Author Topic: Planning with increasing salary and expenses with cliff  (Read 2286 times)

Hapenny

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Planning with increasing salary and expenses with cliff
« on: May 10, 2015, 12:13:43 PM »
I love the article about save 70% of your income and retire in 10 years. However, we are about 7 years in and I am flummoxed by drastic changes and am trying to figure out how to adjust my plan. Thought I would try to generalize the question and ask the forum.

Example (but this isn't meant to be a case study, just a question on planning that should be generally applicable to anyone who might marry and have kids and wants to know what's coming so they can make their plan a touch more life-proof).

Original numbers:  starting out after grad school I made 56k, hubby made 12k as a post doc. We saved about 50%.
Today:  I make 150k, hubby makes 100k. We still save about 50% (3 kids now and medical expenses is our biggest expense (have some issues that will be on-going) daycare is our next biggest expense, quickly followed by our home mortgage.

Obviously those percent of income saved/yrs to retirement projections only work if income and expenses are constant. With increasing income and increased expenses this is a moving target.

Wondering if there are any slick rules of thumb to try to stay on track as income takes big leaps and as family members are added.


I am hoping we are at the expense peak and daycare will go down as kids hit school and mortgage is paid off - 15 yrs out - but I guess I don't really know. Maybe income will rise more, maybe plateau.

with a constant 50% savings we should be able to retire in 13-14 yrs. we are 7 yrs in but it doesn't seem like we will make it in another 7.

Two questions for the group.
#1. What tips or tricks will help address changing income and expenses and let us plan accordingly?
#2. What % did you save and how many years did it take, or will it take, you to retire based on current projections?  Some real world numbers might help me see a new rule of thumb.

Also when you see income rise, and expenses rise when having a family, do the expenses plateau? Or rise further? Or go back down later?

Thanks!


Interested in comments from this experienced group!  I would have loved to read the responses when just starting out, so hopefully others will find this thread valuable as well.

Thanks!



MDM

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Re: Planning with increasing salary and expenses with cliff
« Reply #1 on: May 10, 2015, 05:12:59 PM »
Two questions for the group.
#1. What tips or tricks will help address changing income and expenses and let us plan accordingly?
Rules of thumb and single equations typically assume constant conditions.  For time-dependent income & expense you'll want something like www.cfiresim.com, Quicken's Lifetime Planner (pretty good, based on firsthand experience), Fidelity's planner, etc.

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#2. What % did you save and how many years did it take, or will it take, you to retire based on current projections?  Some real world numbers might help me see a new rule of thumb.
Could have retired earlier but work was still fun enough.  Didn't have a particular target - just kept expenses down and invested everything else.

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Also when you see income rise, and expenses rise when having a family, do the expenses plateau? Or rise further? Or go back down later?
They hit a maximum during the kids' teenage years (and maybe a year or two more, depending on college funding) and then decline.

Scandium

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Re: Planning with increasing salary and expenses with cliff
« Reply #2 on: May 11, 2015, 10:50:12 AM »

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Also when you see income rise, and expenses rise when having a family, do the expenses plateau? Or rise further? Or go back down later?
They hit a maximum during the kids' teenage years (and maybe a year or two more, depending on college funding) and then decline.

Interesting. Did you pay for daycare before that? What are the largest expenses for teenagers? I'm trying to model our potential for saving in the future, and as daycare is $15-20k per year I'm hoping our savings will jump once we're done with it. I can't imagine the "kids cost" being that much for a teenager but I have no idea.

MDM

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Re: Planning with increasing salary and expenses with cliff
« Reply #3 on: May 11, 2015, 12:18:39 PM »
Interesting. Did you pay for daycare before that? What are the largest expenses for teenagers? I'm trying to model our potential for saving in the future, and as daycare is $15-20k per year I'm hoping our savings will jump once we're done with it. I can't imagine the "kids cost" being that much for a teenager but I have no idea.
No daycare per se - some pre-school, but also one SAHP.

The teenage years include various music/dance/sports/etc. activity fees, groceries, etc. - but most of all, college.

Just saying "college," however, doesn't narrow it down much.  You can spend anywhere from $0 (hey, kid, you're on your own) to $65K (hey, kid, money's no object - we'll pay for it all) per child per year.  We were somewhere in between....

Sibley

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Re: Planning with increasing salary and expenses with cliff
« Reply #4 on: May 11, 2015, 12:49:32 PM »
With that income and your savings rate, I'm guessing that your expenses have really ballooned. Really try to reduce them. Yeah, daycare can be expensive (I've heard) and medical costs can add up, but it's not the only thing you spend money on. And there's things you can do to help with those sometimes. Post a full case study and let everyone look at your expenses. Just be willing to accept facepunches.