Kids are Dynamite for Your Early Retirement Plans
The author goes by the moniker Vagabond MD. You may recall the name from a previous guest post he wrote for us: Top 5 Reasons This Physician Holds $500,000 in Cash.
Read on to find out why the good doctor feels kids can be dynamite for your early retirement plans. Hint: it’s a double entendre.
So, Vagabond MD, let’s hear your take on having kids while playing with FIRE.
Kids are Dynamite for Your Early Retirement Plans
Whenever I ponder the annual expenses required to cover the impending not-so-early-as-some-but-early-for-me retirement for my wife and myself, I always get stuck at the kids. We have two teens, one starting college in the fall and the other a current ninth grader.
I have no doubt that we could live a comfortable life in retirement from our jobs, perhaps supplemented with some easy consulting gigs, locums or seasonal work EXCEPT that I have no idea much of our resources to expect to allocate to the kids in the future.
There are lots of potential variables in this equation, not the least of which is whether you, as the parent, feel an obligation to provide ongoing support beyond the age of majority (and to what extent).
If you have no kids (and do not expect them), much of this discussion will not apply to you. Beware, however, that your aging parents might draw on your largess, so you might not be completely out of the woods. That said, it’s your kids that are more like to blow up those early retirement plans.
Many prospective early retirees underestimate the financial implications of having and raising children and the potential ongoing nature of that commitment. While there are the obvious known significant expenses to plan (food, clothing, car seats, and college), the unknown expenses are what give me pause. Unknowns can be good stuff like lessons and training for elite young athletes, scholars, and artists and bad stuff like illness, disability, and accidents.
The Expenses Start Before You Bring the First One Home
Before the first cry or dirty diaper, the cost of even creating children might be something that is unexpected. For many couples, all it takes is a free weekend and a bottle of “three buck chuck”. However, as professional folks like physicians often put off child-bearing until the career is on firm ground, they might find that the simple biology of reproduction may not be in their favor.
With increasing maternal age, pregnancy certainly becomes more challenging, and the older dad could also be firing blanks, too. Infertility treatment and adoption can be very expensive from tens of thousands of dollars up, including the extreme example of adoptions that can cost $75,000 or more.
Once you get your little bundle(s) of joy — you see that, I just made you aware of the possibility of multiples (twins, triplets,…gulp), which multiply the expense — home and in good health, there is an obvious need to care for the young master/mistress while the physician parent is slaving at the office or hospital.
There is a good chance that you or your partner will need to cut back on work or leave the workplace entirely OR you will need day care or a nanny, either having significant impact on your household’s bottom line. I read recently that nannies in San Francisco are commanding over $50,000/year (and $35,000/year is not unusual in more moderate cities)! Before you pay for the first Amazon diaper delivery, there is a good chance that the wheels are coming off the once lofty financial projections and dreams of early retirement.
It Gets… Better?
Many children have special talents, and as proud and supportive parents, you will undoubtedly them to reach their potentials. I have a spine surgeon friend whose daughter is a cello prodigy, and he takes her to a master cellist in The Big City five hours away, at least monthly, to further develop her mad skills.
Physicians’ children are well represented in private independent and parochial schools throughout the nation. Some students thrive in a smaller classroom and a more focused environment. Despite intentionally living in the best school district in the state, our son never set foot in the neighborhood public school due to a mild learning disorder that relegated him to a smaller, more focused environment, a private school where he flourished.
Some young geniuses quickly outgrow the educational opportunities of their public schools and end up in private schools or nearby colleges for additional enrichment. Sadly, some people live in districts where the schools just are not very good. For any of these reasons and more, K-12 could end up costing more than college!
As your child grows, so will the financial outlay. Toys, clothes, activities, and entertainment seem to cost more with age. Smaller kids, smaller expenses; bigger kids, bigger expenses.
Cars, College, and Careers
When your child turns 16, you will be on a collision course with a big expense: driving (by this time, you will likely be exhausted from all of the driving you have done and may be thrilled). Cars and insurance are quite pricey.
In my case, I do not mind driving a beater, but I want my children to have a more recent model year car that has the modern safety features. Yes, Junior’s car is more expensive than mine. And adding Junior to the insurance plan could easily triple or more what you and your spouse were paying.
Which takes us to college. Everyone talks about how expensive it is. When my kids were young, I remember hearing the older docs (who were middle age, but I did not realize this at the time) complaining about spending $35,000/year for their kids to attend college. Holy cow, that’s a lot, I thought.
Well, now it’s more like $65,000+ for private colleges and even out-of-state public schools are north of $40,000. You are fortunate if you live in a state with great state schools, have children that learn well in any environment, or have kids that can attract significant scholarship money. For the rest of us, $250k or more for college is hardly unrealistic.
You might be exhausted and depressed by now, but your dear child is now 21, college educated, and a responsible adult. A somewhat delayed early retirement is imminent. But put away the champagne glasses because there is more…
Failure to Launch
What if your child needs a couple more years to finish college? And then graduate school? What if your child cannot get a job in the chosen field after college? What if your child is now living in your basement? A bout of depression or anorexia? An accident? A bad marriage? You really think that you are not going to help your struggling child get a foothold? Or even with happier expenses like a wedding, engagement ring, or a down payment for a home?
I am surrounded by mid-to-late career professionals supporting their adult children, from smaller expenses like the cellphone (they will never leave your family cellphone plan without kicking and screaming), ski trips, dental reconstruction, room and board, and jobs in your office. Some expenses are luxuries, while some are necessities. Either way, a lot of these youngsters seem to need parental financial help well into adulthood.
Wait… Kids Can Have Kids?!?
At long last, your children are launched, have jobs, and families, and you are in the clear, retirement here we come… but…not so fast! Your child might have children [PoF: I hope not!] (they are called “grandchildren”), and there is a penchant for grandparents to be even more indulging of these grandchildren.
Help with babysitting, family dinners and vacations, saving or paying for college, travel for visits, and everything discussed above with respect to your own children are all back on the table for the next generation. My own grandfather chipped in the last $10k of my medical school tuition.
Your children will likely bring you great joy, and that joy will be accompanied by substantial expense. The children of physicians typically garner considerably more financial resources for their upbringing than the average. The earlier you are in the journey with your children, the more ill equipped you are to anticipate future expenses for the children, and this should figure into your early retirement plans and projections.
Over time, as your child approaches adulthood, the uncertainty fades, but never completely goes away. Early retiring MDs (or other professionals) should be cautious about underestimating the financial requirement for their children, as these expenses are likely to be greater than you might think.
I have yet to have a fellow parent tell me that raising a child was less expensive than he or she expected, but countless parents have confided that their children were considerably more costly than anticipated. Some of these expenses are optional, for sure, especially those that go beyond food, clothing, shelter, and adulthood. Nonetheless, physician parents, as I have observed, have a tendency to be go above and beyond what is required…by a wide margin.
Choices Play a Huge Role in the Cost of Raising Children
[PoF: The more uncertainties in your future, the less concrete your FIRE plans can be. Kids certainly represent a vast unknown in terms of future economic liability so to speak, but in many cases, you have at least some control over those costs.
Certainly, people of lesser means than the FIRE minded folks have managed to successfully raise children in this society without going bankrupt in the process. Yes, there is a cost to raising every child, but if you simply acquiesce to the fact that USA Today says each of them will cost a high-income household $372,210 and accept it as fate, you’re doing it wrong.
We all want “the best” for our kids. For some, that means competitive pre-K, 13 years of private schools, travel teams in two or three sports, summer camps aplenty, and tens of thousands of dollars worth of instruments and lessons from masters of music.
I’m not arguing those are bad choices — for some kids and families, some or all of those expenditures can be great options. We’ve spent thousands on digital pianos and lessons, and our kids are just six and eight years old. But we made that choice and recognize it for what it is. A choice.
Other expenses are non-optional. Special needs. Surgeries. That bili blanket under our second-born. I recognize that despite your best intentions, some added expenses are unavoidable.
But when you look at the breakdown of the nearly four hundred thousand dollars per kid in the purported cost to raise one, you realize that many of those costs are optional. The additional cost of housing is factored in, and most of the line items assume you’re paying full retail for everything under the sun they might need.
When it comes to adult children (an oxymoron, but if the shoe fits…), beware of Economic Outpatient Care. You just might do your manchild (or womanchild) more harm than good.
I do agree that kids can be dynamite for your early retirement plans, but I mean it in the most positive way. We’re supposed to retire to something. What better to retire to than to be a bigger part of your children’s lives before they’re grown and gone?]
To read more from the prolific guest author, Vagabond MD, see all of his articles:
What do you think about retiring early with kids? Are they a deterrent? Or a motivating factor? Are you concerned about unexpected expenses interfering with your financial goals?