Author Topic: Have we saved too much?  (Read 8298 times)

Bird In Hand

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Have we saved too much?
« on: May 19, 2017, 01:14:57 PM »
My wife and I are ~40, and have 3 kids.  When the mortgage is gone and kids are on their own, we estimate our expenses to be ~$45k/year, plus taxes (should be minimal) and health insurance (who knows?).

We enjoy our jobs, and had planned on sticking around in at least a part-time capacity, probably until ~55 or so -- partially because of benefits like 50% paid college tuition for our kids.  I was using FIRECalc to investigate some scenarios involving working part time, and it was eye-opening.

With current expenses, I can afford to switch to an 80% work schedule from now until the mortgage is paid off + the kids start graduating out of private school (we know this is un-Mustachian, and we're cool with it) in ~6 years, and then work 50%-60% after that until retiring fairly young.  FIRECalc gave me a 96% success rate of withdrawing $75k/year from age 50-90.  That's $30k more than our expected expenses, which is probably more than an adequate buffer to account for taxes and health insurance.

If we got into OMY syndrome and kept working 1/2 time all the way up to the ripe age of 55 (we'd be able to maximize the 50% tuition benefit this way, coincidentally), FIRECalc says we could withdraw $97k/year at a 96% success rate.

What struck we is that we may have saved too much already for our circumstances.  We're neither exactly trying to FIRE (unless you consider age 50-55 in your definition of RE) nor maximize wealth per se.  Our goal is to live a life that we are satisfied with, which includes working a bit less and spending a bit more time building awesome memories with each other and the kids.

It seems pretty dumb to just keep plugging away at full-time work when I don't need to. I'd appreciate any opinions and perspectives, especially from those who are considering a similar career-unwinding, or who have actually done it.
« Last Edit: May 19, 2017, 01:49:21 PM by Bird In Hand »

Bicycle_B

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Re: Have we saved too much?
« Reply #1 on: May 19, 2017, 01:56:53 PM »
Agreed!

The only problem I can imagine would be an unexpected job loss.  I experienced one several years ago and largely have floated job free since then, years before I planned to retire.  So I guess my cautionary note is that unexpected events can derail one's plans, making earlier retirement (full time work until fully reaching FI) a bit safer.  But I'm guessing from your relaxed and confident tone that the odds are heavily in your favor, while time with the kids is irreplaceable.  I say go for it!

trollwithamustache

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Re: Have we saved too much?
« Reply #2 on: May 19, 2017, 01:59:48 PM »
If you like your job, and you can go to 80% time, you maybe sufficiently happy that you don't need MMM :)

Bird In Hand

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Re: Have we saved too much?
« Reply #3 on: May 19, 2017, 02:22:44 PM »
The only problem I can imagine would be an unexpected job loss.  I experienced one several years ago and largely have floated job free since then, years before I planned to retire.  So I guess my cautionary note is that unexpected events can derail one's plans, making earlier retirement (full time work until fully reaching FI) a bit safer.

This is an excellent point.  In our case the jobs seem quite stable, and I think it would be relatively easy to find new work if we lost our jobs for some reason.  Of course there are other possibilities like an unexpected medical situation that could both decimate our earning potential and vastly increase our expenses.  Or an aging parent that needs living assistance.  I feel optimistic that we'll be able to roll with most punches and come out OK, even if it means working a bit longer than planned.

I didn't include this scenario in my first post, but FIRECalc says we can withdraw $41k starting today (and with no further retirement contributions) until age 90.  Getting our expenses down to $41k would involve yanking the kids out of their private school, eating much crappier food, and possibly moving to a cheaper house/area...but it could be done.

Bird In Hand

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Re: Have we saved too much?
« Reply #4 on: May 19, 2017, 02:29:10 PM »
If you like your job, and you can go to 80% time, you maybe sufficiently happy that you don't need MMM :)

Granted, we were already maxing out 401k's and living fairly frugally for many years, but MMM (and others) helped provide clarity (and inspiration) for many of our financial decisions over the last ~5 years.  Too bad his blog posts couldn't talk me off the private school ledge, otherwise we'd probably already be working 1/2 time in OMY mode.

Tyson

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Re: Have we saved too much?
« Reply #5 on: May 19, 2017, 04:51:09 PM »
So are you RE'ing as soon as the kids are out of college?  How many years from now is that?

Bird In Hand

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Re: Have we saved too much?
« Reply #6 on: May 19, 2017, 05:29:13 PM »
So are you RE'ing as soon as the kids are out of college?  How many years from now is that?

If we waited until our youngest is out of college it would be around 17 years.  We might instead choose to cash flow tuition with retirement withdrawals, or he might not go to college, or might get a scholarship, or he could pay/borrow his own way, or the tuition benefit could go away, etc.  We also have relatives who have indicated a desire to help with tuition when the time comes.  Basically we're not going to keep working _just_ for the tuition benefit, though it may factor into our decision on how long to keep working.
« Last Edit: May 19, 2017, 05:36:58 PM by Bird In Hand »

DavidAnnArbor

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Re: Have we saved too much?
« Reply #7 on: May 19, 2017, 06:04:25 PM »
I recommend separating out what you want to do for financial independence for yourselves from the financial obligations you want to make for your children. A boundary there is important because otherwise you end up creating this hazy sense of needing to keep working to pay for a very expensive private college for someone who might decide to become an art history major. I think that's a fine major, but it's a very expensive undertaking, and it doesn't make sense for parents to shoulder the entire burden. If it were me I would say, I'm willing to spend a certain amount of money for x number of years.

Private school could be ok. Are you living in an area with good public schools in which you're children would have been able to take Advanced Placement classes? And score high enough on their AP exams and place out of an entire semester's worth of intro level courses in college? I have to believe that must not be the case, and you don't really have a choice and the private schools are the only option to get the needed education.

Bird In Hand

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Re: Have we saved too much?
« Reply #8 on: May 19, 2017, 06:33:51 PM »
I recommend separating out what you want to do for financial independence for yourselves from the financial obligations you want to make for your children.

Yes, I agree completely.  We are willing to help out with tuition, but there will be a limit.  We've talked about things like putting up 1/2 the amount of whatever the in-state public University is at the time, and the rest would have to come from our kids working, getting scholarships, or taking loans.  We'll also consider community college for the first year or two to save on tuition.

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Are you living in an area with good public schools in which you're children would have been able to take Advanced Placement classes?

Public schools aren't bad around here.  The elementary/middle school options aren't too thrilling, but the high schools are very good.  The problem is we found an amazing, relatively affordable private school.  We sent our oldest there for preschool (it was cheaper than daycare), and we fell in love with it.  We've considered moving the kids to the public school from time to time, but we just couldn't do it.  Other than groceries, the private school tuition is our only extravagance.

But, the school only goes through 8th grade, so they'll be at the public HS after that.  They have AP classes and we expect our kids will get some college credit that way.  They can also take a limited number of free college classes over the summer as juniors and seniors through the state community college system, so we'll encourage that option if it makes sense.

DavidAnnArbor

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Re: Have we saved too much?
« Reply #9 on: May 19, 2017, 07:04:41 PM »
Ok cool then it sounds like you have everything covered. Stay with the job as long as you want, but when you start getting to be 50 years old your energy starts to go down some.

DavidAnnArbor

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Re: Have we saved too much?
« Reply #10 on: May 19, 2017, 07:08:01 PM »
Here's an article about an Ann Arbor high school student, who is attending public school, but now she has her entire college experience paid for because of a Coolidge scholarship.

http://www.clickondetroit.com/news/michigan/ann-arbor/ann-arbor-high-schooler-wins-scholarship-covering-all-costs-to-any-us-college

bb11

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Re: Have we saved too much?
« Reply #11 on: May 19, 2017, 08:18:15 PM »
If there's too much money around I don't mind taking some off your hands. ;)

What about going 50% now rather than later? Or fully retiring earlier?

With all due respect, if you can withdraw ~$100k per year safely, I don't think you should work another decade because it pays for 50% of your kids' college tuition. Not sure which state you are in, but there are many great state universities that are only about $10-12k per year for tuition. So really, that benefit is worth maybe $72,000 ($6,000 per year * 4 years * 3 kids). It's a decent chunk of money, but not something I'd work a decade for. Your kids also could acquire scholarships or pay some of the cost themselves, making the benefit even less valuable than that. The cost of college is only really outrageous for private/OOS schools.

Bird In Hand

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Re: Have we saved too much?
« Reply #12 on: May 19, 2017, 08:55:52 PM »
What about going 50% now rather than later? Or fully retiring earlier?

Can't afford 50% until mortgage is gone and at least one kid is out of private school.

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With all due respect, if you can withdraw ~$100k per year safely, I don't think you should work another decade because it pays for 50% of your kids' college tuition.

Good point about considering the actual cash value of the tuition benefit.  Though a $100k withdrawal rate isn't likely for another ~14 years, at which point my older two would already be through college.  Today our safe withdrawal rate is ~$41k.

Villanelle

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Re: Have we saved too much?
« Reply #13 on: May 19, 2017, 09:04:11 PM »
I'd likely drop to 80& today, if that's a possibility and doesn't meaningfully increase the chance of job loss in any way.

For the kids, I'd also start setting the expectations for college now.  (Depending on the ages, it might be a bit early, but perhaps not.)  Do you intend to pay all tuition?  Is that only for an in-state school?  Only for the school at which you work?  What about room and board? 

It seems like you could take advantage of the reduced tuition that comes with your job for some kids, and not all, and yet you could easily make it equal by paying out of pocket.  If 1 or 2 kids do some or all of their college while you are still working, great!  But for the last kid, or part of the time for the 2nd kid, or whatever, you can simply pay out of pocket for the same arrangement, whatever that is.  If you supplied 50% of the tuition at one specific university for the first kid, you can do that for all the kids, even if some of it came from your employer's benefits and some comes from your bank account.

Bird In Hand

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Re: Have we saved too much?
« Reply #14 on: May 19, 2017, 09:37:48 PM »
I'd likely drop to 80& today, if that's a possibility and doesn't meaningfully increase the chance of job loss in any way.

There is a chance that my management won't be too excited with my part time idea.  A few others at work have done (and continue to do) something similar, so at least there's some precedent.  And my employer is generally flexible and sensitive to work/life balance...but I won't know for sure until I ask!

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For the kids, I'd also start setting the expectations for college now.  (Depending on the ages, it might be a bit early, but perhaps not.)  Do you intend to pay all tuition?  Is that only for an in-state school?  Only for the school at which you work?  What about room and board? 

These are exactly the sort of things my wife and I need to figure out and eventually communicate to the kids.  For my part, I feel strongly that the kids should have some skin in the game.  I'm also in favor of some defined limit on our contributions, such as half the in-state tuition at the state university.

bb11

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Re: Have we saved too much?
« Reply #15 on: May 20, 2017, 12:43:23 PM »
I'd likely drop to 80& today, if that's a possibility and doesn't meaningfully increase the chance of job loss in any way.

There is a chance that my management won't be too excited with my part time idea.  A few others at work have done (and continue to do) something similar, so at least there's some precedent.  And my employer is generally flexible and sensitive to work/life balance...but I won't know for sure until I ask!

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For the kids, I'd also start setting the expectations for college now.  (Depending on the ages, it might be a bit early, but perhaps not.)  Do you intend to pay all tuition?  Is that only for an in-state school?  Only for the school at which you work?  What about room and board? 

These are exactly the sort of things my wife and I need to figure out and eventually communicate to the kids.  For my part, I feel strongly that the kids should have some skin in the game.  I'm also in favor of some defined limit on our contributions, such as half the in-state tuition at the state university.

This sounds like a smart and fair college plan to me. If I have kids, I would also want them to have skin in the game, for several reasons. I think it helps to promote responsibility and leads to better choices.

Bird In Hand

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Re: Have we saved too much?
« Reply #16 on: May 20, 2017, 04:02:36 PM »
Another thing...due to tax code quirks, on an 80% work schedule we'd "get back" close to 40% of the lost salary in the form of Fed + FICA taxes that I'd no longer be paying.  The reason that percentage is so high is that we'd fully qualify for some of the deductions that are partially phased out at our current income level.

A couple fun ways to look at this:

  • It's taking every Friday off, but still getting paid for 2 out of every 5 of those Fridays
  • It's getting 20 additional Fridays off -- four free weeks of vacation -- per year
  • It's buying 10+ additional weeks of vacation per year at a 40% discount.
« Last Edit: May 20, 2017, 07:12:18 PM by Bird In Hand »

Bird In Hand

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This chart explains my OMY syndrome
« Reply #17 on: June 02, 2017, 08:57:52 AM »


It's clearly possible to live on a little over $40k, so in theory we could sell our house, move to a LCOL area, and never work another day in our lives.  Retired at 40!  But every time I look at the chart above, the ever-increasing safe withdrawal amount is extremely seductive.  The allure of a $100k/year withdrawal makes it so easy to justify continuing to work until ~55.  If only I hated my job, FIRE would be so much easier!  :D

Tyson

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Re: Have we saved too much?
« Reply #18 on: June 02, 2017, 10:16:32 AM »
If it brings you peace of mind, then do the extra 5 years.  Especially if you get the 3 day weekend thing going. 

Bird In Hand

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Re: Have we saved too much?
« Reply #19 on: June 02, 2017, 11:07:34 AM »
If it brings you peace of mind, then do the extra 5 years.  Especially if you get the 3 day weekend thing going.

I'm all for working a bit longer than necessary for peace of mind.  At the same time I'm wary of the OMY trap.  Though maybe working part time (OMPTY?) would reduce the sting of regret if I end up working substantially longer than I needed to.

Tyson

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Re: Have we saved too much?
« Reply #20 on: June 02, 2017, 12:09:21 PM »
Well there's also no point in being retired if you're constantly stressed you're going to run out of money.  You have to decide if the extra time working will address that, or not.

KungfuRabbit

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Re: Have we saved too much?
« Reply #21 on: June 05, 2017, 02:44:54 PM »
So let me get this straight.

You could retire right now, but instead you are working 17 more years so you can save on college?

you could also extend that graph until a more normal 65 years old, or a non unheard of 75 years old, and then your safe withdraw rate assuming you live until 90 is like $500,000 per year!!

You need to decide what matters to you - money or free time. We can only help with math.

Bird In Hand

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Re: Have we saved too much?
« Reply #22 on: June 06, 2017, 10:38:49 AM »
You need to decide what matters to you - money or free time. We can only help with math.

Well, I definitely don't need help with the math, which is pretty straightforward.  But I do appreciate it when people look at my situation and say "Yeah, I've been there/done that, and here's something you should be aware of."  Or, "We're in the same boat, and have you considered X/Y/Z?"  Or, "I'm not in that situation, but here's what I think I might do in your case."

Your point about balancing money / free time is well taken, and it's something I'm (obviously) carefully considering.

 

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