Author Topic: Dual Income - When can we move to one salary?  (Read 7934 times)

LiseE

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Dual Income - When can we move to one salary?
« on: February 26, 2015, 12:49:45 PM »
We are 48(me) and 47(hubby) .. not exactly retiring that early .. but early none the less.  We both have full time corporate jobs.  We have two young sons (9 and 7) that I would like to spend more time with and would like to retire from my corporate job in 2 years (age 50).

I found MMM early last year and we spent most of 2014 analyzing our spending and looking at our expenses.  We've made terrific progress and are starting 2015 debt free with only a 283K mortgage to payoff.

My Hubby loves his job and isn't interested in retiring early but I'm planning on it just to see what the numbers are.  Even if he wishes to continue to work, we are looking for the moment when we are no longer needing to work.

Here are some numbers.

My 401K: 380K
Hubby's 401K: 180K
Inherited IRA: 110K

I used the calcxml.com site for the future values of our 401K's as outlined below.

  • My 401K will grow to be worth 450K in 2 years.  - (this is with 7% contribution and 50% company match on 6% earning 7%)
  • Not drawing from my 401K for the next 10 years, my 401k balance will grow to 900 at 7%.

  • My Hubby's 401K will grow to be worth 1.4M in 12 years.  - (this is with 20% contribution and 100% company match on 20% earning 7%)

 - Not drawing from our 401K's for 12 years, our 401K balance would be 2.3M. 
 - Not drawing from our 401K's for 5 years, our 401K balance would be 1.1M

I have not included the Inherited 401K in any of these numbers.

This year we are putting my entire salary toward paying down the mortgage to see how/if we can manage on my hubby's salary although I will find work of some kind and will be bringing in some money.

Can I do it?  Can I quit the rat race in two years to spend more time with my family and to explore work that I actually enjoy and love?

Part of me wants to continue to work until our mortgage is paid off.  That will lessen our expenses by $2500 a month .. but the boys are growing so fast .. and I'm missing it!!!!


mandy_2002

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Re: Dual Income - When can we move to one salary?
« Reply #1 on: February 26, 2015, 12:59:38 PM »
The biggest part of the equation is missing here.  What are you current expenses?  Without that, we don't know if you'll need $500k or $4MM to retire. 

For either situation, continue your goal to pay off the house.  Removing the majority of a house payment (interest and taxes never die) will be great for the expense sheet.

Aphalite

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Re: Dual Income - When can we move to one salary?
« Reply #2 on: February 26, 2015, 01:04:03 PM »
It's all about the expenses, right now your investments of 670k can support $27k of annual expenses, if your husband can cover the remainder portion of expenses with 50% to 70% of his salary (allowing you to still save 30-50%), then you're fine to quit right now since you said he wants to keep working

LiseE

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Re: Dual Income - When can we move to one salary?
« Reply #3 on: February 26, 2015, 01:07:55 PM »
Current Monthly expense: 6K (2900 mortgage payment)
Monthly expense w/o mortgage payment: 3100   (This number is based on current expenses which we are working to lessen so it could be less)


aphalite:  So in 5 years time, our 401K balances will be 1.1M will be able to support 44K? 
« Last Edit: February 26, 2015, 01:13:17 PM by LiseE »

RFAAOATB

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Re: Dual Income - When can we move to one salary?
« Reply #4 on: February 26, 2015, 01:15:49 PM »
Is there enough money to pay for college?  While throwing all that money towards the mortgage is tempting do you have enough to fund at least 8 years of in state tuition?  Will one salary be enough to cover that as needed if the mortgage goes away?  If you can, give your children the gift of being college graduates without worrying about student loans.

LiseE

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Re: Dual Income - When can we move to one salary?
« Reply #5 on: February 26, 2015, 02:12:45 PM »
Keep forgetting info ..

Monthly expense: 6K
Hubby's monthly take home pay: 6.2K

We have the inherited IRA to be used for college and have 600K in equity in paid off house as well.

Just want to understand if we can generate enough income from our 401K's for me to stop working in 2 years time.

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Re: Dual Income - When can we move to one salary?
« Reply #6 on: February 26, 2015, 02:26:55 PM »
...

Monthly expense: 6K
Hubby's monthly take home pay: 6.2K

We have the inherited IRA to be used for college and have 600K in equity in paid off house as well.

Just want to understand if we can generate enough income from our 401K's for me to stop working in 2 years time.


From all the info you have posted so far, I see looking ahead 2 years:
-- husband take home pay $6000/mo ($72K annual)
-- expenses $6000/mo ($72K annual)
-- 4% safe withdrawal rate on your 401K: $18K annual  (there's a way to do that and still avoid the 10% penalty)
-- the inherited IRA covers questions about college tuition as well as emergency reserves
-- bottom line: cash coming in exceeds cash going out by $1500 a month

You can see the answer to your question... can't you?  As long as your husband keeps working, you CAN stay at home.

Good luck!

SeniorLibertarian

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Re: Dual Income - When can we move to one salary?
« Reply #7 on: February 26, 2015, 02:31:51 PM »
If your monthly expenses are $6K ($72K/yr), applying the 4% rule means you need $1.8M in invested assets ($72K x 25 = $1.8M). It looks like you aren't there now.

(1) The above doesn't consider taxes, as I don't know if your expenses included taxes.

(2) I'm not comfortable with your forecasts of future amounts in qualified plans as markets go up and down. I would only FIRE (alone or as a couple) once you had the needed amount on a present date. Others may disagree.

(3) Your children are young, and nothing you have posted suggests that you have taken into consideration future costs related to them, including college, as others have noted. Some here will say that children are not expensive. I also fall well short of full MMM status. In my experience, children are expensive. They are wonderful, so don't get me wrong. But people who FIRE with young children may not be fully contemplating financial considerations down the road.

(4) Pfau has suggested that 4% is aggressive (i.e., too high) in a low interest rate environment so the above may not even be conservative enough.

teacherwithamustache

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Re: Dual Income - When can we move to one salary?
« Reply #8 on: February 26, 2015, 02:33:43 PM »
Is moving an option?  You are just about there for both of you to retire.  If you have 600k in equity in your house I would sell that house and move somewhere to watch your kids grow up.  Buy a 200K house and then the 400k in equity will generate another 20k in money for you every year in addition to the 401K growth.  Even if your husbands monthly is not 6K at the new place and just 3K but with better hours you are still looking good.

Yes you can quit.  Now all you need to do is pull the trigger.

mandy_2002

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Re: Dual Income - When can we move to one salary?
« Reply #9 on: February 26, 2015, 02:43:10 PM »
Is there enough money to pay for college?  While throwing all that money towards the mortgage is tempting do you have enough to fund at least 8 years of in state tuition?  Will one salary be enough to cover that as needed if the mortgage goes away?  If you can, give your children the gift of being college graduates without worrying about student loans.

I disagree with this, and believe that MMM would disagree as well.  I don't claim to know anything about his parenting, however I remember reading that Little MM will have to figure out the best way to get his education, if he decides he even wants it.  I've said it before, but it bears repeating:  You can finance college, but you can't finance retirement.  Your job is not to make life as easy as possible for your kids, it's to help them become functioning adults with the ability to provide for themselves.  Support them as you can, and be up front with them from the beginning what that means (total support, partial support and get scholarships, zero support and get out of my house!), and then help them figure out how to move forward. 

I suggest staying away from that last one, and to a lesser extent staying away from the first one. 

rocketman48097

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Re: Dual Income - When can we move to one salary?
« Reply #10 on: February 26, 2015, 02:45:09 PM »
You already have too much for old age retirement (past 60).  Why didn't you list your incomes?  Your retirement savings is done. 

SeniorLibertarian

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Re: Dual Income - When can we move to one salary?
« Reply #11 on: February 26, 2015, 02:51:51 PM »
Yes you can quit.  Now all you need to do is pull the trigger.

I may be missing something but everybody else here seems to assume that the 4% rule applies when a person retires in Year 0 but, at Year 0+18 (or whatever), I will have enough.

I don't think it works that way. The 4% rule (or less, if you apply Pfau's recent analysis) means you have the entire nut on Day 1 in Year 1 when you pull the ripcord and FIRE. Here, OP (and DH) have $670K (combined). That amount supports an annual draw down of $26.8K, which is well south of their annual $72K burn rate.

Unless (1) DH (whose savings already appear paltry in comparison to his spouse) keeps going for a very long time and (2) the couple downsizes their current burn rate, they may have a false sense of security.

None of the above considers SS, of course, which could help.

LiseE

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Re: Dual Income - When can we move to one salary?
« Reply #12 on: February 26, 2015, 02:56:54 PM »
Mandy I actually agree with you but was just outlining the vision we have for the question that was asked.   While I don't want to saddle my children with a mountain of student loan debt .. I think it will help them in the long run to have a small student loan to pay off.  I also agree that since retirement can't be financed it is the larger priority.

So I currently earn a little less than my hubby.  If I leave my corporate job in two years I will continue to work elsewhere and aim to earn at least 35k which I know I could do with contact work.   

I do not wish to tap into our 401ks until we are fully FIRE .. looks like somewhere between my 5 and 12 year calcs.   

To the poster regarding my future forcasts .. I did only allow for 7% earning interest as MMM  uses when looking at future value of money and adjusted for inflation.



SeniorLibertarian

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Re: Dual Income - When can we move to one salary?
« Reply #13 on: February 26, 2015, 03:20:24 PM »
Is there enough money to pay for college?  While throwing all that money towards the mortgage is tempting do you have enough to fund at least 8 years of in state tuition?  Will one salary be enough to cover that as needed if the mortgage goes away?  If you can, give your children the gift of being college graduates without worrying about student loans.

I disagree with this, and believe that MMM would disagree as well.  I don't claim to know anything about his parenting, however I remember reading that Little MM will have to figure out the best way to get his education, if he decides he even wants it.

This is the $160,000 question for parents ($40K/year per child for a private college), in my humble view. If you make the decision not to pay for your child's education -- and well in advance, no less -- contemplate the following discussion when your child is 17 years of age:

"FIRE'd Parents: Abby, it is wonderful you were admitted to MIT, but we are not paying for it as we decided to FIRE 20 years ago. If you want an advanced education, you will have to take on significant loans and/or go to the local community college.

"Abby: I've seen Dad in the basement for the past 20 years, and if not there he is riding his bike, and we're growing apples and peaches, so we're living the life and it's all good. But are you saying if Dad put in a few more years at the office 15 years ago I could have gone to MIT debt free?

"FIRE'd Parents: Maybe. But we're growing apples and peaches, and Dad is fit and trim and we're saving money and we're focused on our well-being, so it will all work out for you, too, we're sure."

So I don't think that question is so trivially dismissed.
« Last Edit: February 26, 2015, 03:46:27 PM by SeniorLibertarian »

iamadummy

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Re: Dual Income - When can we move to one salary?
« Reply #14 on: February 26, 2015, 03:37:04 PM »
agree it's a personal decision to pay for kids college or not.  if you can afford it great. it would be a big benefit to them, even partial. if not, then oh well. MMM fan boys soon to follow

RFAAOATB

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Re: Dual Income - When can we move to one salary?
« Reply #15 on: February 26, 2015, 03:47:06 PM »
Is there enough money to pay for college?  While throwing all that money towards the mortgage is tempting do you have enough to fund at least 8 years of in state tuition?  Will one salary be enough to cover that as needed if the mortgage goes away?  If you can, give your children the gift of being college graduates without worrying about student loans.

I disagree with this, and believe that MMM would disagree as well.  I don't claim to know anything about his parenting, however I remember reading that Little MM will have to figure out the best way to get his education, if he decides he even wants it.

This is the $160,000 question for parents ($40K/year per child for a private college) and isn't so readily dismissed, in my humble view. If you make the decision not to pay for your child's education -- and well in advance, no less -- contemplate the following discussion when your child is 17 years of age: "Abby, it is wonderful you were admitted to MIT, but we are not paying for it as we decided to FIRE 20 years ago. If you want an advanced education, you will have to take on significant loans and/or go to the local community college."

I don't think that question is so trivially dismissed.
Another contemplation...
Cheap out on my college?  That's it, when the time comes you're going to the cheap and creepy old folks home instead of the more pricey better option.  My parents said it was a dream to send me to MIT, but I had not the drive and applied to the safe state school.  I remember last year seeing something on TV about student loans, turning to my mom and asking her jokingly "What the hell are student loans?" 

Of course I want to out do that for my future children but my wife is insistent that we will not be sending children to Phillips Exeter.  Even more bad news, my future wealth calculations say its more likely to be a grandchildren plan than a children plan anyways.



mandy_2002

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Re: Dual Income - When can we move to one salary?
« Reply #16 on: February 26, 2015, 03:49:48 PM »
Is there enough money to pay for college?  While throwing all that money towards the mortgage is tempting do you have enough to fund at least 8 years of in state tuition?  Will one salary be enough to cover that as needed if the mortgage goes away?  If you can, give your children the gift of being college graduates without worrying about student loans.

I disagree with this, and believe that MMM would disagree as well.  I don't claim to know anything about his parenting, however I remember reading that Little MM will have to figure out the best way to get his education, if he decides he even wants it.

This is the $160,000 question for parents ($40K/year per child for a private college), in my humble view. If you make the decision not to pay for your child's education -- and well in advance, no less -- contemplate the following discussion when your child is 17 years of age:

"FIRE'd Parents: Abby, it is wonderful you were admitted to MIT, but we are not paying for it as we decided to FIRE 20 years ago. If you want an advanced education, you will have to take on significant loans and/or go to the local community college.

"Abby: I've seen Dad in the basement for the past 20 years, and if not there he is riding his bike, and we're growing apples and peaches, so we're living the life and it's all good. But are you saying if Dad put in a few more years at the office 15 years ago I could have gone to MIT debt free?

"FIRE'd Parents: Maybe. But we're growing apples and peaches, and Dad is fit and trim and we're saving money and we're focused on our well-being, so it will all work out for you, too, we're sure."

So I don't think that question is so trivially dismissed.

When you remember that the FAFSA doesn't take retirement savings (both 401k and IRA) or primary home value into account, the picture gets far rosier. If you are able to build up these accounts as much as possible, your savings impact on financial aid should be minimal. 

I was in the boat of being accepted to an ivy league university, but because my parents finances came out really high on the FAFSA, and they went the "no support and get out of my house" route, I didn't go there, and instead went to a state school.  For many undergrad degrees, the school really doesn't matter.  As a chemical engineer, I know that my opportunities were not hindered or devalued and I do not regret saving $100,000 one bit (their FAFSA numbers showed $40k/year capable, and I was the only kid going to college).  I know this because I've been working as a recruiter for a fortune 100 chemical company, and the only thing we worry about with schools is their accreditation. 

SeniorLibertarian

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Re: Dual Income - When can we move to one salary?
« Reply #17 on: February 26, 2015, 06:51:29 PM »
I've concluded you don't have children. I'd also guess you are single -- and young. I may be mistaken.

I'm also an engineer (state school). And I'm old.

And 30 years later we're putting our kids through both undergraduate and graduate schools.

You seem to now be shifting your argument -- i.e., making a private/public school argument vice a "toss your kids out of the bus at age 18 and hope they make it" argument.

I'm a big fan of public schools.

If you are now saying parents should consider putting their kids through public schools, I'm with you.

If instead you are continuing to say something else -- e.g, "I decided to exit the work force at age 28 but continued thereafter to have kids yet I'm still finding myself into my '30s and '40s while not working" -- I continue to disagree.

At some point, adherents of this philosophy face a dichotomy between self-interest and helping one's children. I'd suggest that once a person decides to have children, they have an obligation to not prematurely toss them under the bus so the parent can dabble in non-lucrative hobbies/pursuits thereafter in lieu of keeping one's shoulder to the grindstone in the workforce.
« Last Edit: February 27, 2015, 01:18:57 AM by SeniorLibertarian »

Aphalite

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Re: Dual Income - When can we move to one salary?
« Reply #18 on: February 27, 2015, 08:38:18 AM »
Current Monthly expense: 6K (2900 mortgage payment)
Monthly expense w/o mortgage payment: 3100   (This number is based on current expenses which we are working to lessen so it could be less)


aphalite:  So in 5 years time, our 401K balances will be 1.1M will be able to support 44K?

Getting back on topic - if your husband plans to continue working til retirement age, you guys are fine. Conservative growth rate of 7% on 670k puts you at $2m by the time your husband turns 65, which supports $80k

The 4% number is fine, it's only lower if you pay high fees on your retirement holdings (the new studies all say 3% is safer but that's accounting for 1% portfolio fees). While it's true interest rates are currently lower, that means inflation is lower right now as well (there's a bit of a time lag on inflation increase before interest rates are increased), so 4% still preserves your capital

LiseE

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Re: Dual Income - When can we move to one salary?
« Reply #19 on: March 02, 2015, 10:24:34 AM »
SeniorLiberarian .. this has been on my mind all week ..

Quote
"Abby: I've seen Dad in the basement for the past 20 years, and if not there he is riding his bike, and we're growing apples and peaches, so we're living the life and it's all good. But are you saying if Dad put in a few more years at the office 15 years ago I could have gone to MIT debt free?

"FIRE'd Parents: Maybe. But we're growing apples and peaches, and Dad is fit and trim and we're saving money and we're focused on our well-being, so it will all work out for you, too, we're sure."

My goal was to have 100K saved up for each of my two sons for college and then figure it out from there .. that has always been the goal inside my head.  I started looking at college tuition this past week.  It's insane how much college costs today and what on earth will it cost in 15 years?  I don't even want to know.  I grew up in a upper middle class family.  We never went away on vacation (ever) .. and that was alright by me.  I had a fantastic childhood and never knew how hard my folks worked to scrimp and save.  My father encouraged us all to attend Community College for the first two years of our undergraduate studies.  I think it makes great sense especially for the basic course studies that are required in the first two years.  I'm going to also encourage my boys to do the same. 

How on earth is the school that I went to 38K a year (tuition only ... I lived at home and commuted to school) and Harvard University is 43K (tuition only).  The schools that my brothers and I went to were not very expensive schools at the time .. my father would not have been able to afford them.

Anyway, I digress ... I don't know how we can save for retirement AND college for our kids.  At this rate, school for them will be close to 100K a year!
The quote above weighs heavy on my heart.  Yes, I'm anxious to retire from corporate life .. but it's not to tinker in the basement and enjoy some new hobbies .. it's to be more available to my children now, while they are young. 

What will they appreciate more, that I was there for them when they were young or that I worked longer to save up more for their college funds?  What if I sacrificed all of those years working more and they decide they don't want to go to college? 



RFAAOATB

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Re: Dual Income - When can we move to one salary?
« Reply #20 on: March 02, 2015, 12:17:05 PM »
What will they appreciate more, that I was there for them when they were young or that I worked longer to save up more for their college funds?  What if I sacrificed all of those years working more and they decide they don't want to go to college? 

College was not an option for me.  It was motherfucking mandatory.  I failed my first year and got put on academic probation.  After a semester off I went back and changed majors and graduated on time because it was motherfucking mandatory.  Accounting for the impulsiveness and shortsightedness of 18 year olds, it is imperative that they be guided or dragged to the right path.

ShoulderThingThatGoesUp

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Re: Dual Income - When can we move to one salary?
« Reply #21 on: March 02, 2015, 12:42:30 PM »
Anyway, I digress ... I don't know how we can save for retirement AND college for our kids.  At this rate, school for them will be close to 100K a year!

If something can't go on forever, it won't. That doesn't mean we aren't planning on paying for our 1-year-old's college, but we're not expecting it to be 100k a year.