Question “Do kids knacker this?”

The short answer is no, kids do not knacker this, but they do make it more challenging! I think what is being asked is do kids change the spreadsheet or the maths behind early retirement. They don’t change the maths but they do change the inputs.

The 4% rule still stands and you still use it to work out the retirement pot you will need. This may be higher because of the cost of bringing up kids but depends on if you want to retire before they are fully formed adults! The way to calculate the retirement pot you need is to take your annual expenses and multiply them by 25.

According to research from the University of Loughborough the average couple spends £768 a month or £9220 a year to bring up one child for the first 18 years! This totals £166,000 spending in 18 years! That is going to change your inputs, i.e. the amount of money you spend each month.

It doesn’t change the basic equation which is expenses multiplied by 25. The maths says that if you need £9220 a year then you need a pot of £230,500 invested in broad based index funds to support that spending.

Kids (ie total number of people to support) change the spending and it depends if you want to retire whilst still supporting your children or not. If you are planning on retiring after your kids have grown up and you have stopped supporting them then your yearly spending “should” reduce so you will need less to retire on.

Bloggers such as Mr Money Mustache and Go Curry Cracker have kids and say that they don’t have to increase expenditure that much! This is beyond my area of expertise though!

In summary

If you have children it will probably mean you have to earn more money in your life time to support them than a couple without kids. This will absolutely affect your retirement date but it doesn’t change the 4% rule math at all.

If you are retiring after your children have flown the nest then you should calculate the amount of money you need based on your retirement spending levels which will reduce the size of the pot you need.

Take the annual amount you want to live on in retirement (after they have flown the nest) and then multiply it by 25. This will give you the size of the retirement pot you should aim for!

Having kids means you will probably spend more but it doesn’t change the fundamental maths behind early retirement. The equations stay the same.

Question “Would you say the worst case scenario would be you have to supplement your FIRE income with a small amount?”

Question “How future proof is the 4% rule, given it’s basis in historical origins given the political, social and economic fluidity and fluctuations we face?”

“…the historical record includes a few unprecented things; the postwar boom, opening up of new markets, and the big bang in the stock market in the 80s as finance became available. Plus the internet if you include the recent historical record. Nothing on the horizon will be as transformative as these, all of which skew the sequences the 4% is derived from…”

Do you think the world is improving or getting worse? Are you optimistic or pessemistic about our future?

This is where it becomes difficult because no one can predict the future and it is up to each individual to decide whether they are going to be optimistic about the future or live in fear of what is going to happen next!

I am very optimistic. I know the market will go up and down, I know there will be things that happen but I am positive that things will continue to improve. If world war three starts then we are all pretty screwed and none of this matters anyway.

The second comment seems to say that market returns are going to be lower in the future because we have invented everything already that has the power to transform our world. I disagree with this one.

The rate of invention, development and change is increasing and we are on the verge of some amazing new technology like artificial intelligence that is going to change the way we do things in the future. I think this is such an exciting time and I am pumped to see what happens next and what the world invents and creates. We have big data changing the way we look at things, artificial intelligence has the power to change everything, 3D printing changing the way we manufacture, blockchain technology could change finances, virtual reality and self-driving cars! There are incredible technologies coming that have the power to transform our world. This is going to create opportunities and change on a massive scale. I am an optimist and think things are going to keep improving.

Can we predict the future? No!

You have to decide if you are optimistic about the future or pessimistic about the future for yourself.

I personally think the future is very bright and 4% is a conservative number. You will have to make up your own mind. There will always be a scare story available to make you think otherwise (that’s how you sell newspapers and get people to watch the television!)

In October 2020 the guy who came up with the 4% rule wrote an article arguing that it should be higher; maybe even 5%. If you’re interested, you can read that article here.

Question “Would be interested in the 4% from a UK perspective, so how to max state pension vs 4% … is there even going to be a state pension?”

There are many questions around the state pension in the UK and will it still exist by the time we get there to claim it?

I have a simple answer. I am NEVER going to rely on the government to look after me. I am going to look after myself.

I don’t trust the state pension will still be available when I retire. It will be many years before I can claim the state pension (not until 2046) and I have no idea how the British government is going to be doing or what will be happening in the world! If it is available then it will be a nice bonus. If not then I will not be relying on it.

My plan is to base my finances on my own investments and I have not included any state pension in my figures at all. It is too far out to predict so I am choosing to look after myself and I will re-evaluate NI (National Insurance) top ups as I get nearer the time.

One last thought on the state pension is that most voters are older and it is in their best interests to keep the state pension going. Whilst I am not planning on it being there I am pretty sue that any government proposals to remove it are going to be faced with strong voting opposition!

Question “We have a double run out of money issue we have to consider. It isn’t just how not to run out of money before you die, it is also how to get to pension age without being skint – you could easily reach an FI number, loading everything to your SIPP, but then you’ll be eating cat food until you can access it at 57.”

This is something that Katie and I have been considering and is actually the same the world over. If you invest money into retirement accounts that you can’t access until a certain age then you need to make sure you have enough money available before that date. This one can be worked out with a fairly simple spreadsheet.

I can not access my SIPP (Self-Invested Personal Pension) until 58 years old. So I have a gap from now until I reach the age where I can access my pension in 2036.

I need to make sure I have enough funds in other accounts to be able to cover me until then.

Katie and I developed a spreadsheet that charted out our net-worth over the coming years. We projected out till we are 100 years old and how much our money would grow over the years. We marked when we could access the different accounts and worked to make sure we had enough funds in the accessible accounts that we could access before pension age.

This is absolutely something you should consider and think about, but it is a fairly easy one to be able to chart in a spreadsheet and workout if you have enough to get through till traditional retirement!

Question “Does your article assume you will live till you die as a fit and healthy person? What financial adjustments of the 4% rule, if any, need to be made for assisted living/care home fees, etc?”

What about assisted living and home care fees in old age? Should you adjust for this? There are two ways I could take this question.

Firstly it could mean caring for your parents as they get older. This can be a concern and it depends on a lot of factors. The country you live in, your parents financial situation and more. This is a complex question and I think the first step to think through is “will you be expected to provide for your parents in old age?”. This then leads to the question how much to you think you need to provide for them?

If it is your parents you need to look after then I would be thinking about how much money I am going to have to earn to look after them.

Secondly it could mean how much should you save for your own costs of old age and this again comes down to which country you live in and the style of old age you want to live.

Some of the costs may be covered by government benefits and some might be born by the individuals. Assisted living in the UK currently costs between £500 – £1500 a week depending on the type. This is offset by the fact you wouldn’t be paying rent or bills and have many other costs. It seems to me (and I am mid-forties at the moment) that the money I have allocated for living on would shift to pay for the assisted living for myself and my wife when I come to it.

For us being so far out this is going to become clearer as we get closer to the age and monitor our net worth and annual income.

I think it is worth taking this into account as you plan how much you want to retire on. It doesn’t affect the underlying 4% rule and how it works at all but as with kids it may raise the amount you need on a yearly basis and therefore the overall size of the pot you need.

​I think this is a personal decision based on how you want to live in the future.

It’s a guideline not a rule

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