The average cost of raising a child to the age of eighteen in America is $230,000, Business Insider Reports. With this figure being higher now than ever before, it’s often assumed early retirement (at age fifty five or earlier) is out of the question for parents. But, even with the extra responsibility of children, the dream of early retirement can still be made a reality for parents. You’ll need to be prepared to create a carefully considered plan for your money and make sacrifices that will pay off in the long run.
Live below your means
Living below your means will free up your money to invest in your retirement account. Use the popular 50/30/20 budgeting method to divide purchases into categories of needs, wants, savings, and debt repayment. This will empower you to plan financial decisions for each month in advance. Be careful not to overspend on food, toys, and clothes. Teach your children to value experiences over things — and don’t be afraid of saying no when necessary. Explain to your children the importance of saving money, which is an important financial lesson. When they’re old enough, teach your children how to earn their own money, so they can buy things they want without making a dent in your retirement savings.
Live on one income
46% of households with male/female married couples are dual-income, with both parents working full-time, the Pew Research Center reports. But, if your family can live off a single salary, you’ll be able to boost your early retirement fund. Even if you can only live off one salary for just a year, it can help drastically. For example, if you can afford to pay $18,000 into your 401(k) at thirty years old and make a typical annual return of roughly 8%, you’ll end up with a total of $266,000 by the time you’re 65.
Plan for tuition fees
College education is undoubtedly expensive — it’s currently $34,740 per year for private colleges and $9,970 for state residents at public colleges. If you have a long way before your children are college age, invest in a 529 plan — otherwise termed a “qualified tuition plan”. 529 plans are specifically for college savings and aren’t taxed upon withdrawal as long as they’re used for education expenses (tuition, fees, books, and rent). You’ll give your child a great head start if you’re able to invest $50,000 into the account upon their birth. You may also be able to qualify for a 401(k) hardship withdrawal to cover tuition. Alternatively, your children can apply for financial aid or attend community college for a few years to minimize costs.
Many retirees continue to work part time to generate side income. If you or your spouse have a hobby you can monetize, turning it into a side hustle can be an enjoyable and financially rewarding way to spend retirement. While working towards early retirement can be trickier with children, it’s nothing hard work, preparation, and diligent saving can’t achieve.