Written by: Corey Janoff
This post was originally published on April 11, 2018 on our previous blog website and has since been revised and updated.
With the FIRE movement sweeping across the blogospheres, many people have their sights set on early retirement (FIRE stands for Financial Independence, Retire Early). I apologize in advance to those of you who have a goal to retire early and also have children. Early retirement probably won’t happen for you. And that’s OK. All I want to do here is set the appropriate expectation for you. You will be happier in the long run as a result.
Children are wonderful (most of the time). My wife and I are proud parents of two children. As a human species, we need children. If we didn’t have a desire to procreate, we would eventually go extinct. Also, the economy needs us to reproduce. We need to continue feeding future workers into the pipeline to keep things going.
This post isn’t meant to hate on kids. This post is here to let you know that unless you are extremely disciplined or very lucky, early retirement probably won’t happen for people who have kids. Let me explain.
Who Wants to Retire Early?
Everyone wants to retire early. Or better phrased, everyone wants to reach financial independence as soon as possible, where they aren’t forced to work and can pursue a career that isn’t dictated by the income earning potential. However, most people accept the fact that they need to work for a 30-40+ year-long income producing career in order to retire one day.
The average American can barely save anything for retirement, so the thought of early retirement is only a dream. Some people though can have a very attainable goal of early retirement. Mostly high-income earners, or business owners who grow a valuable business.
If you own a business, that business has a certain value to it. If it has the ability to continue producing increasing revenues, you will likely have suitors looking to purchase that business, potentially for a large sum of money. That big windfall of cash, if managed correctly, can create an early retirement.
If you earn a high income, you have the ability to cover your necessities and save a large percentage of your income for retirement. Save a large enough percentage of income for 10-20 years (like 50% or more of your after-tax income) and you might find yourself in a good position to scale back or even call it quits in your 40’s or 50’s.
If you have kids though, it will be very difficult. Not impossible though. But difficult. Listen to Physician on FIRE talk about how he retired from medicine at 43 with two children in our podcast episode On FIRE with Physician on FIRE.
How Much do Children Cost?
For those fortunate enough, making a child doesn’t really cost anything. Some people who aren’t able to have children naturally end up spending tens of thousands or even upwards of $100,000 just to have a child. Then there is the cost of raising a child.
For a middle-income family, the cost to raise a child from age 0-18 who was born in 2015 will cost an average of $233,610 (in 2015 dollars). Families who earn over $107,000/year can expect to spend $372,210. Due to inflation since 2015, you can probably round up to $250k for a median family or $400k+ for higher income earners. That is per child. Most people who choose to have kids have two or three children on average. You can read the full report by the US Department of Agriculture here.
Since the people who plan to retire early are likely high-income earners, if they have two children, we can expect them to spend about $800k or upwards of $1,000,000 just to get the kids through high school!
If you plan to help pay for your kids to go to college, prepare to spend considerably more. Pray that your kids are very smart or extremely athletic so they can get scholarships. The average cost to attend an in-state public university (tuition, housing, food, supplies, etc.) is about thirty thousand dollars per year. The average cost for a private school is over $70k per year. Some are pushing $80k/year. Simply Google “cost of attendance” of your favorite school to see what the current price tag is. Those costs are expected to continue rising into the future. If your kids are born today, expect the college costs to double by the time your children get to college.
And no, your kids likely won’t be receiving financial aid if you earn a high income or have a decent amount of assets.
So, let’s say you have two children. It will cost $800k or more to get them through high school. Let’s pretend one goes to the state school and one goes to a private school and neither get scholarships. You’ll spend another $400k, give or take, in today dollars on undergraduate education (assuming they graduate in four years). We won’t even talk about graduate school at this point.
We’re in over a million dollars so far. That’s a lot of money you could have saved for retirement. And this assumes your children are self-sufficient once they graduate college. Nearly 75% of parents provide some financial assistance to their adult children.
Having kids is a double whammy on your finances. You end up spending more and saving less and therefore working longer than couples (or singles) without children.
Income. Couples without kids often have the ability to earn more income than their parental counterparts. Once kids arrive, one spouse usually will scale back his or her workload or even quit working completely. Dual income earners without children can keep plowing forward full steam ahead in their careers.
Childcare expenses. If both spouses continue to work, you will likely need to pay for daycare or a nanny, unless you have able and willing relatives that live nearby.
Housing. Without kids, you need one bedroom. Maybe a two-bedroom home if you want a guest room or a home office. When children arrive, you will probably seek larger living quarters. Also, you will likely look for homes in areas with good school districts, which means higher property taxes. Or you may plan to pay for private elementary school, which could be upwards of $40,000/year per child from K-12.
Transportation. You’ll need a bigger car. You will spend more money on gas schlepping your kids to and from their activities.
Food. One or two mouths cost less to feed than three or four (or more). You’ll barely be able to afford groceries with teenage boys.
Vacations. You need to purchase more plane tickets and a larger hotel room or vacation rental. Also, kids don’t get in free to Disneyland, so you have to pay admission for the entire family. Don’t forget souvenirs. Oh, and you will be limited to traveling during spring break, winter break, and summer break when the airlines, hotels, cruises, etc. jack up prices because they know that’s when everyone wants to travel.
Clothing. Kids grow fast. You will constantly be buying new clothes, because they grow out of the old outfits.
Activities. You have to pay for your kids to play soccer and basketball and take piano lessons and swim lessons and whatever else you want your kids to do. Don’t forget SAT prep courses and those private tutors to help advance your child’s learning so he can get ahead of his peers and get into the best colleges.
Healthcare. Some employers provide health insurance for free to employees, but employees often have to pay for additional family members. The cost could be an additional couple hundred dollars, or even upwards of $1,000 per month. There is also an insurance deductible for each person.
Gifts. Your kids will have birthdays. So will their friends. Your kids will want you to throw them birthday parties. “Jimmy had a bounce house and a magician at his birthday party! Can I have that at mine???? Pleeeeeeaaaaaasssssseeee?!?!?!?!” That is a nice segue into the next bullet point…
Keeping up with the Jones’s. You can’t be that parent that deprives your children of all the things his friends have. You don’t want to spoil your kids, but if everyone else at school has a Gameboy (or whatever kids play with these days), you’ll probably end up getting one for your kid too. In fairness, this effect also applies to childless people.
I could go on rattling off areas where kids cost you money, but you get the idea. Unless you earn a great income and are very disciplined with your spending and saving strategies, odds are early retirement isn’t in the cards.
My dad retired at age 66 and he often tells me and my brothers that if it wasn’t for us, he would have been retired by 55.
And if it wasn’t for us, he and my mom won’t have anyone to care for them in their old age! Heyo! See, having kids isn’t all bad. Everything comes full circle.
You put in a good effort to raise your children to hopefully turn into exemplary human beings and contributing members of society. Yeah, it might cost you a little bit in the form of money and gray hair and delay your retirement, but hopefully the reward is worth the expense.
Like I wrote in the beginning – we need children to continue surviving as a species. And for those of us that choose to have children, we probably aren’t retiring in our 40’s and jet-setting around the world. And that is perfectly OK.
To hear more on this subject checkout or watch below our Financial Clairty for Doctors podcast titled, Kids Are Exspensive!