Daycare- the biggest obstacle to (early) retirement

by Government Worker FI | Last Updated: March 5, 2019

If you’ve seen our monthly expense report, you know that we pay a lot of money for daycare each month.  Unfortunately, our monthly numbers we’ve blogged about so far actually underestimate our yearly childcare costs.  (Summer care for the two school age children is about a third of our total yearly costs.). Today I wanted to write about how daycare is an obstacle to retirement for most families and an obstacle for early retirement for us*.

I hope to illustrate in this post why daycare has such a high opportunity cost.  Biology dictates that we have children early in our adult life**.  This is exactly the time when our money has the most time to grow and compound.  People who choose to procreate then faced with a difficult choice between leaving their career behind or paying an exorbitant amount of money to find someone to care for their children.

This post details *our* childcare expenses.

Whether or not to have children is an extremely personal decision.  I’m not trying to advocate for having kids, nor am I saying that DINKS*** have an easier path to FI.  I do find it striking that some of the most famous FI bloggers like MMM and the Frugalwoods have waited until after they were FI to have children.  I would have really liked reading about other families in a similar situation to ours.

We have three kids, which I feel is in 2019 is the ultimate wealth status symbol.  While we have spent very little money feeding, clothing, and bathing our kids, we have spent a small fortune paying someone to watch them while we worked.  Moreover, I also want to explicitly state that

How much have we paid for daycare

While I knew we paid a lot for daycare, I never really fully comprehended how much we had spent on daycare.  I reality, I was burying my head in the sand to avoid thinking about the true cost of childcare.  To create this post, I dug through our tax returns for the past decade.  These numbers are real and fact-checked.

Daycare costs as a function of age. Daycare is the biggest obstacle to early retirement.
Amount of money we spent on daycare as a function of my age. The blue line assumes we had instead invested that same amount of money in low-cost index funds returning 7% per year.

Kid1 was born when I was 25 years old, but we didn’t have any childcare expenses to report until the year I turned 26 as she was born around Thanksgiving and my wife had 6 weeks off. (Our lives would have been much different if we had the current parental leave for federal employees policy)  That year we spent only $7,900 on daycare—which today seems like such a bargain.  Unfortunately, it was a huge portion of our taxable income that year.  This past year we spent $22,580 on childcare, for a lifetime total of $162,870.  That’s a big number—especially when you consider that we were lucky enough to have free childcare 1-day per week during this period.

That amount includes only the money we’ve spent on daycare.  However, if you assume that we could have invested the daycare money in a low cost index fund averaging 7% per year, we’d be $218,000 richer if we didn’t have childcare.

How much has daycare actually cost

While our childcare costs will be tapering off as Kid3 goes to kindergarten in 2021, the opportunity cost of having kids will keep getting bigger.  Just for reference, I projected our expected childcare costs (and corresponding opportunity costs) until we reach a typical retirement age of 62.  By that time, the money we had spent on daycare could have been worth $1.6 million dollars.  DEAR GOD THAT IS A LOT OF MONEY. 

projected lifetime daycare costs.  Daycare is a huge obstacle to retirement.

Lifetime opportunity cost of paying for daycare. The blue line assumes we had instead invested that same amount of money in low-cost index funds returning 7% per year.

I’ve written before that we have had multiple advantages that have given us a head start on our finances.  We have a combined household income that is about 3 times our city’s median household income.  My parents were nice enough to provide 1 day of free childcare per week.  While it’d be nice to have an extra $1.6 million dollars in retirement if we didn’t have daycare, we’ll be able to survive just fine.  For us, daycare is an obstacle for early retirement; it’s not taking food out of our mouths.  Many families aren’t that lucky.

Why daycare is an even bigger obstacle to retirement than I’ve presented so far-

What’s even worse about our daycare expenses is that they are paid for with AFTER TAX DOLLARS***!  While you can deduct interest you pay on your (optional) home loan , you can’t deduct the (necessary) cost of caring for your children.  Let’s look at money you spend that you can deduct (i.e. not pay taxes on):

So the government thinks that money you spend on those things shouldn’t count as earned income you get taxed on.  But daycare is clearly an extravagance and the money you pay on that should be fully taxed?!?

Daycare is still worth every penny

Sometimes parenting can be a soul-sucking nightmare. I love my kids. They are well behaved. We get complimented all the time about what a “nice family” we have . That all feels like a fancy veneer or a candy-coating over the chaos that is a family of five. There are many times I feel trapped in the house with “little emperors”. They run around, make insane demands, and then hurt themselves or others when I say “no”. 

As much as I want to be a super kind, compassionate Dad, often parenting makes me retreat into a protective shell when I’m around the kids. There is no value-transfer taking place. It is simply me just emotionally sheltering myself.

There are many times I feel trapped in the house with ‘little emperors’. They run around, make insane demands, and then hurt themselves or others when I say “no”

Daycare makes me a better parent

Ironically, daycare makes me a better parent. While I’m sure whoever said, “absence makes the heart grow fonder” was writing about romantic love, it’s also true for fatherly love. I can’t think about how many times I’ve remarked to my wife that, “we have good kids… when they are asleep”. It’s a similar story while I’m at work. When I’m outside of the pressure-cooker that is parenting, I’m able to reflect on all of the reasons I love my kids. That in turn makes me want to put more energy into our relationship when I am with them.

Daycare is an investment in their education

Kids learn a lot between the ages of 1-5. They learn how to walk, run, climb, and ride bicycles. My daughters grew from barely speaking three words to talking in complete paragraphs during that time. In fact, kids probably learn more between the ages of 1-5 than they do from kindergarten through high school. 

Daycare teachers are trained to deal with tiny sociopaths. Most parents are not.

Daycare is worth every penny because it is an investment in their education. Could I teach my children basic self-care skills? Sure. I could. But I don’t have any training in doing so. And given my frenetic life as a parent, I don’t prioritize teaching self-care to my kids. It’s hard to calmly teach proper social etiquette when one of your kids is hitting your other kid with the toy she just stole. Daycare teachers are trained to deal with tiny sociopaths. Most parents are not. 

Daycare teachers are trained to deal with tiny sociopaths. Most parents are not.

Summary-daycare is an obstacle to retirement:

Daycare is really freaking expensive in the USA.  As such, daycare presents a huge obstacle for early retirement (or any retirement at all for that matter). Not only do we not subsidize childcare in the US, but in fact, we force people to use after-tax dollars to pay for it. 


*In the USA.  Contrast this article with France for example.  I went to work less than 24 hours after my first daughter was born- a fact that truly sickens my European friends.

**Kind of.  With the miracles of modern medicine lots of crazy stuff is possible. 

***DINKS=Double Income No Kids.  What I dream about when listening to “Baby Shark” for the 10th time in a row.

****You can avoid paying taxes on the first $5,000 through using a dependent care savings account.  But that is weak sauce.  I spent $22k on childcare last year.  Find me a two income household where they’re only spending $5k on childcare.