Author Topic: Going from a 2 incomes to one.  (Read 1180 times)

index

  • Bristles
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Going from a 2 incomes to one.
« on: August 01, 2017, 10:17:04 AM »
My wife would like to quit her day job and teach yoga in the coming few years. I would like to run the numbers by you all and get some advice about our future. I want to lay out what our income and expenses are today vs. our anticipated income and budget when she quits in ~3 years. We are currently both 30 yrs old.

Our current situation ---  (Anticipated):

Income:
Gross income: 145k --- (116k)

Expenses:
Taxes + Health Insurance: 28k --- (24.4k)
Mortgage: 11.6k --- (same)
Property Tax: 3k --- (same)
Utilities: 2.4k --- (same)
Gym: 2.1k --- 0.7k
Cable/Cell/Netflix: 1.4k --- (same)
Home Imp/Maintenance: 8.3k  --- 2.2k
Groceries: 6k --- (same)
Restaurants: 4.8k --- 1.2K
Wine:  2.1k --- 1.8k
Travel: 6.6k --- (same)
General Spend: 1.8k --- (same)
Clothing: 2.1k --- 1.5k
Gas/Parking: 1.4k --- (same)
Gifts: 1.2k --- (same)
Auto Maint.: 1.2k --- (same)
Pets: 0.7k --- (same)
Hobbies: 0.7k --- (same)
Electronics: 0.3k --- (same)
Prime/Costco: 0.2k --- (same)

Total = 89.6k --- (74k)

Savings:
401Ks: 36k --- (22k)
Matching: 5.5k --- (4.4k)
HSA: 6.7k  --- (same)
Roth IRAs: 4.1k --- (8k)

Total: 52.3K --- (41.1k)

Assets:
Short Term Savings: 8k --- (same)
Emergency Fund: 23.5k --- (same)
Retirement Funds: 270K  --- (420k)
Home: 240k  --- (same)
Rental: 85k  --- (same)

Liabilities:
157k on 20 yr Mortgage --- (138k)
55K on 30 yr Mortgage --- (52k)
6K on CC (paid off each month)  --- (same)

Net Worth: 409K  --- (580k)

Projected RE:
$1.6M for 55k/yr @ 4% when we are 45 at our current savings rate. Date: June 2032.
Assumes- 16% Tax Rate, 7% RoR, 2.5% Inflation

-or-

August 2035 at the reduced savings rate.


My big assumptions are my wife can make 20k teaching yoga; and I will get a 13K promotion. We are currently 4 years into a renovation which will be complete before she quits so we are anticipating that expense falls off.

What are we missing? Should we be doing something different?

*Edited formating and gross income

   

« Last Edit: August 02, 2017, 12:03:07 PM by index »

czr

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Re: Going from a 2 incomes to one.
« Reply #1 on: August 01, 2017, 10:56:30 AM »
No plans for kids? I know two couples that were adamant they didn't want to have kids then mid-late 30's came along and they are trying hard and one having to do IVF for that to happen.

MDM

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Re: Going from a 2 incomes to one.
« Reply #2 on: August 01, 2017, 11:54:12 AM »
Assumes- 16% Tax Rate
In terms of the effect on take-home pay, that is likely too conservative: 25% tax bracket, plus 7.65% FICA, plus whatever state tax would put the marginal rate over 30%.  You could confirm the actual difference using the case study spreadsheet.

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  • Bristles
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Re: Going from a 2 incomes to one.
« Reply #3 on: August 01, 2017, 04:05:55 PM »
No plans for kids? I know two couples that were adamant they didn't want to have kids then mid-late 30's came along and they are trying hard and one having to do IVF for that to happen.


We are open to having kids and may start in the next couple of years. Kids would probably drive the travel budget down but there is not a ton of slack in the budget as is.

Assumes- 16% Tax Rate
In terms of the effect on take-home pay, that is likely too conservative: 25% tax bracket, plus 7.65% FICA, plus whatever state tax would put the marginal rate over 30%.  You could confirm the actual difference using the case study spreadsheet.

The 16% tax rate post retirement. This is tax paid on tradition IRA distributions.

MDM

  • Walrus Stache
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Re: Going from a 2 incomes to one.
« Reply #4 on: August 01, 2017, 05:22:22 PM »
Assumes- 16% Tax Rate
In terms of the effect on take-home pay, that is likely too conservative: 25% tax bracket, plus 7.65% FICA, plus whatever state tax would put the marginal rate over 30%.  You could confirm the actual difference using the case study spreadsheet.
The 16% tax rate post retirement. This is tax paid on tradition IRA distributions.
Probably too conservative - as in "too high" - for retirement. ;)

At $55K for MFJ with no dependents, the marginal rate would be only 15%.  The overall rate (assuming no other income, standard deduction, etc.) would be ~8%.

Laura33

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Re: Going from a 2 incomes to one.
« Reply #5 on: August 02, 2017, 07:29:45 AM »
I'm confused -- looks like your future gross income is $103K, and you have listed over $110K in expenses/savings ($74K expenses + $22K 401(k)s + $6.7K HSA + $8K Roths).  So where is that delta coming from?  Also, what about life/disability insurance, car insurance, etc.?

The other thing I would encourage you to think about is periodic replacement of things -- e.g., at some point between now and FIRE, you are likely to need a new car or two; you are doing a reno now, which will get your house set for a few years, but you will still need to replace appliances and roofs and such over time (the average lifespan for appliances is sort of ridiculous, like 7-13 years), replace carpeting, repaint, etc. -- and with two properties, that is going to be even more of an ongoing expense.  I would recommend planning some sort of "sinking" fund for these periodic replacements, both in your current budget and in your FIRE budget, because those things never go away.
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  • Bristles
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Re: Going from a 2 incomes to one.
« Reply #6 on: August 02, 2017, 12:25:12 PM »
I'm confused -- looks like your future gross income is $103K, and you have listed over $110K in expenses/savings ($74K expenses + $22K 401(k)s + $6.7K HSA + $8K Roths).  So where is that delta coming from?  Also, what about life/disability insurance, car insurance, etc.?

Good catch! I have this all in a spreadsheet and forgot to add a future promotion (12k) and increased employer match to income. It is now 74k expenses + 41.1k savings so 115.1k vs an income of 116k. 

The other thing I would encourage you to think about is periodic replacement of things -- e.g., at some point between now and FIRE, you are likely to need a new car or two; you are doing a reno now, which will get your house set for a few years, but you will still need to replace appliances and roofs and such over time (the average lifespan for appliances is sort of ridiculous, like 7-13 years), replace carpeting, repaint, etc. -- and with two properties, that is going to be even more of an ongoing expense.  I would recommend planning some sort of "sinking" fund for these periodic replacements, both in your current budget and in your FIRE budget, because those things never go away.

Homeowners insurance and car insurance was left out of the list by accident as well but the total spending number was correct. HO and Car Insurance is 2.1k per year.

We do not have life insurance policies outside of our employer provided insurance policies. She currently has 150k and I have around 200k. We figured this would be enough for a funeral and to pay off the house. This would probably add up to an additional $500-600 per year for a couple of 250k-300k policies. That will provide her with ~500k if I'm gone and 250k if she were to die. Should we consider increasing this? I always thought we would increase our life insurance if we had kids to provide child care and help with education expenses.   

As far as a sinking fund. We are still allocating ~2k for home maintenance and improvements so that should handle any appliances. The vehicle sinking fund is something we need to consider. We bought a 8 year old VW last year for 3k which is still going strong, but her 11 yr old car will need to be replaced soon. We should probably get her a newer car in the next few years then anticipate around 1k per year for a new car.

One of our problems is, we don't adhere to a strict budget. We track spending and try and keep certain problem categories in line but we don't specifically allocate $1k per year is earmarked for something. It usually goes into a big pot. (The short term savings fund) and larger expenses are paid for out of that.