Author Topic: Ready to retire (or at least downshift?)  (Read 1611 times)

thatsdifferent

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Ready to retire (or at least downshift?)
« on: October 14, 2018, 07:23:53 PM »
Executive Summary:

Tired of the 8-5 grind, repetitious conversations with mindless coworkers, no advancement, little is new or interesting, so I feel that work is just a state of brain decay. If a person is the sum of the 5 people they see most often... then holy hell, I need out. Also, having a full-time job doesn't leave me with much time for personal hobbies, interests, house repairs, focusing on marriage, etc. Added soon to the list- spending time with the little one to come 2019.

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Information:

Married in Illinois, 35M/34F, first child expected 2/2019.

Savings:
His/Her Roth- 182,000
His/Her IRA- 29,000
Taxable Account (VTSAX)- 196,000
Short-term Taxable Account (VTINX)- 81,000
Total: $488,000

Anticipated 2019 Budget:
Mortgage (Only debt, $78k balance, 4%, not pre-paying)- 441.37
Property Taxes- 260
Home Insurance- 50
Gas/Electricity- 145
Water/Sewer- 50
Internet- 35
Ting- 40
House Repair- 100
Gasoline- 100
Car Insurance- 40
Car Maintenance- 100
ACA Health Insurance- 225**
Medical- 100**
Dog- 70
Groceries- 160
Consumables- 40
His Fun Money- 60
Her Fun Money- 60
Entertainment- 40
Baby- 200**
=2316.37/month, 27796.44/yr

We've been living with the above amounts and they're working pretty well.

**The Health Insurance is a best guess using projected 2019 salary and 2018 ACA subsidies/costs, Medical could always go high if something serious happens, and Baby is a guess at this point.

2018 Health Insurance is paid by our employers.

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Desires & Questions:

Scenario #1: Come early 2019, we plan to have the wife quit her job and be a stay-at-home parent. Given my salary, that wouldn't be a problem. However, I would also like to be a stay-at-home parent. If we both stayed at home, my income would be 10k/yr from a yearly relative's gift, leaving 18,000 for my investments to cover. A 3.7% withdrawal would cover that, barring any marketplace recession in the first few years. This would be a skinny fire, but how crazy? Thoughts?

Scenario #2: However, I am a little apprehensive on that scenario- "just in case" the markets dropped, being on medicaid, and afraid my 7-day weekends would be wasted more than I'd want. So my current plan is for me to continue my job as part-time, 3/days week. My income would drop, due to hours, but my hourly rate would likely increase (as all my benefits would be lost [this is what happened to a co-worker who moved to part-time]). So I would strive for a gross of $35,000 (net 28k?). That amount would just cover our expenses. Then I would see the 10k/yr gift as being a buffer if necessary (invested into our Roth if not needed), and then our investment savings as being another buffer. I feel I would be part-time until another income opportunity arose, or 5 yrs (age 40), whatever happened first. Another benefit to this scenario- assuming the savings don't get touched, they would continue to grow/ride out a short dip in the markets.

This scenario has us going onto Obamacare ($35k gross + 5k dividends that are reinvested= $40k MAGI for a family of 3 in February, which seems to be about the cutoff for an 87% actuarial silver plan).

Am I missing anything with thoughts on scenario #2?

Anything in the budget seem amiss? Anything I'm missing?

Last thoughts- having "just enough" money might get wearisome after some time, so I'm contemplating to not reinvest dividends down the road to have some 'living money/vacation' funds available. Only downside I see to that is the investments don't grow as fast, but I think I'm to the point where the money grows most due to it sitting there, and not to me putting more money into it.

Thanks for looking!

blingwrx

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Re: Ready to retire (or at least downshift?)
« Reply #1 on: October 14, 2018, 09:34:06 PM »
Besides the $200-ish a month there are other baby start up costs as well. Car seat, strollers, crib, furniture, clothes, toys and other necessities. Hopefully you have friends or family who can pass these things down to you so you'll save a lot there, but it would still be best to get a new car seat and some things you might not want used due to sanitary and wear and tear and safety reasons.

Any plans for more kids down the line? that would increase your expenses again.

You also have to think long term as kids costing more the older they get. Sports, activities, cell phones, allowance, car/car insurance, college tuition, clothes, family vacations ect.?

You're doing a great job with the lean expenses. Our grocery bill is more than double that.

Though you haven't really put in any calculations for vacations. One would assume with all the free time you would also spend more on travel and entertainment for the kids in the future.

According to the 25x rule you'd be ok for FIRE assuming the 10k annual gift last another 30yrs or until SS kicks in and your expenses don't increase too much. Though i'd assume the 10k isn't inflation adjusted so that could be an issue down the line. Another wild card is if ACA subsidies will last. Who knows if they'll get rid of this in the future. Without the subsidies your looking at another $750ish a month for insurance.

Your numbers are too close for comfort and everything would need to work out perfectly for it to work. So I  would say go with scenario #2 winding down and testing the waters for a few years as it's a safer bet since your expenses may increase more than you expect with a new addition and maybe you'll want another down the line as well, or maybe your expenses increase as you have more free time and want to do more things. Winding down would also be good so you don't just stopping work cold turkey as some people get bored of not being productive or miss the social interaction with coworkers. Though having kids definitely fills a lot of that void and while they're a joy most of the time it's also a pain other times and it's certainly nice to take a break from the crying for a few days a week working part time. I would say it doesn't really take 2 parents to watch 1 baby, but if you have a 2nd it definitely helps to have both parents around as it's going to be a lot tougher for one parent to watch 2. So if you're planning another then wait until then to fully FIRE and hopefully you would of built more of a cushion by then.

Nick_Miller

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Re: Ready to retire (or at least downshift?)
« Reply #2 on: October 15, 2018, 08:01:04 AM »
Another vote for the "Downshift" option, option #2.

I'd definitely recommend seeing what life is like post-baby for a few years before making a decision for you both to come home. Babies can be expensive, even without daycare costs.

Thankfully you have your costs dialed in really low, so even the part-time gig you mentioned should be enough to keep you from eating into your Stache. I'd let that Stache grow untouched and try to at least break even otherwise for the next few years.

thatsdifferent

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Re: Ready to retire (or at least downshift?)
« Reply #3 on: October 15, 2018, 05:11:23 PM »
Besides the $200-ish a month there are other baby start up costs as well. Car seat, strollers, crib, furniture, clothes, toys and other necessities. Hopefully you have friends or family who can pass these things down to you so you'll save a lot there, but it would still be best to get a new car seat and some things you might not want used due to sanitary and wear and tear and safety reasons.

Any plans for more kids down the line? that would increase your expenses again.

Luckily we've been able to hit the used circuit quite well, so costs have been reasonable. We do plan for another kid though...

You also have to think long term as kids costing more the older they get. Sports, activities, cell phones, allowance, car/car insurance, college tuition, clothes, family vacations ect.?

Though you haven't really put in any calculations for vacations. One would assume with all the free time you would also spend more on travel and entertainment for the kids in the future.

That is a bit of a concern, hence I'm open to taking dividends as cash at some point in the future to pad out the spending money.

All good points to keep in mind!

nessness

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Re: Ready to retire (or at least downshift?)
« Reply #4 on: October 16, 2018, 09:03:54 AM »
Personally I wouldn't be comfortable with a budget that was dependent on a yearly gift from a relative. Any number of things could happen that could decrease or stop that gift at any time.

Does your $60 fun money cover clothing as well? You mention wanting to spend time on hobbies, but you haven't budgeted for them - are your desired hobbies free?

thatsdifferent

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Re: Ready to retire (or at least downshift?)
« Reply #5 on: October 16, 2018, 08:45:06 PM »
Personally I wouldn't be comfortable with a budget that was dependent on a yearly gift from a relative. Any number of things could happen that could decrease or stop that gift at any time.

Does your $60 fun money cover clothing as well? You mention wanting to spend time on hobbies, but you haven't budgeted for them - are your desired hobbies free?

Your concerns on the gift are valid. It's based on farmland income, so it's not totally willy-nilly, and it's been going on for a number of years, but yes- things could happen.

The fun money covers clothing (which has been fine). Hobbies I intend to catch up on once my schedule opens up include reading/weeding the library, learning piano, genealogy, as well as more 'fun' projects such as digitizing/organizing photos, and making digital scrapbooks. Not a lot of expense anticipated. But once that list gets whittled down/as little ones get bigger, travel will be a foreseeable expense.

I appreciate people asking questions and trying to poke holes in my plan- I ask for any and all crazy questions from my wife to see if there's any angle I'm missing.

lhamo

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Re: Ready to retire (or at least downshift?)
« Reply #6 on: October 16, 2018, 09:27:52 PM »
I'd go with Option #2, too -- relying on the family gift to meet the basic budget is just a bit too risky in my book. 

Definitely take advantage of your low-income trial period to move as much of your longer-term investments into Roths as you can -- and remember that money you withdraw from savings or principal you cash out of your taxable accounts to live off of will NOT be included as income in your MAGI calculations.  So you might want to continue to max out your retirement accounts (bringing down taxable income), pull a little from savings/investments to live off of (some tax loss harvesting might also be wise here), an then roll whatever you can into your Roth ladder each year in the while staying in the lower brackets. 

nath

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Re: Ready to retire (or at least downshift?)
« Reply #7 on: November 06, 2018, 03:01:50 AM »
I would propose a 3rd option, work for another few years, full insurance available and as a stress relief you can still enjoy vacations with the new baby.
The main aim should be to pay off your modest mortgage completely and have a cash savings account of at least $50k IMO.  Then pull the plug and see how you are traveling a couple years later. Would be better to do that and sleep easier on your cash cushion, then if markets fail or you feel bored then look at part time work when the baby is in school.