So, I'm a few months out from taking a fairly substantial pay cut in exchange for going from full-time-plus to 60%. I am sort of an expert of sorts, so I'll still be making really good money (as LLC taxed as an S-Corp, and we're in one of those no-income-tax states), but I'm kind of nervous about cashflow even though I think rationally, I shouldn't be. Wife is working part time while finishing a masters program, but school's over sometime in 2022, so I think she'll start working more or at least we won't have tuition to pay in 1-2 years.
Anyway, in an effort to just make me feel better, I realized a 3% withdrawal rate would be $2600 / month from our portfolio. Given the pretty much 100% success rate of that withdrawal rate, adding that in makes some sense to me - if we don't need it, we don't take it out but we could take that. So I came up with this to try and set parameters in my head around where we need to keep spending before sounding alarms. Wondering what y'all think:
| Cash flow: | No match | 25% match | |
| S-Corp Gross | 120000 | 120000 | |
| Less FICA | 9180 | 9180 | |
| Less Health Insurance | 10000 | 10000 | |
| Less HSA | 7200 | 7200 | |
| Less 401K | 19500 | 38800 | *S-Corp match to soloK should be capped at 25% of Salary ($60K) + Health Insurance + HSA |
| Less Expenses | 1200 | 1200 | |
| Less Worst Case Fed. Tax | 10100 | 7300 | *could be as low as -2500 if we can get ACA credit - controlling spending helps big time on this line |
| | | |
| Annual Net | 62820 | 46320 | |
| Monthly Net | 5235 | 3860 | |
| | | |
| Spouse Net | 600 | 600 | |
| 3% from portfolio | 2600 | 2600 | |
| | | |
| Total monthly expenses before real problem: | 8435 | 7060 | |
The federal tax is "worst case" assuming we withdraw the whole $2600 portfolio allocation every month and do so from an account where that is taxable. And also skip tIRA contributions. I think we'd have at least 2-3 years of tax-free or "lower tax rate than that" at least before we'd get to "reduce employee 401K " and then "wife's 457b", so I think it is conservative. I'm also being conservative on the "spouse net" line - was more like $1K / month net in 2020. But that is quite variable. We really could get our AGI down to where our net federal income tax bill after ACA credits to -$2500, but we'd probably have to cut spending beyond what we realistically will, so more like 'fake it by spending down some more accounts for a few years' there. I'm just going to pay full price for insurance and we'll figure out if we can get there and what we need to do to pull that off at the end of the year.
About $5000 was the net income number I got to at first with maxing everything we can and I didn't think we can get there in the short term, particularly when we'd need $1,000 for tIRA contributions, and another $1,000 for school on average per month, and yet another $1,000-1500 for charitable commitments we've made. But $8000+ before we hit a real problem? Suddenly it all works and works easily.
This was mostly to just to sell myself on "we really are going to be OK" - just hope I'm not making any glaring omissions. Idea was to get to "cash from new business that we can spend on personal stuff", then add in other income to see where we need to be.
