Author Topic: Am I aiming too low?  (Read 1999 times)

jsap819

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Am I aiming too low?
« on: May 31, 2018, 07:29:10 PM »
Hi, all! Glad I finally got the courage to post our situation here. We welcome any feedback. Here's a quick look at our finances:

Life Situation:

Me - 35
Wife - 36
1 child - 9 months
MFJ living in HCOL in CA

Income (monthly):

15k gross (10k from wife and 5k from me)
7k net (3k from wife and 4k from me)

Pre-tax deductions (monthly):

1.3k goes to 401k, HSA, Insurance, and Dental

Other income:

I have a side business that generates anywhere from $50-500 monthly but I don't tend to count it since this is very inconsistent.

Adjusted Gross:

123k as stated by 2017 income tax return

Taxes (monthly):

$1261 Federal
$589 State
$620 FICA

Expenses (monthly):

Core
Mortgage - $2890
Property Tax - $705
Homeowners - $60
Car Insurance - $120
Utilities (gas/electric/water/trash/internet) - $160
Groceries - $300
Car payment - $460 (16k left at 0%)
Car maintenance (gas/registration/oil change) - $150

Discretionary
Travel - $400 (includes airfare, car rental, hotel, food)
Restaurants - $200
Clothing/Shoes - $50
General Merchandise - $50
Home Improvement/repair - $20
Personal Care - $20
Gifts - $40
Donations - $40

Total - $5665

Assets:

401k - $106k
Roths - $81k
Taxable - $82.5k
CDs - $70k
Emergency Fund - $30k
Cash - $25k

Total - $394.5k

Liabilities:

Mortgage - $587k remaining 3.75% 30 year loan (year 3). Original amount was $623k
Car loan - $16k remaining 0% 4 year loan (year 1)


Our goal is for my wife to either quit or work part time in 5 years to be at home with our child. My income can cover the mortgage, property tax, insurances and utilities which totals close to $4k. Our plan is to save enough in 5 years so that a 4% withdrawal will cover the remaining expenses (about $18k). I don't plan to retire since I love my job and it is very flexible. I own my own business and even though I can increase my income, I'm not counting on this happening as part of my worst case scenario. Do you think it's feasible? Or am I too optimistic about this plan? Thank you in advance for all your input.

ysette9

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Re: Am I aiming too low?
« Reply #1 on: May 31, 2018, 09:16:12 PM »
How about you plan on you staying home and your wife continue to work? What you are proposing is voluntarily moving from a position of saving a comfortable amount to being paycheck-to-paycheck. What about the future?

MDM

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Re: Am I aiming too low?
« Reply #2 on: May 31, 2018, 11:04:15 PM »
15k gross (10k from wife and 5k from me)
7k net (3k from wife and 4k from me)
What do you mean by "gross" and "net" and why is there $7K difference for your wife but only $1K for you?

Quote
Adjusted Gross:
123k as stated by 2017 income tax return
Based on $180K/yr gross income, and $15.6K pre-tax deductions, this should be ~$164.4K...?

Dicey

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Re: Am I aiming too low?
« Reply #3 on: May 31, 2018, 11:19:39 PM »
PTF so I can admire your big, long, low interest rate mortgage while I await further details as requested above. Swoon!

jsap819

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Re: Am I aiming too low?
« Reply #4 on: June 01, 2018, 12:56:57 AM »
How about you plan on you staying home and your wife continue to work? What you are proposing is voluntarily moving from a position of saving a comfortable amount to being paycheck-to-paycheck. What about the future?

She really hates her job right now. Not so much the work, but the hours. She doesn't have a set schedule. She works every other weekend. Some weeks are early morning shifts (4am) and some are night shifts (5pm). Recently they were told they would have to work grave yard shifts 1 weekend per quarter. We've had conversations about finding another job with better hours or a part time position but as of right now there are no openings. She feels a little guilty always leaving me to care for the baby which is why we are in this current situation.

15k gross (10k from wife and 5k from me)
7k net (3k from wife and 4k from me)
What do you mean by "gross" and "net" and why is there $7K difference for your wife but only $1K for you?

Quote
Adjusted Gross:
123k as stated by 2017 income tax return
Based on $180K/yr gross income, and $15.6K pre-tax deductions, this should be ~$164.4K...?

In 2017, my wife only worked for 9 months due to her maternity leave. Hence, the low AGI. The large difference between her gross and net is because the 401k, insurances and HSA is through her income and not mine.

I'm guessing our plan doesn't seem to work long term for this scenario. I've only kept my income low enough to keep us from going above another tax bracket. So if our initial plan isn't feasible, I will raise my income considerably to cover all expenses and let our investments grow without anymore contributions.

MDM

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Re: Am I aiming too low?
« Reply #5 on: June 01, 2018, 01:21:26 AM »
In 2017, my wife only worked for 9 months due to her maternity leave. Hence, the low AGI. The large difference between her gross and net is because the 401k, insurances and HSA is through her income and not mine.
OK, that explains the AGI.  But $1.3K still differs much from $7K.  Typo?

Quote
I'm guessing our plan doesn't seem to work long term for this scenario. I've only kept my income low enough to keep us from going above another tax bracket. So if our initial plan isn't feasible, I will raise my income considerably to cover all expenses and let our investments grow without anymore contributions.
Note that only the income above a bracket boundary is taxed at the higher bracket rate.  Going above a bracket changes nothing about the amount of tax paid on the amount below that bracket.  From the quote here it seems that might not be clear.

It might be useful for you to put your numbers into the case study spreadsheet.  Use expected numbers for 2018 income and expenses (the program should calculate taxes for you).  See the two charts: the first showing marginal tax saving rates used in the Traditional versus Roth choice, and the second a very simplified "Time to FI" chart.

Dicey

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Re: Am I aiming too low?
« Reply #6 on: June 01, 2018, 09:26:47 AM »
In 2017, my wife only worked for 9 months due to her maternity leave. Hence, the low AGI. The large difference between her gross and net is because the 401k, insurances and HSA is through her income and not mine.
OK, that explains the AGI.  But $1.3K still differs much from $7K.  Typo?

Quote
I'm guessing our plan doesn't seem to work long term for this scenario. I've only kept my income low enough to keep us from going above another tax bracket. So if our initial plan isn't feasible, I will raise my income considerably to cover all expenses and let our investments grow without anymore contributions.
Note that only the income above a bracket boundary is taxed at the higher bracket rate.  Going above a bracket changes nothing about the amount of tax paid on the amount below that bracket.  From the quote here it seems that might not be clear.

It might be useful for you to put your numbers into the case study spreadsheet.  Use expected numbers for 2018 income and expenses (the program should calculate taxes for you).  See the two charts: the first showing marginal tax saving rates used in the Traditional versus Roth choice, and the second a very simplified "Time to FI" chart.
Thanks, MDM, you beat me to it and explained it better.

jsap819

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Re: Am I aiming too low?
« Reply #7 on: June 01, 2018, 01:26:22 PM »
In 2017, my wife only worked for 9 months due to her maternity leave. Hence, the low AGI. The large difference between her gross and net is because the 401k, insurances and HSA is through her income and not mine.
OK, that explains the AGI.  But $1.3K still differs much from $7K.  Typo?

Quote
I'm guessing our plan doesn't seem to work long term for this scenario. I've only kept my income low enough to keep us from going above another tax bracket. So if our initial plan isn't feasible, I will raise my income considerably to cover all expenses and let our investments grow without anymore contributions.
Note that only the income above a bracket boundary is taxed at the higher bracket rate.  Going above a bracket changes nothing about the amount of tax paid on the amount below that bracket.  From the quote here it seems that might not be clear.

It might be useful for you to put your numbers into the case study spreadsheet.  Use expected numbers for 2018 income and expenses (the program should calculate taxes for you).  See the two charts: the first showing marginal tax saving rates used in the Traditional versus Roth choice, and the second a very simplified "Time to FI" chart.

I apologize. I forgot my wife gets paid bi-weekly. She actually takes home 6k net per month. Since she plans to work for the next 5 years, our plan is to continue maxing her 401k, both our Roths, any leftover cash into our taxable brokerage account (~2k), switch the cd's over to our brokerage once they mature, and reduce our discretionary expenses by half. All in all, and if all goes according to plan, we would have invested some 298k once it's all said and done. If the market returns returns are average (in theory, of course), we'd have upwards of over 700k in assets after 5 years. If I were to withdraw 18k (2.5% withdrawal rate) per year to cover the rest of the expenses my income can't cover, would it be too much risk? I will go ahead and crunch the numbers in the spreadsheet. I downloaded it but it looked beastly. Felt overwhelmed looking at it.

MDM

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Re: Am I aiming too low?
« Reply #8 on: June 01, 2018, 04:27:44 PM »
I will go ahead and crunch the numbers in the spreadsheet. I downloaded it but it looked beastly.

The "Quick Start Guide" at the top of the Instructions tab is supposed to be useful. ;)