Case Study- 46-year-old widowed father trying to make the numbers work

[John123]

Life Situation: Widowed, 46-year-old male with one 8-year-old son.  Switched to part-time remote work in September 2018. It’s an ideal situation and I plan to ride it out as long as possible. I don’t see it lasting too much longer to be honest though. Hence the reason for the reality check.

Gross Salary/Wages: Part-time salary is ~$50K. My son qualifies for SS survivors benefits under my late wife’s earning record. That’s ~$18K per year.  I qualify for the same amount until his 16th birthday if my earned income is < $17K. I’m well above that, so I’m not collecting this now.

Current expenses: I have over 10 years of tracked spending, but only one year without my wife. My wife and I were naturally frugal. Not extreme by any means, but we liked to stash money away. She died in late 2017 and we spent $37K that year. Without her in 2018, I spent $31K. This comparison still floors me a little because they were very similar spending years. An additional full-size human living in our house only cost an extra $6K.

Expected ER expenses: I calculate my ER expenses to be ~$54K per year. This includes home repairs, future car replacement, taxes, health care and a larger travel budget.  There is a lot of discretionary spending in here. 

Housing (taxes, insurance, repair budget): $8600
Utilities: $4900
Food: $7800
Transportation (car, gas, insurance, tags): $4100
Health (the big question mark): $6000
Shopping (I never spend the full amount): $4800
Summer Camp: $2000
Misc (I never spend this amount either): $5600
Vacation: $10000
Income taxes: almost non-existent in the beginning.  Will pivot child expenses to taxes in future years.

ER Income:

Social Security Survivor Benefits 
Son’s SS benefit until 2028: $18K
My SS benefit until 2026: $18K

In addition to the survivor benefit associated with a minor child, I can collect on my late wife’s record starting at 60 and then switch to my earning record later. These are real numbers based on current law. Of course, this all could change, but it is what it is today. 

My SS survivor benefit starting at 60: $17K
Switch to my record at 70: $29K

Withdrawal Rates:
2020-2026: 1.5% ($36K SS + $18K savings)
2027-2028: 3.1% ($18K SS + $36K savings)
2029-2031: 4.6% ($54K savings)
2032-2041: 3.2% ($17K SS + $37K savings)
2042 and beyond: 2.2% ($29K SS + $25K savings)

Withdrawal Rates with 25% SS reduction starting in 2032:
2020-2026: 1.5%
2027-2028: 3.1%
2029-2031: 4.6%
2032-2041: 3.6%
2042 and beyond: 2.8%

Is there a good way to average WD rates?  Sure, I can average them in Excel, but the resulting number gets lower the longer I estimate my life since my withdrawal rate is lower in later years.  This doesn’t seem right and there must be a better way. 



Assets:
401K: $640K
Roth: $170K
Taxable: $200K
MM: $155K
Total investable (not including home value): $1,165,000
House (paid-off): $360K

Liabilities: None

Specific Question(s):   My wife was a stay-home-parent. I’ve been a stay-home-parent since she passed and want to continue to be one until he is fully grown. If continued employment comes my way that works with the school calendar/hours, I would take it.  But, I don’t want to HAVE to take it. I want my current numbers to work without ever working again. The truth is, I will probably make more money along the way. I also have the very real possibility of meeting someone to share expenses with in the future.

My wife and I had a goal/dream of early retirement, but I’ve mostly abandoned that idea since her death and switched to a “can we survive on SS and savings so I can be a stay-home-parent” mindset.  I feel like what I’m doing is not early retirement anymore, it’s just taking over my wife’s job as the primary caregiver. 

If this were you, how well would you sleep at night based on the above numbers?

[oldladystache]

I would have no trouble sleeping. You're good to go.

[Watchmaker]

First of all, condolences on your loss.

When looking at withdrawal rates when you have different income streams at different times, I find it's easiest to convert those income streams to their net present value and treat them as part of your portfolio. You can do this in excel fairly easily.

I'd also really recommend putting your numbers into a tool like FireCalc or CFireSim to see what they say.

But, generally speaking, you look to be in very good shape to quit working.

The biggest question I have is how confident are you in your future healthcare costs?

[John123]

First of all, condolences on your loss.

When looking at withdrawal rates when you have different income streams at different times, I find it's easiest to convert those income streams to their net present value and treat them as part of your portfolio. You can do this in excel fairly easily.

I'd also really recommend putting your numbers into a tool like FireCalc or CFireSim to see what they say.

But, generally speaking, you look to be in very good shape to quit working.

The biggest question I have is how confident are you in your future healthcare costs?

I'm going to give that a try in Excel.  I've run the numbers in FireCalc and CfireSim with 100% success rates.  I think max initial spending is $61K in CfireSim for 100%, but FireCalc is lower. It's harder to run my numbers in FireCalc though.  There isn't as many options for start and stop dates for income streams.

Yeah, healthcare is the wild card.  I still qualify for employee health benefits as a part timer.  I have a good plan/network currently and am very apprehensive of moving to the ACA.   I just don't really know the answer to this one.

Thanks

[Gin1984]

My only concern would be health insurance.  Do you live in a state which has done with ACA well?

[Watchmaker]

Yeah, healthcare is the wild card.  I still qualify for employee health benefits as a part timer.  I have a good plan/network currently and am very apprehensive of moving to the ACA.   I just don't really know the answer to this one.

Thanks

You have enough safety built into your numbers that I'm not worried that you won't be able to pay for healthcare, just that it might eat into your other spending more than you'd like. What state are you in?

[John123]

My only concern would be health insurance.  Do you live in a state which has done with ACA well?

I'm in a very good ACA state.  Maybe one of the best.  I do wish for more clarity on the future of healthcare.  I'm going to try to stay employed for as long as I can because its something to do and employee health benefits.  That's not completely up to me though.

I'm confident in my numbers, but have never shared them with anyone.  I don't think I've overlooked anything, but am posting this to be super-duper sure. 

Thanks for your thoughts.

[merula]

Do you have any plans to pay for your son's college expenses? Not that I think you need to, that's a values question, but something I didn't see addressed above.

Just checking your math, back of the napkin, but if you expect to spend $54k per year for the next 40 years, you're spending $2.16M for the rest of your life. (I went with a life expectancy of 86 because the math was easier, but you've got plenty of flexibility.)

You have more than $1.5M now, and you can count on collecting $180k in child SS survivor's benefits, $170k in SS benefits on your wife's record and $464k on your own record. (While SS is clearly subject to political whims, I think the terrible "optics" of cutting off widows, orphans and those already well into retirement age are in your favor.)

You have enough money to make this work even if all your money was just keeping up with inflation. I'm assuming it isn't, and if I were you I'd probably move that money market chunk to a different asset, but you know your risk tolerance best.

[John123]

Do you have any plans to pay for your son's college expenses? Not that I think you need to, that's a values question, but something I didn't see addressed above.

Just checking your math, back of the napkin, but if you expect to spend $54k per year for the next 40 years, you're spending $2.16M for the rest of your life. (I went with a life expectancy of 86 because the math was easier, but you've got plenty of flexibility.)

You have more than $1.5M now, and you can count on collecting $180k in child SS survivor's benefits, $170k in SS benefits on your wife's record and $464k on your own record. (While SS is clearly subject to political whims, I think the terrible "optics" of cutting off widows, orphans and those already well into retirement age are in your favor.)

You have enough money to make this work even if all your money was just keeping up with inflation. I'm assuming it isn't, and if I were you I'd probably move that money market chunk to a different asset, but you know your risk tolerance best.

I did leave out college expenses because it's still a work in progress. He does have a 529 with ~$20K I don't count in my assets (not enough, I know). My goal is to pay 100% for an in-state public university.  There is a little bit of not wanting to look at those expenses today and hope that 10 years down the road, my nest egg has grown to make this a non-issue.  I know, this is burying my head in the sand a little, but I think the money will be there. 

The money market was at $215K in November.  I funneled $60K in the last downturn into VTI.  I timed it a little too early and didn't get in at the bottom, but it already made a nice return.  I'm pretty heavy on equities, so I need to find a different asset class for the remainder.  It's an issue, but it's making 2% and I'm okay with it in the short term.  It will find a home sooner or later.  I know, market timing=bad, but I cant help myself sometimes.

I appreciate your back of the napkin calculation and it's correct.  I've run the same calculation and came to the same conclusion. 

Thanks

[MDM]

My son qualifies for SS survivors benefits under my late wife’s earning record. That’s ~$18K per year.

With that income, depending on what is done with it, he may not be your dependent.  As noted in the first link below, "If a child receives social security benefits and uses them toward his or her own support, those benefits are considered as provided by the child."

See https://apps.irs.gov/app/vita/content/globalmedia/dependency_exemptions_4012.pdf and https://apps.irs.gov/app/vita/content/globalmedia/teacher/worksheet_for_determining_support_4012.pdf.

[John123]

My son qualifies for SS survivors benefits under my late wife’s earning record. That’s ~$18K per year.

With that income, depending on what is done with it, he may not be your dependent.  As noted in the first link below, "If a child receives social security benefits and uses them toward his or her own support, those benefits are considered as provided by the child."

See https://apps.irs.gov/app/vita/content/globalmedia/dependency_exemptions_4012.pdf and https://apps.irs.gov/app/vita/content/globalmedia/teacher/worksheet_for_determining_support_4012.pdf.

Thanks MDM!  This is exactly the kind of thing I was looking for.  This is very interesting and will take a deep dive into the particulars.

Thanks again!

[merula]

My son qualifies for SS survivors benefits under my late wife’s earning record. That’s ~$18K per year.

With that income, depending on what is done with it, he may not be your dependent.  As noted in the first link below, "If a child receives social security benefits and uses them toward his or her own support, those benefits are considered as provided by the child."

See https://apps.irs.gov/app/vita/content/globalmedia/dependency_exemptions_4012.pdf and https://apps.irs.gov/app/vita/content/globalmedia/teacher/worksheet_for_determining_support_4012.pdf.

True, but highly unlikely to actually make a difference in this situation.

First, with the changes in the tax law, simply having a dependent isn't nearly as valuable as it used to be because of the end of personal exemptions.

Secondly, the OP will be able to file as a qualified widower for the two tax years following the year his wife passed, so 2018 and 2019. For those years, the real question is whether the son is a dependent for the child tax credit. In 2020 and later, it will start to matter for Head of Household status.

Finally, if you go to the worksheet you linked to, you can see that money saved for the dependent in their own savings accounts or used for purposes other than support does not count towards the calculation of support. Since there is a 529 account with the son as the beneficiary, part of the son's SS survivor benefits can be diverted into that account if for whatever reason total spending is low enough that there's a question of whether OP spent more than the $17k on his son's support.

I did leave out college expenses because it's still a work in progress. He does have a 529 with ~$20K I don't count in my assets (not enough, I know). My goal is to pay 100% for an in-state public university.  There is a little bit of not wanting to look at those expenses today and hope that 10 years down the road, my nest egg has grown to make this a non-issue.  I know, this is burying my head in the sand a little, but I think the money will be there. 

The money market was at $215K in November.  I funneled $60K in the last downturn into VTI.  I timed it a little too early and didn't get in at the bottom, but it already made a nice return.  I'm pretty heavy on equities, so I need to find a different asset class for the remainder.  It's an issue, but it's making 2% and I'm okay with it in the short term.  It will find a home sooner or later.  I know, market timing=bad, but I cant help myself sometimes.

I appreciate your back of the napkin calculation and it's correct.  I've run the same calculation and came to the same conclusion. 

Thanks

The money will be there, and you have enough to deal with. The best investors are those that are dead or forgot they had accounts, right? It's not burying your head in the sand, it's calculated non-attention. :)

Also, maybe look into FIRE FAFSA strategies? There are a number of other threads on here about that. You've got time, though.

In your overall asset allocation, remember to count your house. You're at least 20% in real estate right there.

[John123]

My son qualifies for SS survivors benefits under my late wife’s earning record. That’s ~$18K per year.

With that income, depending on what is done with it, he may not be your dependent.  As noted in the first link below, "If a child receives social security benefits and uses them toward his or her own support, those benefits are considered as provided by the child."

See https://apps.irs.gov/app/vita/content/globalmedia/dependency_exemptions_4012.pdf and https://apps.irs.gov/app/vita/content/globalmedia/teacher/worksheet_for_determining_support_4012.pdf.

Thanks MDM!  This is exactly the kind of thing I was looking for.  This is very interesting and will take a deep dive into the particulars.

Thanks again!

It appears as if educational expenses are considered support.  I'm wondering if funneling a large portion of his benefits into his 529 is a valid workaround.  Any real world knowledge MDM? 

[John123]

My son qualifies for SS survivors benefits under my late wife’s earning record. That’s ~$18K per year.

With that income, depending on what is done with it, he may not be your dependent.  As noted in the first link below, "If a child receives social security benefits and uses them toward his or her own support, those benefits are considered as provided by the child."

See https://apps.irs.gov/app/vita/content/globalmedia/dependency_exemptions_4012.pdf and https://apps.irs.gov/app/vita/content/globalmedia/teacher/worksheet_for_determining_support_4012.pdf.

True, but highly unlikely to actually make a difference in this situation.

First, with the changes in the tax law, simply having a dependent isn't nearly as valuable as it used to be because of the end of personal exemptions.

Secondly, the OP will be able to file as a qualified widower for the two tax years following the year his wife passed, so 2018 and 2019. For those years, the real question is whether the son is a dependent for the child tax credit. In 2020 and later, it will start to matter for Head of Household status.

Finally, if you go to the worksheet you linked to, you can see that money saved for the dependent in their own savings accounts or used for purposes other than support does not count towards the calculation of support. Since there is a 529 account with the son as the beneficiary, part of the son's SS survivor benefits can be diverted into that account if for whatever reason total spending is low enough that there's a question of whether OP spent more than the $17k on his son's support.

I did leave out college expenses because it's still a work in progress. He does have a 529 with ~$20K I don't count in my assets (not enough, I know). My goal is to pay 100% for an in-state public university.  There is a little bit of not wanting to look at those expenses today and hope that 10 years down the road, my nest egg has grown to make this a non-issue.  I know, this is burying my head in the sand a little, but I think the money will be there. 

The money market was at $215K in November.  I funneled $60K in the last downturn into VTI.  I timed it a little too early and didn't get in at the bottom, but it already made a nice return.  I'm pretty heavy on equities, so I need to find a different asset class for the remainder.  It's an issue, but it's making 2% and I'm okay with it in the short term.  It will find a home sooner or later.  I know, market timing=bad, but I cant help myself sometimes.

I appreciate your back of the napkin calculation and it's correct.  I've run the same calculation and came to the same conclusion. 

Thanks

The money will be there, and you have enough to deal with. The best investors are those that are dead or forgot they had accounts, right? It's not burying your head in the sand, it's calculated non-attention. :)

Also, maybe look into FIRE FAFSA strategies? There are a number of other threads on here about that. You've got time, though.

In your overall asset allocation, remember to count your house. You're at least 20% in real estate right there.

Wow! we were thinking the exact same thing on the 529. Invaluable info here.  Thanks!!

[MDM]

True, but highly unlikely to actually make a difference in this situation.

First, with the changes in the tax law, simply having a dependent isn't nearly as valuable as it used to be because of the end of personal exemptions.

Secondly, the OP will be able to file as a qualified widower for the two tax years following the year his wife passed, so 2018 and 2019. For those years, the real question is whether the son is a dependent for the child tax credit. In 2020 and later, it will start to matter for Head of Household status.

Agreed on the last paragraph, but the answers to those questions are needed before addressing the first two.  The presence or absence of a $2000 credit, and the different brackets for HoH vs. single might be valuable to some.

Finally, if you go to the worksheet you linked to, you can see that money saved for the dependent in their own savings accounts or used for purposes other than support does not count towards the calculation of support. Since there is a 529 account with the son as the beneficiary, part of the son's SS survivor benefits can be diverted into that account if for whatever reason total spending is low enough that there's a question of whether OP spent more than the $17k on his son's support.

Agreed, the devil is in the details.

Fortunately for most, the cost to support a young child is usually low.  That does work against those who are looking to claim the child as a dependent when the child receives these survivor SS benefits.  Putting all the money into savings/investments in the child's name is indeed one way to reduce the amount the child uses toward his or her own support.

[John123]

The info on the dependent status and the 529 workaround is pure gold.  I thought I knew everything and....BOOM! You guys really came through with a super important detail I overlooked.  Very, very grateful for your knowledge.

A million thanks!!

[MDM]

It appears as if educational expenses are considered support.  I'm wondering if funneling a large portion of his benefits into his 529 is a valid workaround.  Any real world knowledge MDM?

An "educational expense" would be money paid to a college, etc., often reported on a 1098-T (worksheet line 15).

Money in a 529 would fall under "savings and other accounts" (worksheet lines 1 and 4).

[John123]

It appears as if educational expenses are considered support.  I'm wondering if funneling a large portion of his benefits into his 529 is a valid workaround.  Any real world knowledge MDM?

An "educational expense" would be money paid to a college, etc., often reported on a 1098-T (worksheet line 15).

Money in a 529 would fall under "savings and other accounts" (worksheet lines 1 and 4).

I want to buy you and merula a beer!  This also kills two birds with one stone.  My lackadaisical college saving plan is now back on track and I'm keeping on the right side with the IRS. Whew!

John
 

[SimpleCycle]

I am so sorry for your and your son's loss.

I didn't crunch the numbers because it's pretty clear you have enough.  You've budgeted well above your current spend, have multiple income streams, and think it's likely you'll do some paid work in the future.  That seems like enough security to sleep well at night.  You've gotten some good advice on the tax status stuff.  I think college savings will likely work itself out in some way.  Worst case scenario you return to work part time to fund college if your portfolio hasn't grown enough to fund it by the time he is college aged.

One other thing to think about is how to grow your village as a stay at home parent.  Staying home with kids can be isolating, especially without a spouse.  You may already have a great support system, but if you don't, this is the time to develop one.

I truly wish you the best.  I think it's wonderful you are able to be the primary caretaker for your son.

[John123]

I am so sorry for your and your son's loss.

I didn't crunch the numbers because it's pretty clear you have enough.  You've budgeted well above your current spend, have multiple income streams, and think it's likely you'll do some paid work in the future.  That seems like enough security to sleep well at night.  You've gotten some good advice on the tax status stuff.  I think college savings will likely work itself out in some way.  Worst case scenario you return to work part time to fund college if your portfolio hasn't grown enough to fund it by the time he is college aged.

One other thing to think about is how to grow your village as a stay at home parent.  Staying home with kids can be isolating, especially without a spouse.  You may already have a great support system, but if you don't, this is the time to develop one.

I truly wish you the best.  I think it's wonderful you are able to be the primary caretaker for your son.

Thanks for the thoughtful post.  The village comment is so true and I'm very lucky that I have a network of friends, neighbors, and family that take care of us.  So many people in our lives stepped up when we were down the most and never wavered.  They're still there today and we're closer than ever. I could write so much on the subject, but this probably isn't the place. 

Having others green light my financials is a better feeling than I thought it would be.  I've laid out the numbers every possible way to myself and I thought they looked good, but nobody close to me really understands this whole concept.  It's been just me and my spreadsheets.  It's nice to lay it all out there and be given the thumbs up by people who understand.

Thanks again.

John

[calimom]

Hello John:

I've been widowed with three children since 2007. The first two years I did take the child deduction; @merula  is correct here. and after the allowable time, I did not. We took the  SS Family Max and I never received SS benefits for myself; and when my eldest (stepdaughter) aged out of the system my two younger children's benefit adjusted upward. I started working when my then toddler was two, and my self employment income was too high.

A note on the college savings from SS benefits: what I learned was to save any funds from "my" money, not from SS. Have you received your annual Representative Payee Report yet? There is a section where you're asked if you've saved any of the SS money. It is well and good to save SS, but those funds must be turned over to the child at age 18, or 19 if that's when they've graduated from high school. This may or may not be a concern for you, but I'd like to have more control over the children's money at that point. It's your call. I use all the SS funds for day to day expenses, and there are so many! Food, utilities, their portion of the mortgage, health insurance, activities and whatnot are counted as allowable.

And just to add, there are several networks of camps available for children who've lost a parent. My younger kids have attended comfortzonecamp.org. There are locations around the country. And completely free.

You are doing great! You're financially secure and sound like a wonderful dad. Your late wife would be very proud of you.

[John123]

Have you received your annual Representative Payee Report yet?

They changed the law sometime last year and parents are not required to complete this form now.  This would have been my first year, so I've never had to complete it.

And just to add, there are several networks of camps available for children who've lost a parent. My younger kids have attended comfortzonecamp.org. There are locations around the country. And completely free.

We tried something similar and my son was very against it.  I tried several things actually and every time he never wanted to return.  My only condition was he at least try it before making a decision, but it was his decision to make.

You are doing great! You're financially secure and sound like a wonderful dad. Your late wife would be very proud of you.

Thanks for that. 

[calimom]

I didn't know they changed the rules, John! Thanks for letting me know. I haven't received this year's RPR yet. Learned something new.

[ericrugiero]

So sorry for your loss. 

My wife is a stay at home mom for our 3 boys.  I've thought a little about what I would do if I was in your shoes.  My priority would be to stay at home and take care of the kids till they are grown and hopefully make a little money on the side to help get me through.  Even if I had to get a job for a few years after they leave the house I would want to prioritize that time with them just like you are doing. 

The good news is that your numbers look really good and you shouldn't need to work if you don't want to.  You have some withdraw rates above 4% on the plan you laid out above which most people try to avoid.  But with 10 years of withdrawing well below 4% your stache should be growing for the next ten years and I would expect the 4.6% withdraw to shrink considerably before you get there.   

The advice about making sure you have friends, family and other adults to interact with and get emotional support is really good.  Spending time with your family and bonding through this tough time is really good.  Isolating yourself and not getting interaction and support would make this even tougher. 

It sounds like you are doing the right thing and are in a great place financially while you work through a tough time personally.  Also sounds like great advice in this thread on optimizing your taxes and college savings. 

[MarciaB]

A quick note about Social Security and survivor's benefits (not that it's today's problem for you at your current age), but be aware that remarrying prior to 60 will disqualify you from survivor benefits (because you "reset" your record to point towards your new spouse).

As a widow myself (10 years older than you at this point) I've been reading up on this. Oddly, remarrying after 60 doesn't do this (huh?). One of the "advantages" to survivor's benefits is that they're not subject to the deeming rules, making them a little more flexible.

Who knows what the rules will be when you get into your 60s, but just keep this tidbit on your radar. Not that the decision to remarry should be based on the social security rules though! (talk about a tail wagging a dog).