Is $4.5 million enough to retire when living in an expensive city with two young kids?

Do you have enough money to retire? That depends on your net worth, spending habits, and where you live. While you can estimate if you have enough money to retire, you can also turn to others for advice.

That’s exactly what a 35-year-old Redditor did. He posted in the Chubby FIRE subreddit and shared his financials. He’s married to a 36-year-old wife, and they have two young kids. The couple has a $4.2 million net worth and lives in a VHCOL area. The couple currently spends $160,000 per year and has an annual household income of $500,000.

The couple projects having a $4.5 million net worth and then aims to retire at the end of the year. They intend to rent in an HCOL city with good public schools and rent out the current house for cash flow. I’ll share my thoughts, but it is good to speak with a financial advisor if you can.

The Net Worth Allocations Present a Challenge

While a $4.2 million net worth sounds good on paper, it’s still a little too early to retire. That’s because $1.2 million of the $4.2 million is tucked away in their retirement accounts. Another $800,000 is tied to real estate equity, and you shouldn’t be using HELOCs to fund your retirement, especially in your 30s.

The couple has $2.1 million in their investment account and another $100,000 in accessible cash. Their current living expenses are $160,000 per year, and they have to withdraw from $2.2 million to cover it. That comes to a 7% annual withdrawal rate, which is very risky. Ideally, you should have a withdrawal rate of 4% or lower.

Assuming the Redditor had a $4.2 million portfolio, it would be easier to retire. The 4% withdrawal rule comes to $168,000. While that’s slightly higher than the couple’s living expenses, they said they will move to a more affordable city. At this time, it doesn’t make sense to retire.

Kids Get More Expensive Over Time

As kids get older, they pursue hobbies, go through the education system, and get closer to college tuition. Expenses can creep up as your children grow, so the couple can end up spending more than $160,000 per year in the future. Combine that with gradual inflation, and their expenses can eat away at their retirement portfolio.

The couple can keep up with costs now, but they don’t want to get blindsided by finances right before the kids become young adults. It’s better to stay the course than it is to take unnecessary risks.

Can the Couple Reclaim Their Annual Household Income?

If the couple retires early, they are walking away from an annual household income of $500,000. That income is more than enough to cover their current expenses, and it makes it easier to live in a VHCOL area. 

The couple can still move to an HCOL area if they work remotely. However, that’s not a feasible option if both of them work in the city. It can also take a while for the couple to reclaim a $500,000 annual household income if both of them walk away from their jobs.

The couple is currently in their prime working years. Retiring early doesn’t make sense for them, and some commenters wondered if the couple would be bored out of their minds if they retired early. They have solid financials and have to stick it out for a little longer before it makes more sense to retire. They can definitely retire earlier than the average person.

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