Case Study- Daycare or SAHM??

[DCteach]

Life Situation: Married filing jointly, me (30), DW (31), both teachers in HCOL, Wash. DC. Welcomed DD in December of 2017!!!

BIG Question: Wife will be returning to work in a few weeks, and will have 8 weeks of the school year until summer. Should she go back to work full-time and use daycare for DD (referred to as Daycare option), or be a SAHM for another few years?

GROSS SALARY

Daycare: 236937 (Me: 116408 salary 10000 addt'l comp; DW: 95529 salary, 15000 addt'l comp)
SAHM: 126408 (Me: 116408 salary 10000 addt'l comp)

Additional compensation for me is performance bonus. Not a guarantee, but have received it each of past three years. Additional compensation for DW is fellowship grant and extra-duty pay.

**Note that DW could almost certainly make an extra $500-$1200 a month through private tutoring. Haven’t included that here, just because it’s tough to predict and might fluctuate significantly**

PRE-TAX DEDUCTIONS

Daycare: 113685.28 (37000 403b, 37000 457, 11000 IRA, 16954.96 pension contribution, 6730.32 healthcare, 5000 FSA)
SAHM: 58542.96 (18500 403b, 18500 457, 5500 IRA, 9312.64 pension contribution, 6730.32 healthcare)

AGI

Daycare: 123251.72
SAHM: 68865.04

TAXES (determined from Case Study Spreadsheet)

Daycare: 19838 (2906 Medicare, 11765 Federal, 5167 State)
SAHM: 5530 (1521 Medicare, 1710 Federal, 2299 State)

EXPENSES (Some monthly expenses would definitely be adjusted if DW is SAHM. These are noted in parentheses.)

Rent: 2000
Daycare: 2050 (0 SAHM)
Cars/Gas: 125 (110 SAHM)
Groceries: 475 (425 SAHM)
Household: 175
Personal Care: 125 (100 SAHM)
Eating Out: 225 (150 SAHM)
Hulu: 12
Union: 156 (78 SAHM)
Cats: 80
Internet: 91
Baby stuff: 175
Travel: 200 (100 SAHM)
Misc: 450 (350 SAHM)

Total: 6339 (3846 SAHM)

ASSETS

470000 (split amongst 403b's, 457's IRA's pensions [which we will roll over to IRA when FIRE'd], brokerage, emergency fund)

LIABILITIES

None

FIRE PLAN

For either situation, our FIRE plan is to accumulate anywhere from 1.1 - 1.5 million (depending on how we are feeling about work), and move to a LCOL or MCOL area with warm weather where we can spend ~4000/month. Tutoring or side-gigs and being able to adjust spending as needed should hopefully allow for a comfortable retirement.

Daycare
Can stash 100000+ each year for a few years, hit about 1.2 - 1.3 million in about 5 years based on 7% returns, at which point we will probably RE.

SAHM
Can stash about 50000 each year that DW doesn’t work. She would eventually return to work when DD goes to kindergarten at latest. Should hit about 1.1 million in about 6 years, might do an extra year or two, but might pull the plug then.

FINAL THOUGHTS

Just looking for thoughts/opinions about the two FIRE plans, and perspective about going back to work vs. staying at home. Obviously there is a question of “how much do you value having DW to be DD’s caretaker” that can’t be quantified easily.

DW has loved being on maternity leave, and is somewhat dreading returning to work and sending DD to daycare. She has expressed to me that she is happier staying at home than working, but is also hesitant to pass up the money and extend our time to FIRE. DW gets frustrated or stressed from work pretty often, but recognizes that the salary is great. Although her job stresses her a lot, she is very well-regarded and has a lot of clout at her current school. She would possibly be able to return to her current school if she leaves for a few years, but of course not a guarantee.

Having DW do private tutoring could probably be fairly lucrative. She is a highly qualified teacher that students and parents adore, and could probably earn ~$100/hr. As mentioned, I haven’t really included that in the SAHM plan so that I can get a conservative, “worst case scenario” type of picture. (I'm also not including this income to hedge against my performance bonus, which might not occur in some years.)

When we first started considering SAHM, I thought there was no way the numbers would work. Looking at it now, I feel like SAHM hardly changes the "big picture" for FIRE. One, maybe two, extra years of working for me, in exchange for DW to be home for DD's first few years...

We are hoping that the 8 weeks that DW will be doing at the end of this school year might provide some clarity into how we feel about these two options.

Any thoughts or perspectives are welcome!! Thanks!

[SimpleCycle]

Honestly, you are fine financially in either scenario, so it's more of a personal choice about what your wife wants to do.  She's in a career where returning after time off shouldn't be overly difficult, which is a consideration for many parents who want to SAH.

That said, I think your wife should return to work for the 8 weeks and then decide.  I totally dreaded the end of maternity leave but honestly I am much happier working now that I'm in the swing of things.

[slb59]

Is your daycare cost an estimate or based on real numbers? I got a good deal in the suburbs of DC five years ago, and was still paying about $100 more per month than you have written down. If it's an estimate, you might want to get some concrete numbers. If it's right, that's great!

Another consideration with daycare is the added transit time and costs. I thought the twenty minute drive wouldn't be a big deal, but it definitely negatively impacted my day.

As the prior poster said, though, you look to be in great shape no matter which option you choose. I like the idea of going for eight weeks and then deciding over the summer. I've found it's been hard to predict how I feel about returning to work after maternity leave.

[wonkette]

Hello fellow DC residents! Thanks for teaching. Local news tells me we need ethical teachers now more than ever.

Financially you're doing great. Your spouse can take five years off or continue working and you'll be fine either way. I would encourage you to think through some other scenarios like...

Are there part-time roles available with the district your spouse would enjoy so she could stay around some of the same colleagues? Would there be corresponding part-time childcare available?
Do you like your your PreK3 option? What about sending DD to PreK3 and missing out on only three years of extra savings?
Do you want more children?

I would also challenge your assumption that your childcare expenses will go down to zero. Budget something for babysitting so your wife can get a break and/or fees for classes (kindermusic, swim lessons, etc). Things that provide structure to the week have been lifesavers for my SAHP friends.

[DCteach]

Is your daycare cost an estimate or based on real numbers? I got a good deal in the suburbs of DC five years ago, and was still paying about $100 more per month than you have written down. If it's an estimate, you might want to get some concrete numbers. If it's right, that's great!

Another consideration with daycare is the added transit time and costs. I thought the twenty minute drive wouldn't be a big deal, but it definitely negatively impacted my day.

As the prior poster said, though, you look to be in great shape no matter which option you choose. I like the idea of going for eight weeks and then deciding over the summer. I've found it's been hard to predict how I feel about returning to work after maternity leave.

The daycare cost is a real number. We are both teachers, so our daycare agreed to have us not pay during the 7-8 weeks over the summer but to reserve our spot, which lowers our total cost.

Thanks for the other suggestions! Hadn't given much thought to the transit time for daycare, so that's something to consider.

[DCteach]

Hello fellow DC residents! Thanks for teaching. Local news tells me we need ethical teachers now more than ever.

Financially you're doing great. Your spouse can take five years off or continue working and you'll be fine either way. I would encourage you to think through some other scenarios like...

Are there part-time roles available with the district your spouse would enjoy so she could stay around some of the same colleagues? Would there be corresponding part-time childcare available?
Do you like your your PreK3 option? What about sending DD to PreK3 and missing out on only three years of extra savings?
Do you want more children?

I would also challenge your assumption that your childcare expenses will go down to zero. Budget something for babysitting so your wife can get a break and/or fees for classes (kindermusic, swim lessons, etc). Things that provide structure to the week have been lifesavers for my SAHP friends.

Thanks for the input! Great questions! We are definitely open to the PreK3 option in a few years, which would potentially carve out more time for DW to work. More children is definitely something that carries a lot of impact (ie makes almost no sense to pay for daycare for two children vs. one), but we're so up in the air at this point about the when/if for more children that it's tough to factor that in.

Good call with budgeting something in for classes/activities/babysitters too.

[Easye418]

Wife dreaded returning to work but now she is OK with it, however, we are able to put him in daycare 2 days a week.  My wife dropped to part time and works 2 12 hour shifts.  She needs adult human time to keep balanced. 

Two notes:

1.  I had no idea teachers made that much money.  Great for you!

2.  Bravo on getting $470,000 by 31 and having zero debt, that is incredible IMO. 

[YoungGranny]

Honestly it doesn't delay your FIRE plans by that much so I think at this point it's a personal decision. Perhaps your wife could drop down to part-time since for a lot of new Moms they have a hard time giving up their career completely. If she tries that and decides she would prefer to stay home then she could quit. Seems like delaying FIRE by a year or two to get more quality time with your kid would be worth it especially if that's what she wants!

Best of luck to you and your new family =]

[formerlydivorcedmom]

Congratulations!  You have an awesome new baby and two really good financial plans for the future.  No matter what you choose, y'all will be fine.

I wanted to be a SAHM all my life.  When baby1 came, I quit my job.  When she was 12 weeks old, I was so pleased that I didn't have to go back to work and could stay home with her! 

By the time she was 6 months old I had a part-time job because, unfortunately, I am decisively not SAHM-to-an-infant material.  My husband also had high expectations for what my responsibilities would look like while I was him (hint:  me = everything.  him = "decompress") .  At a year, I was back at work full-time.  When baby2 arrived 2 years later, I kissed him goodbye at daycare the day he turned 12 weeks old and never looked back.  That's me.

I hope she finishes out the year to see what she thinks of working while having a baby.  It will be hard for her - per my teacher friends, the lack of sleep makes dealing with unruly classes infinitely harder - but it will help her evaluate what she really wants.

The great news is that her career is flexible enough that her options aren't binary.  She can tutor.  She can stay at home for 6 months, decide maybe this isn't for her, and substitute teach until the next school year.  She could decide to take a year off and then you take a year off.   She could look into teaching a class online.

There's no wrong answer.  Y'all have given yourselves a great foundation.

[ysette9]

I agree with SimpleCycle that trying returning to work for a bit with no commitment to sticking with it is a good way to go. It is much easier to quit a job that isn’t working out than finding a new one.

I’ve gone back to work twice now after babies and I can say that each time the dread and the build up was much worse than the reality. Not to say it isn’t tough, but I had made it out to be much worse in my head than it actually was. I’m also the type who needs alone time and adult time and is not cut out for being a stay-at-home parent. YMMV

[patchyfacialhair]

My wife went through the same dilemma, although our lifestyle is not as simple as yours, so we would have had to cut things if she stayed home.

The first month back at work was rough. I even wrote up her resignation letter to show her that I supported her either way. She didn't quit though. Baby is almost a year old now, and I don't see her planning on quitting at least for a few years.

This is a highly personal decision, and you can't go wrong either way. We smother the kid with love and stimulation when we have her, and she loves us, despite spending 8-4 M-F away from us. Our goal is to probably have one of us stay home with her once she reaches a point where she starts doing homework (so 2nd or 3rd grade). We both had stay at home moms growing up and we credit their discipline and parenting during and after school as one of the driving factors of our success.

[DCteach]

Thanks all! My wife and I have been thinking this over very heavily for the past few days. She will definitely be finishing the final 8 weeks of the school year (that was never in question), and we are leaning right now toward her staying at home for the next school year.

It's scary to give up the income/savings, but has been reassuring to have it framed to us as a simply personal decision since we are solid financially right now.

She's also getting excited about tutoring, and seeing what the potential earnings are for her there.

[clarkfan1979]

If your wife quit, wouldn't that screw up her pension? I would be tempted to do daycare to be able to fully cash-in on your wife's pension.

[DCteach]

If your wife quit, wouldn't that screw up her pension? I would be tempted to do daycare to be able to fully cash-in on your wife's pension.

Our pension works as a "forced contribution" type of deal. Our employer takes out 8% of our paycheck before taxes to go to the Teacher's Retirement Fund, which is the big pot for teachers who become eligible for retirement/pensions. If she leaves our employer before she is eligible for retirement benefits, she can still roll over the pension contributions she has made throughout her career into an IRA.

Plus, I don't think either of us are planning on working long enough to become eligible for retirement/pension (which requires working until at least age 55).

[jlcnuke]

At ~$2k/month for daycare, vs over $9k/month working, daycare is obviously much more beneficial financially. The "what's best for your family" (the extra money or extra time at home with the young one) question is a personal one only your family can answer for themselves.

[waltworks]

Wife decides based on personal/life satisfaction, leaving money out of it entirely. You guys are set enough that it's not going to derail FI or anything, and I don't get the sense that you hate your job, so do whatever she feels like doing and just roll with it.

My wife (PhD biochemist) decided after just a little bit of working after our daughter was born that she was done with it and quit. Best decision she feels she ever made. We were in a similar financial/life situation where we weren't fully FI but didn't need to sweat the little stuff too much, so it worked out fine.

Good luck!

-W

[Bimmy]

Quitting could have a nice benefit. She gets time with the baby, and she can use quitting as an opportunity to roll her pension into an IRA. (Potentially- that's how it would work in our state). That means sudden control over a nice chunk of money. I would much rather have my money in an index fund than in a state pension.