Author Topic: Case Study: Inflection Point?  (Read 2029 times)

Sand101

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Case Study: Inflection Point?
« on: June 06, 2018, 11:22:35 PM »
Greetings all.  Despite my low post count I have been here reading for quite a while.  Been running numbers here a number of different ways, but a human look would be very valuable. 

The story here is similar to what I'm sure many others have said - I work in a high pressure job, 60+ hours/week, nights, weekends, holidays (1 sick day taken this year, no vacation).  I'm not necessarily looking to tell my boss to FU as what I do for my clients is something that I value highly as there is an appreciation there and I'd be incredibly hard to replace.  But, when I'm waking up just about every night at 3am with my mind racing with anxiety over budgets, technical items, management BS, etc. I want to know I have the FU optionality.  There is peace of mind there, I think.  Burnout is real, and there is no hope of management easing up.

Short financial synopsis:  I think I'm close.  I have calculated how much further I have to go to FU money, but wanted to see what the crowd thinks.

Family:  Married (48, 45), 2 kids, one early teen, one late.  Late one may be a military recruit soon, so off the payroll.  MCOL area.

Assets:   
Tax Deferred:   1185000
Tax Free:               5750
Taxable:            635000
   
Real Estate:   
House Value:   375000
Rental Value:   290000
   
Debts:   
Mortgage:         (227,000)
2.875% Fixed, 12yrs. Left   
   
Total Assets:   2,263,750
   
Education 529:   55000      (Not included in overall assets)

Income, Taxes, Saving

Gross Pay               115000
DW Gross Pay          50000
Taxes - Federal         (19000)
SS/Medicare            (12000)
Taxes - State/Local   (6500)
Property Tax            (2300)
Net Income             125200

Rental income, net:      15000 (note this is new this year so not included in current salary).
   
Tax Deferrals:   
401k                         18000
DW 401                      2000
HSA                            6900
Roth IRA                     5500
Total                          32400
Take home pay:           92800
   
Employer Matches:   
401k Match               9200
DW 401 Match:           5800
   
Total all tax deferred/free savings:   47400

Expenses currently:

Expenses                Monthly   Annual
Mortgage                    1875   22500
Property Insurance      125   1500
Umbrella ins.                65   780
Car maint                    200   2400
Gasoline                      150   1800
Car Insurance              200   2400
House maint.              175   2100
Electricity                    250   3000
Gas                            100   1200
TV                             175   2100
Phone                         105   1260
Water/Sewer              100   1200
Grocery                       600   7200
Restaurants                 200   2400
Medical ins                 600   7200
Education/child care    500   6000
529                            175   2100
Charity                      900   10800
Vacation                      250   3000
Random                      150   1800
Totals                        6495   82740
Take home pay                     92800
After Tax Saving                     10060

For future expenses if I anticipate some expenses to come well down if I do kick off (charity, eating out, education).  I'll also note that in July I'll be going to a less expensive TV/internet cost ($125).  I don't have much choice on internet, so it's expensive.  I also plan on repricing all my insurance soon and saving some there.  I expect medical expenses to go up.  No telling if DW will kick off with me or stay working - she likes her job.  I'm assuming she gets jealous and splits.  Also big unknown where the younger kid ends up - I don't expect a scholarship or going to Harvard, but college is very likely.  I may well be coughing up more than the 70k or so I have built up by then in the 529.

Future cost of living: ~60k/yr

One thing I am struggling with is the thought of positioning myself to pay off the house.  It would get me underneath the ACA limit for a while and even allow for a bit of Roth conversion arbitrage.  But it doesn't leave me quite enough post tax cash to stretch until 59.5.  First world problems. 

Analysis, suggestions, gut punching are all good!

Kwill

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Re: Case Study: Inflection Point?
« Reply #1 on: June 07, 2018, 01:52:13 AM »
It looks like you could be there already if you could reduce your spending, but it seems too optimistic to dramatically reduce the spending after retirement if you haven't already tried it before. Look at the phone plans, the car situation, the restaurants, the vacation . . .

And take some time off, please, before you make yourself sick. Lately my own hours have been creeping up as I've been trying to get more done. I find even taking a little leave for a half day once in awhile makes things easier.

MrsWolfeRN

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Re: Case Study: Inflection Point?
« Reply #2 on: June 07, 2018, 06:06:49 AM »
Hi, you have two million dollars, plus enough to pay off the mortgage. That is enough to fund an extremely lavish lifestyle at 80k/ year. Since you think you can live on 60k, you are good. That extra 20k safety margin can go towards extra medical costs, college, to mitigate sequence of returns risk, travel, etc. Now go cancel your cable and spend some quality time with your kids.

use2betrix

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Re: Case Study: Inflection Point?
« Reply #3 on: June 07, 2018, 07:00:55 AM »
Hi, you have two million dollars, plus enough to pay off the mortgage. That is enough to fund an extremely lavish lifestyle at 80k/ year. Since you think you can live on 60k, you are good. That extra 20k safety margin can go towards extra medical costs, college, to mitigate sequence of returns risk, travel, etc. Now go cancel your cable and spend some quality time with your kids.

That is assuming he can cut $32k/yr in current expenses. Thatís a pretty big commitment.

AccidentialMustache

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Re: Case Study: Inflection Point?
« Reply #4 on: June 07, 2018, 07:17:51 AM »
Paying off a 1800/mo mortgage cuts 20k of that -- assuming that 1800 is P&I only not T&I. Otherwise its less, but its still a good chunk of the way. $900/mo chairty is most of the rest of the way, but it'd mean exchanging giving dollars for giving hours if you want to keep up chairty work.

AccidentialMustache

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Re: Case Study: Inflection Point?
« Reply #5 on: June 07, 2018, 07:19:31 AM »
Aside: I wouldn't pay that mortgage off early. That rate is insanely low.

Sand101

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Re: Case Study: Inflection Point?
« Reply #6 on: June 07, 2018, 07:48:03 AM »
Thanks for all the responses.  To clarify on some of these:

Phone is $100/mo for 4 phones (cricket).  $5 for Ooma.  About as good as that gets.  We buy cheap phones.
Eating out would go down without two adults working pretty hard.
Cars are all paid off and good for the next 10 years or so (knock on wood). 

Anticipated expenses do look low going forward and may be a bit hopeful.  That's what I estimate and certainly unexpected increases are part of the equation.  The charity is a percentage thing and would come way down without the income coming in, which is a big driver there.  Education expenses will change in a couple years when the younger one hits public high school (good district, so that works).

As far as the mortgage the 1875/mo is principal and interest.  The insurance (1500/yr) and taxes (2300/yr) would carry forward ad infinitum.  And I agree the rate is great (proud of my timing of selling/buying houses there).  If I hang it up there is definitely a cost analysis to be had between paying it off and getting an ACA subsidy or holding onto the note and maybe using a medishare or similar.  I'm still split on the right way to go there.

The other item I weigh a bit (besides the work load) is that all of my close older relatives haven't made it past 67.   N>10 there.  So my family doesn't seem to be very long lived and if I'm honest with myself (though being healthy now) I should expect lasting past normal retirement age to be no better than a coin flip.

formerlydivorcedmom

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Re: Case Study: Inflection Point?
« Reply #7 on: June 07, 2018, 08:39:20 AM »
You have FU money now, and if I were you, I'd exercise it.  IMO, you don't make enough to justify those kinds of hours/that kind of pressure.

If your rental income is consistent, you'd probably be okay to retire now...but if you are first-time landlords and/or if you haven't been exceptionally diligent at running those numbers, then I wouldn't completely pull the plug yet.

Can you downshift for now?  Your wife's income covers half of your expenses.  Could you find another lower-stress job or a part-time job in your field?  Can you go to management and tell them you've had enough of the hours and the overwork and it's time for a change or you are out?  If you are that valuable, they may actually make changes to keep you.

economist

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Re: Case Study: Inflection Point?
« Reply #8 on: June 07, 2018, 11:52:59 AM »
This is what I'd do if I woke up in your shoes.

Tomorrow: "Boss, here is my 2-weeks notice."
Two weeks from tomorrow: "So long, boss."

Sometime next year: Sell the rental (15k net is a ~5% return on a 290k value, you can do better with less hassle with a balanced index fund). I'd wait until next year to minimize taxes, since your earned income next year would be low or zero. If you want to keep the rental, it doesn't really change much, that's just what I'd do.

A few years from now: Enjoy having a very low income when applying for financial aid for your younger child. With increased FAFSA aid and the 529 you've got, you should be fine, college-wise.

Your rental 290k, plus your taxable 635k, is 925k, which is just about 11-12 years at your current spending of 80k/year. That assumes you don't cut your expenses, don't earn anything on those taxable investments, and don't do any Roth conversions, all of which you'd probably do. The education expenses alone are 6k/year and you said that goes away in a couple years, plus you shouldn't need to contribute more to the 529 if you're going to qualify for more financial aid due to a lower income, so that's another 2k. I'd say that *easily* gets you to 59.5, at which point you can withdraw normally from your 401k, and probably gets you to 62 or 65, so you can start taking SS. It also gets you to the end of your mortgage, so your expenses will drop by $22.5k right around the time you start withdrawing from your 401k.

Your total assets are fine. Your withdrawal rate will be a bit below 4% to start, and will drop significantly as your mortgage is paid off and you qualify for SS in about a decade. Since your job is causing you stress, I don't think it's worth staying. Quit and don't look back.

Sand101

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Re: Case Study: Inflection Point?
« Reply #9 on: June 07, 2018, 09:48:59 PM »
You have FU money now, and if I were you, I'd exercise it.  IMO, you don't make enough to justify those kinds of hours/that kind of pressure.

If your rental income is consistent, you'd probably be okay to retire now...but if you are first-time landlords and/or if you haven't been exceptionally diligent at running those numbers, then I wouldn't completely pull the plug yet.

Can you downshift for now?  Your wife's income covers half of your expenses.  Could you find another lower-stress job or a part-time job in your field?  Can you go to management and tell them you've had enough of the hours and the overwork and it's time for a change or you are out?  If you are that valuable, they may actually make changes to keep you.

Interesting the note about not making enough for the work load I have.  I'll keep that in mind.  In my last review I had some strong assertions about pay scale.  That was recent - giving them some time to digest and respond.

Rental income looks good - booked solid through next March.  Its a great property in a very desirable spot for short term vacation rentals.

Downshifting currently isn't doable.  It may be something I can work mid term, though.  My job is extremely specialized (good and bad there), so I do have opportunities, but they're sporadic.


This is what I'd do if I woke up in your shoes.

Tomorrow: "Boss, here is my 2-weeks notice."
Two weeks from tomorrow: "So long, boss."

Sometime next year: Sell the rental (15k net is a ~5% return on a 290k value, you can do better with less hassle with a balanced index fund). I'd wait until next year to minimize taxes, since your earned income next year would be low or zero. If you want to keep the rental, it doesn't really change much, that's just what I'd do.

A few years from now: Enjoy having a very low income when applying for financial aid for your younger child. With increased FAFSA aid and the 529 you've got, you should be fine, college-wise.

Your rental 290k, plus your taxable 635k, is 925k, which is just about 11-12 years at your current spending of 80k/year. That assumes you don't cut your expenses, don't earn anything on those taxable investments, and don't do any Roth conversions, all of which you'd probably do. The education expenses alone are 6k/year and you said that goes away in a couple years, plus you shouldn't need to contribute more to the 529 if you're going to qualify for more financial aid due to a lower income, so that's another 2k. I'd say that *easily* gets you to 59.5, at which point you can withdraw normally from your 401k, and probably gets you to 62 or 65, so you can start taking SS. It also gets you to the end of your mortgage, so your expenses will drop by $22.5k right around the time you start withdrawing from your 401k.

Your total assets are fine. Your withdrawal rate will be a bit below 4% to start, and will drop significantly as your mortgage is paid off and you qualify for SS in about a decade. Since your job is causing you stress, I don't think it's worth staying. Quit and don't look back.

Thanks for the note.  The rental sale isn't all in my court, but it's on the table and we're watching the market.  As long as there aren't any major natural disasters (not on the east coast of the Big Island, thankfully!) the rental income should be steady at least.

Owe you a beer for the FAFSA note.  I never realized how income centric that is.  It certainly is another thing to optimize and really sets in a maximum timeframe to be out and set for when he starts college.

While the fantasy of walking in with a 2 week notice is epic  (also, the thought of letting my boss know exactly how much power he has over me is very appealing, but that isn't something I want to drop for momentary awesomeness), I can't leave the folks I work for high and dry at present.  Clients, not management.  Some of the stuff I'm doing qualifies as "important" on a pretty large scale.  That certainly won't last forever, and it's part of a plan I'm going to try and develop with your and others input here.   Your thoughts much appreciated.


economist

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Re: Case Study: Inflection Point?
« Reply #10 on: June 08, 2018, 11:26:33 AM »

Downshifting currently isn't doable.  It may be something I can work mid term, though.  My job is extremely specialized (good and bad there), so I do have opportunities, but they're sporadic.


While the fantasy of walking in with a 2 week notice is epic  (also, the thought of letting my boss know exactly how much power he has over me is very appealing, but that isn't something I want to drop for momentary awesomeness), I can't leave the folks I work for high and dry at present.  Clients, not management.  Some of the stuff I'm doing qualifies as "important" on a pretty large scale.  That certainly won't last forever, and it's part of a plan I'm going to try and develop with your and others input here.   Your thoughts much appreciated.

It sounds like you think leaving will take a while, if you think you need to do a longer than 2 week notice and can't downshift your workload. I'd say that's an argument to begin the process now. If you think you need to give your company a longer runway, then letting them know your plans earlier would be better. How much notice do you feel obligated to give?

You might also consider exercising your powerful negotiating position a bit. If your company needs you, you could possibly negotiate a severance package in exchange for staying on a few months rather than a normal 2 week notice, and providing a smooth transition. There doesn't seem to be much downside to saying "Boss, I'm working 60 hour weeks doing something only I know how to do. If I give you a 2 week notice and leave, it'll hurt. What kind of severance are you willing to offer me to get me to stay on for 3 months?"

Obviously easier for me to suggest something like that than for you to actually do it, but what you've described just seems like such a clear case of "leave ASAP".

1. You're not 35, you're 48. So working "one more year" to get your withdrawal rate to 3.5% instead of 4% isn't necessary, with SS starting and your mortgage getting paid off soon. You've hit the 25X expenses with room to spare. You definitely don't need to work longer for financial reasons.
2. You've already identified multiple expenses that will be cut within the next few years, without any sacrifice on your part.
3. Your wife is still working and enjoys her job. It's not *necessary* for her to work for your retirement to work, but if she wants to work anyway it's another layer of safety.
4. Most importantly, you've said your job is causing you stress and has a high workload. This isn't a relaxing part-time gig you do in retirement, it's a 60-hour/week slog-fest that causes you to wake up at 3 AM with anxiety. You may believe you owe your clients and company a long notice, but you don't owe them your sanity, your mental health, or your quality time with your family.

Just my thoughts. Again, obviously it's easy for me to make suggestions, not being in your situation. But everything you've said in this thread *screams* "it's time to leave!" to me. At the least I'd say whatever plan you come up with should have your remaining time at this job be measured in months rather than years.

gpyros85

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Re: Case Study: Inflection Point?
« Reply #11 on: June 10, 2018, 12:20:28 PM »
I can't say 115k is worth the stress and hours you talk about... I don't know what field you are in to make comparisons.  Working holidays and no vacations, that is pretty much your own business....

zolotiyeruki

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Re: Case Study: Inflection Point?
« Reply #12 on: June 10, 2018, 03:50:53 PM »
FU money doesn't necessarily mean ER money.  It just means that you have enough money that leaving is an option, and you can bargain from a position of strength.

If the work you do is so specialized that you're the only one capable of doing it, then you are being comically underpaid.  If it's work that others could pick up on, then you are being horrifically overworked.  Either way, you're getting shafted.

You're also not limited to "stay vs retire."  There's a third option here:  leave your current job and take up something else with a better work/life balance, even if it pays less.  Stay at that less-demanding job for a couple years until your stache hits your magic number, then retire.  Your current assets are appreciating more rapidly than you're contributing to them, anyway.

Sand101

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Re: Case Study: Inflection Point?
« Reply #13 on: June 11, 2018, 04:37:47 PM »

You're also not limited to "stay vs retire."  There's a third option here:  leave your current job and take up something else with a better work/life balance, even if it pays less.  Stay at that less-demanding job for a couple years until your stache hits your magic number, then retire.  Your current assets are appreciating more rapidly than you're contributing to them, anyway.

This is all true.  I'm thinking pretty hard about my next conversation with the boss.   Your last sentence is particularly true - definitely the tail wagging the dog.  My savings efforts aren't a big percentage anymore.