you to safely withdraw 4% each year to cover your expenses.
In your case, since your spending is $26,400/year, if that is 4% of your portfolio, you’d need a portfolio size of 25 * $26,400/year = $660,000 to cover that amount each (because 4% of x = $26,400/year, so solving for x = $26,400 /0.04, and dividing by 0.04 is the same as multiplying by 25).
Question 2:
Historically the S&P 500 has returned between 7-11% annually (depending on your portfolio allocation) over the long term. However, as you can see by our blog, we are extremely risk adverse (I’m not a plan B person, I’m a plan C, D, E, F—back up plan for the backup plan kind of person. Blame the Asian-ness), so I like to use a very conservative 6% return over the long term and a 60/40 (60 equities, 40 bonds) portfolio to get that return, with a yield of 3% to protect against market downturns. To find out how to build a portfolio like the one we have, follow our investment workshop here.
Question 3:
To find out how long it’ll take until you become financially independent, let’s take a look at your numbers:
With your hubby staying home to take care of the kids, saving money on childcare costs, you’re doing just fine on a postal worker’s salary, as we can see in this summary:
| Summary | |
|---|---|
| Net Income | $46,595.63/year |
| Expenses | $26,400/year |
| Debt | $4000 (medical) + $62,000 (mortgage) = $66,000 |
| Assets | $3000 (cash) + $60,100 (TSP) + $5500 (Roth IRA) = $68,500 |
At expenditures of only $26,400/year, your saving rate is 43%! Once we subtract your medical debt from your assets, we get a starting point of $64,500 and savings of $20,195/year. This means that with a conservative 6% annual return in the markets over the long term, you should become financially independent in:
| Year | Balance | Savings | Portfolio Growth | Total |
|---|---|---|---|---|
| 2018 | $64,500 | $20,195 | $3,870 | $88,565 |
| 2019 | $88,565 | $20,195 | $5,313 | $114,075 |
| 2020 | $114,075 | $20,195 | $6,844 | $141,115 |
| 2021 | $141,115 | $20,195 | $8,466 | $169,777 |
| 2022 | $169,777 | $20,195 | $10,186 | $200,160 |
| 2023 | $200,160 | $20,195 | $12,009 | $232,365 |
| 2024 | $232,365 | $20,195 | $13,941 | $266,502 |
| 2025 | $266,502 | $20,195 | $15,990 | $302,688 |
| 2026 | $302,688 | $20,195 | $18,161 | $341,045 |
| 2027 | $341,045 | $20,195 | $20,462 | $381,704 |
| 2028 | $381,704 | $20,195 | $22,902 | $424,802 |
| 2029 | $424,802 | $20,195 | $25,488 | $470,485 |
| 2030 | $470,485 | $20,195 | $28,229 | $518,910 |
| 2031 | $518,910 | $20,195 | $31,134 | $570,240 |
| 2032 | $570,240 | $20,195 | $34,214 | $624,650 |
| 2033 | $624,650 | $20,195 | $37,479 | $682,325 |
16 years! This means you’ll be 52 and your hubby 53, so that’s within your goal of retirement before the age of 55!
(Note: inflation is hedged by the 2% raise your job provides each year.)
And this isn’t taking into account any raises or additional income your husband earns from his side incomes. So it could be even earlier if you take those into account. On the other hand, if your expenses increase (college tuition for kids, maintenance for the house, etc), you’ll need to account for that as well. So make sure you redo the above calculations each year to account for any increases in spending and salary.
I also recommend having a 3 year cash cushion of living expenses, so in addition to the yield of the portfolio, you’re getting extra protection in the event of market downturns (which will inevitably happen).
So in your case, if your FI number is $660,000, a 3% yield (click here for the Yield Shield series on how to push up the yield on your portfolio) would generate $19,800/year. Since you currently live on $26,400/yr, that’s a shortfall of $6600/yr. So you’d set aside $6600 *3 = $19,800 as a 3-year-cash cushion. So, based on your savings rate, this would only add an extra year to your retirement date.
But before you build up savings and investments, you need to PAY OFF YOUR DEBT! You mentioned $4000 in medical debt, but you didn’t say what the interest rate of that is. If it’s anything above 5%, don’t bother setting aside savings earning 0.05% interest or even investing with an average 6% return if it’s just going to get eaten away from the interest from the debt. Having savings at the same time as debt with high interest rates makes no sense.
One other thing I noticed: Why are you splitting your contributions between your TSP and Roth IRA? If you still have contribution room in the TSP, redirect it all towards that and save more in taxes. You can get it all out tax-free in retirement by implementing a 5-year Roth IRA Conversion Ladder.
But other than that, you’re thriving on a single person’s salary, raising 4 kids on less than what most singles spend. And if you continue along this route, you’re just 16-17 year away from financial independence, and within your projected retirement age of 50-55. Well done!
That’s it! What do you think? Chime in the comments.
Update: A call out to previous Reader Case Study alumni! MR Readers have been asking about you and would like to have a “Where Are They Now” post. If you’ve been featured in a previous a reader case study, e-mail me at: FIRECracker.revolution.com and update me on your situation and I’ll pick some to share with our readers. Let’s help them follow along in your journey! (MontrealDilemma and MAS, I’ve already heard updates from you, thanks for that!)
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Wow I have no clue how they manage to survive on $26,400/year. That’s just incredible. Amazing job AF.
Firecracker how are you calculating savings rate ? I thought its expenses / netincome, but that gives me 56% instead of 43%. I have looked on the internet but it seems like everybody has their own way of calculating savings rate.
Expenses/net income would be your expense rate. If everything other than expenses was being saved, then you could use ((net income – expenses)/net income)) x 100 = % savings rate.
So in this case:
(($46595 – 26400)/46595) x 100
(20195/46595) x 100
0.433 x 100 = 43.3% savings rate
You could also use:
100% – ((expenses/net income) x 100) = % savings rate.
100% – ((26400/46595) x 100)
100% – (0.566 x 100)
100% – 56.6% = 43.3%
Same thing… hope this helps! 🙂
Beat me to it, Janna! Thanks for answering 😉
Hope that helps, Neo.
Good luck to AF!
Their current savings is low with that kind of saving rate. It’s an uncomfortable question, but you should dig a bit. That saving is after 16 years of work. They need to do something different to make the next 16 years better. Maybe they had higher expense in the past?
$3,000 in the bank is also very tight. Probably should have a bit more cash in the bank with 4 kids.
@retireby40… i was thinking the same thing…what are they doing with the other 20,000 they’re not spending. why does this person sound like they live in my neck of the woods. also didn’t know postal workers made that much…about the same as some of the nurses i know. Good for them for joining the Journey!
Yes savings is low b/c I just joined the FI journey. I wasn’t interested in saving just to save. But now I know better so I aim to do better. Not all postal workers are able to make/want the overtime.
That’s a good observation, Joe! It’s possibly they had higher expenses in the past, or AF started working more hours/got a promotion. Hopefully AF will come on to answer that question.
My savings is low due to the fact that I was just living life with the family and not caring about saving money but rather spending it. I just got on this FI journey as of the ending of 2017.
AF! Great to hear from you! 🙂
Yes savings is low b/c I just got on board with the FI journey. Expenses were higher in the past but I worked to eliminate debt and almost finished with that goal. So I will aim to get my savings up!
Great work AF. And thanks for breaking it down FIRECracker.
On the 25 year rule, if my expenses go up 1-2% every year due to cost of living adjustments (rent, gas, and electric rate adjustments) and inflation (eggs and milk cost me more today than they did 5 years ago), won’t the amount I need to save go up every year? Or is this rule based on the assumption that I’d get a raise of 2% a year (I don’t, but wish I did).
You are correct in saying that inflation will increase your required retirement portfolio size. The 25 year rule doesn’t take into account inflation during your period of accumulating the portfolio, it simply multiplies today’s spending by 25. This only tells you how much you would need in order to retire right now, not in X years.
In reality, you will need to use your expected spending in X years when you plan to retire, and multiply that by 25, to get the portfolio size you need in retirement. To do that you you will have to multiply your current spending, for example: 26,400 x (1.03^15). This assumes they will aim to retire in 15 years and a 3% inflation rate.
With the above assumption, they would actually be spending closer to $41,000 a year and would need a portfolio size of $1,025,000. Considering they own their home though, I can’t see inflation being 3%.
Perfect. That is how I have been planning thus far (taking inflation into account) and I have been super conservative and not taken into account any planned raises and a slight increase in spending habit. I’d rather over-prepare and be pleasantly surprised than under-prepare and be caught off-guard. Thanks for the swift response!
“the assumption that I’d get a raise of 2% a year”.
Yup, that’s why I mentioned “(Note: inflation is hedged by the 2% raise your job provides each year.)” in the post. That was true in our jobs, during our accumulation phase. But if it isn’t true in yours, you can use the formula VB mentioned above to account for inflation.
Wow this is interesting! I sent in a reader case study and then went back and found more room to save in the $4400/month we were spending on our family of 5. It’s true there may be some hidden expenses eating into actuals savings from potential savings, maybe trips to see family or insurance payments or something like that.
Regardless it’s always nice to remind ourselves there’s always a bit more to be done 🙂
Thanks so much, this is such a great element of your posting rotation.
Em
Nice work going back and trimming the fat in your expenses, Em Jay. And I agree a breakdown would be useful in determining whether they are hidden expenses eating away at AF’s savings. Let’s see if we get a response on that.
I think its more so that I just spent money without thought on anything once monthly bills were paid. Birthdays, vacations (just took family trip of 6 to Jamaica for 10 days) and frivolous shopping rather than being conscious of saving. YOLO was the theme!! But I came to my senses last year and now aim to get the savings stacked up!!
I had the same question as Joe about the savings , seems low considering they have a fairly high savings rate? Maybe it’s in the house?
$26k for a family with four kids is AMAZING but would have been nice to see the breakdown and know how old the kids are (it does make a difference, teenagers eat a lot!)
Do they not receive child benefits in the States?
All good questions. Hopefully AF will respond with more details.
I’m assuming AF is a woman, it takes 3+ years to give birth to 4 kids. Maternity pay isn’t 100% topped up usually
I had to Google Child Benefits in Canada to know what they are because I am a US resident. No, in the US they do not give child benefits specifically. For US readers here, it says child benefits are a tax free monthly payment made to eligible families in Canada to help them with the costs of raising children. There are welfare benefits for those below the poverty line in the US, housing assistance, food stamps, WIC (women infants and children food benefit program), Medicaid, and earned income credit, among other benefits. But this reader case wouldn’t qualify for any of that because she earns a living wage, even with 4 kids and a husband to support.
We call it the “Baby Bonus” it was a left over from the 2nd world war to encourage people to have kids, and it has stuck ever since.
My kids are 15,14,10 & 6. No we don’t receive food assistance such as food stamps/ebt. I did receive WIC while pregnant and up til each child was 5. The kids do get free breakfast & lunch at school. We have put in money towards the house over the 14 yrs we’ve owned it. Updated kitchen, bedroom flooring, central a/c, roofing,fencing & driveway all not accounted for in costs.
Great job, AF
I would think that after working for the USPostal Service for over 30 years when she retires at 51, AF should get a nice pension package. That is a perk of working for the government. That should add a good cushion on top of the projected $682K savings shown above.
Great point, min. There’s probably even more cushion there for retirement on account of the fact that AF works for the government and there’s likely a good pension.
The other perk she has besides the pension is she should get a 5% match in the TSP if she contributes 5% (which I think she is now). So that wasn’t calculated into the equation, either. I think they should easily be able to retire by 50 with the combination of saving 20k per year, getting the 5% match, plus the pension.
I completely forgot about getting a pension. I guess you can see that I don’t want to rely on that money. But thank you for reminding me. I hope it will be nice and be there when I do retire!
This actually fits in so well with what my blog is trying to address, its not so much about how much you make, its about how much you SPEND.
My expenses for 2 kids (horses would be a better description) are $36K a year, all inclusive, but when I look at where we spend it, and compare to other couples, there are plenty of areas we can save. Too bad Mrs Spaceman doesn’t agree, she thinks we’re all gonna die tommorow, so spend spend spend… live for today…
Its all about balance, hence the Gravatar…
I also really like the link to World Schooling, I think It’s a fabulous idea.
cheers
A wise parent once told me “kids aren’t expense. Parents make them expensive” 🙂 I’m so glad many parents have proven this with real numbers.
I’m a big fan of World Schooling. I didn’t know travelling would save money until we did it. Then WS taught us that travelling with kids also saves them money. You learn something new everyday!
This is incredible! It is so inspiring to see that it really can be possible to retire early and obtain financial independence with the right strategy and determination. This was a nice objective analysis of the situation although it would be nice to include some of those unexpected events that hit us every now and then. Things such as one (or perhaps all?) of your kids getting married, an unexpected family funeral, your car’s transmission breaks down or any one of the other many things that can affect us every now and then. That would certainly put a little bit of a dent in your strategy. What do you think? I could be wrong but this model could be improved even more if more realistic parameters were set. This article is really motivating to those who might not earn 6 figures or even $50,000/year because it shows that it can still be possible.
Oh absolutely. That’s why I mention “if your expenses increase, you’ll need to account for that as well….redo the above calculations each year to account for any increases in spending and salary.”
Always good to be vigilant and update the numbers, in case unforeseen expenses crop up.
A very well written case FireCracker. Personally, I think I’d save a little bit more than $660k. 🙂
While this family is doing great at living on very little, those are still “minimum wage” living conditions.
Many retirees find that their expenses rise after retirement because they’re so busy doing more than working in an office all day. A little flexibility wouldn’t hurt. Save for a little fun too!
Supporting a family is serious business, and many people (like myself) find the 4% rule to be pretty aggressive. So, I’ve planned for a lower withdrawal rate as a result. This might be a consideration here also.
“Personally, I think I’d save a little bit more than $660k. ?”
I guess she might if she also has a workplace pension! See Q #2 in my comment just below.
That’s why having a cash cushion helps, in case unexpected expenses creep up. But what I’ve found is that my expenses actually went down in retirement, not up. It depends on the person. There’s always the fear of running out of money, but what about the fear of running out of life? Like my coworker, who nearly worked himself to death and almost died at his desk. That would’ve been a complete waste of life.
Some people prefer to use the 3% rule for 100% success rate instead of 4% rule. Personally, a 95% success rate is good enough for me, as long as you mitigate the sequence of returns risk in the first 3-5 years with a cash cushion.
Wow that is some fancy frugal feet work for saving on a family of 4 … overseas I think we probably burn through double that per year … would be interesting to know international expats saving tips for folks like me? 🙂
Michael CPO, Christian Professionals Overseas
Fancy frugal foot work indeed 🙂 I’ve only known travelling families to spend that little on the cost of living.
Thanks for picking a case study that dealt with cow #2! Very relatable!
yes, cow #2 has been slaughtered by quite a few guests/reader cases now. Good news, not everyone needs to be an engineer 😀
I have three follow-up questions:
1. Is the $47k net income including AF’s overtime or not?
If yes, then AF should be concerned about a) the reliability of overtime availability, and b) her long-term desire to work overtime as her family grows. Either of these could make a big negative dent in her savings plan. If the $47k excludes OT, then the OT is pure gravy and will help accelerate her plan.
2. Does AF have a workplace pension in addition to the assets listed?
Given that AF works for the government and has for many years, I would assume that she has does have a pension of some sort. If so, then she would effectively have more saved than the 660k; alternatively, she would need less than 660k if some of her living is covered by the pension as of some future date.
3. Is AF budgeting to replace or repair her aging vehicles, and is it part of the $2200/mo expenses?
If not, This really needs to be included, unless she plans on never repairing or replacing those vehicles.
All good questions and considerations, Chris! That’s why it’s good for AF to recalculate her FI number each year to account for increasing expenses or decreasing salary.
Other readers have mentioned pension too, so definitely something else for AF to check and add to the equation.
Q1- yes the $47k included my OT. It does vary per yr. Thats why i listed annual salary @ $56k. I dont depend on OT instead I do it when I want to for anything extra that we want or when we plan to go somewhere. I actually do more OT now that the kids are getting bigger and don’t necessarily need me around as much.
Q2-Yes I do get a pension just forgot all about it. I will remember to included it in the future.
Q3- No I never actually budget for car repairs or replacements. I actually crash up or run down all my cars and end up needing a new car about every 2-3 yrs (I drive 60 miles to work and back a day plus at home driving.) The cost usually comes from my income tax refund. But I do need to setup an acct and budget for that more consciously. I always buy older cars with lpw miles and pay for cars in full. I know I will not do car payments!!!
Wow – I really hope AF will chime in with some tips about how she manages 26K / year for a full family. I sure can use some!
🙂
What state/area do they live in?
Rent or own?
We are in the urban GTA and we spend that much on our rent (+utilities) alone!
Me too! I would love some budgeting tips from AF!
We live in Ft. Lauderdale, Florida. We bought our house when I was 23. We have lived there for 14 years now. Our mortgage is $800/mo. Utilities are $250 electric, water & trash. No cable, $10/mo xfinity internet, $13/mo Netflix, $600/mo food, $200/mo gas for cars, $150/mo car ins (2 cars),$90 cell phones (2), $50/life ins (2). These are what I budget monthly. After these are paid the rest I used to spend freely. Now I have been paying off any old outstanding debt and building credit back up. Almost done just need to get medical bills paid off and will continue adding to savings.
As a Fed she could expect to get approximately $25,000 to $30,000 depending how long she works. Even if she doesn’t make it to retirement age, deferred pensions are an option. The TSP is the best 401k plan out there. More discussion should have revolved around this. The reason it is the best are the extremely low expenses and simple index fund options. How is she investing it? Many Feds just do the G fund which is like a really great CD—but won’t beat inflation
Great points, LUCAS! Thanks for your insight into the TSP. Let’s see if AF will respond with which fund she picked and tell us what more about her pension.
If she wants to retire around 2030, she can pick the L2030 fund. It’s basically a Target Date fund that’s currently about 61% stocks and 40% bonds/G Fund (The G fund is like a really good stable value fund, currently paying about 2.65%). I have a friend who works for the federal government who has the L2030 fund, which is why I know. This fund will get more conservative with time, though.
Here’s the info on it and the other funds in the TSP plan. I like how you can play with the drop down arrow to see how the asset allocation “glide path” will change over time:
https://www.tsp.gov/InvestmentFunds/FundOptions/fundPerformance_L2030.html
Yes I do invest with the Tsp. My mom watches over it and adjusts as she feels best. I contribute 5% and it gets matched 5%.
I think their expenses are grossly understated in error. $2167 monthly to live on also includes operating TWO cars as well?!! Insurance, gas, maintenance for two cars alone can not be less than $500 monthly and likely would be closer to $800-$1000 even with limited use which is unlikely with four kids to shuffle around. Call me skeptical here …
I’m pretty surprised about the low cost of living as well. It’s possible that child care benefits are bringing down the costs, but I’m speculating here, so we’ll have to see if AF can give us some details.
Doing some quick checking online, I figure about $500 per month to run both cars mentioned, including fuel, maintenance, insurance, depreciation, and registration. Older cars cost significantly less to operate than newer ones; compare $3,000/car/year for the used cars with AAA’s average estimate of $6,000-$10,000/car/year for new cars.
Greg, why do you have to check online for info? Do you drive? Gas in my area is C$1.50 per litre! Even for a typical compact car I would think a fill-up is still at least 40L tank or C$60 for each car and depending on mileage driven that could be C$120 weekly or C$120 bi-weekly for just the GAS alone! Ever care to check the going rates for typical regular stuff like oil changes, brakes, tune-ups at your local mechanic? It is not cheap and you have to do it likely annually unless they are abusing and running those vehicles to the ground at the end of its life cycle.
More information is required by that family in order to justify the breakdown of their stated figures and calculate a fair assessment of their situation.
Serves me right for scrapping my earlier draft of the comment where I went into estimated costs broken down by fuel, maintenance, depreciation, insurance, etc. based on averages in the US. It’s no good for me to just base it just on my own information since I have a newer car and live in a more expensive state.
So, I looked up things like mpg (20/28 for the 2003 Taurus, 36/44 for the 2004 Civic), average US fuel costs ($2.49 USD/gal), average annual maintenance costs ($420 USD/year for 10+ year old Fords, $455 USD/year for 10+ year old Hondas), average insurance costs (around $136 USD/month for two cars), registrations (<$100 USD/year per car). I put all the numbers together, and I found that $500 USD ($630 CAD) per month is a reasonable estimate of actual, all-in operating costs for the two cars listed in the original request. That's what I was trying to express.
That said, I agree with you that I would like to see a more detailed breakdown of the family's monthly expenses, and hopefully learn something about how they are able to keep costs down with two cars and four children.
Oh yea I did forget to also account for Taurus tag renewal every 2 yrs estimated $100. So both cars tags get renewed for 2 yrs at a time which helps keep it lower. The price of car low so tag renewal is low. But this is not included in monthly budget since not a monthly expense. Also as I said…any major work or replacement is not broken down into monthly budget because I use tax return money to fix or repair cars at that time so its done yearly and not out of monthly income.
Thank you. I do budget $100 bi weekly. $40 Taurus one fill up since doesn’t drive alot. Honda $30 fillup (once per week). Oil changes and brakes, tuneup are all done by us with help of family and friends with mechanical knowledge.
I just broke it down in response to person above but you did mentioned registration which I dont budget for but it’s usually about $100 for 2 yrs tag renewal. When I get a new car its not newer and it’s going to be priced low. So no depreciation. Most I’ve ever paid for a car is $3500. Maintenance is done by us on both vehicles so other than parts its fairly cheap to maintain.
Nope not sketchy… My car ins for 2 is $150/mo and gas is $200/mo….so its only $350/mo for that. We do have older cars that are in great condition. My 2004 Honda Civic drives 60 miles a day at least but excellent on gas!! My husband’s 2003 Ford Taurus is just to drive and pickup kids locally never goes more than 10 miles a day! Any repairs we do ourselves. Although I usually run down or crash up my cars personally I tend to get another car usually every 2-3 yrs which I get around income tax time so that’s income that’s not accounted for either that pays for replacement or repairs such as body work/paint job.
Typical low income family that benefits from the current Liberal government, one parent makes sub-par income that results in no taxes owed from all the non refundable credits, other parent probably works for cash. With 4 kids = free daycare subsidy, over $1500/month in child tax benefits tax free/WTIB/GST payments, free post secondary tuition for all them.
They’re American, so not benefiting from the Canadian Liberal government unfortunately 😛
Don’t be mad that we make it work for us. We all have to do what’s best for each of us. In our situation we learned that it only makes sense for one parent to stay home and tend to house and kids while the other one works. No sense in having 2 overworked and stressed out parents while strangers raise our kids. It doesn’t make sense to have one parent working to solely provide daycare costs. Instead we learned what the income tax brackets are so as to wage our income and live within our means. If they’re making rules to keep ppl down we have to find a way to come up. Free post secondary tuition for them all….I sure won’t mind but we are aiming for 100% scholarships since we spend time making sure our kids are doing exceptionally well in school and maintaing high grades. There’s plenty money out there and we aim to get some too! Not everyone must live or try to live alike to succeed.
I think they are doing great, but they may also want to take into account the retirement expenses on Medicare part B premiums in the US. My parents are retired and the premiums are a nice chunk of money for them. They may want to save a little more to make sure they are covered on these expenses in the future.
Good point, DK. Right now American early retirees are using the ACA, but that could change going forward.
For us, even though we’ll be losing our Canadian health insurance going forward, travelling allows us to use expat insurance. So if they’re willing to live outside the States and travel when they retire, expat insurance is an option.
How much do your parents pay for Medicare premiums, if you don’t mind me asking?
Thank you for your interest FIRECracker!
My parents are using Blue Cross Blue Shield PPO for their Medicare part B, which is a little more expensive than some other plans, but gives them better healthcare benefits. Prior to the ACA they were paying $300.00 per month in premiums for 2 people. After the ACA passed their insurance premiums went up to $625.00 per month for the two of them. Besides their premiums they have a co-pay when they visit a doctor. To see their primary care Dr. it is a $10 co-pay and to see a specialist it is a $40 co-pay.
Thanks!
Thanks for sharing! Based on the premiums, looks like your parents were doing quite well income-wise before retirement 😉 Good for them.
Great case, thanks for sharing!
I would also assume that at some point, kids will be big enough that the stay at home parent could consider going back to work. This could help them get there sooner, or save a bigger cushion before their planned date to pull the plug.
This may mean that their taxes will go up, which could potentially mean that they lose the job’s benefit, but I am just speculating here: sure this is how it might work here it Europe.
Huh, I didn’t even consider that. Good point, Agata! The gain in income maybe worth the rise in taxes, but again, they’d have to MathShitUp to see if it’s worth it.
Yes its in the works…my husband is ready to go back to full time work. We will go over things with tax advisor when the time comes to balance out income gain vs taxes and best options for our family.
With the Federal Employees Retirement System, the minimum retirement age for a person born after 1970 is 57. However, if 30 years of service is completed prior to retirement there would be no reduction in pension. Retirement at 52 would be ok, but it would be good to look at https://www.opm.gov/retirement-services/fers-information/computation/ and check a couple of years prior to retiring to make sure the requirements haven’t changed.
An example of the pension’s value: a postal worker who retired at any age after 30 years of employment with the average of the highest three years of earnings being $58,000 would receive an annual retirement payment of about $17,400 (1 percent of the high-3 average salary for each year of service).
This would cover the shortfall you pointed out in answer to question 3.
Also, why are you all calling this person AF instead of “Aiming for Fi” like it was signed?
Nice work on the pension research, T Ah. And yes, technically I should’ve called her “AFF”, but I shortened it to AF for simplicity by ignoring the “for”.
Thank you for the link and I will check that out.
You’re a miracle worker! I think posts like these really challenge the public’s perception of early retirement. We get caught up in the story, but the numbers don’t lie if they work.
No miracles, just math 🙂
Challenging the public’s perceptions of early retirement is my favourite part of FIRE 😀