Is there an "Option C" that hasn't been considered yet, such as one spouse quitting and the other continuing to work? Or both spouses cutting back to 20-30 hours per week? The numbers seem tight to me, but maybe I'm overly cautious.
Yes, there is the option of either spouse continuing to work full time. Reduced hours may be an option for me but it would have to be a hard negotiation. My company doesn't like to do that sort of thing. Thank you for the note of caution!
Your 529 is presumably earmarked for kids' college expenses, and the HSA can only be withdrawn tax-free for medical expenses (which does not include ACA premiums, FYI), so I wouldn't count either of those in your stash for withdrawal rate purposes. Same with your savings of $36K, which is your e-fund in case of car/house disaster or another emergency of some kind. With the remaining accounts and $28K expenses, your withdrawal rate will be more like 4.5%, not 3.8%.
The odds that all of these circumstances -- expenses this low, good long-term tenants, ACA subsidies remain generous, etc. -- will remain as is for the next 60+ years is nil. So your plan is quite risky. That said, if you and your wife just want to stop working for the next 3-4 years until both kids are in kindergarten, it's probably doable. Just know that it would be wise to keep up your skillsets in the meantime and even wiser to go back to work in some degree at that time. In the meantime if one of you can carve out even just 5-10 hours a week of part-time work (consulting/freelance, delivering pizzas, whatever), it's going to give you a buffer that will probably help you sleep at night.
I completely understand wanting to spend this time with your kids, it's so tough to be away from them for 9 hours when they're that little. But make sure you really think this through. If a recession happens and the stock market tanks in 2 years, how will you feel? Happy that you're still at home with the kids? Or terrified that your nest egg won't make it through to the other side?
Great points! I agree that the 529 will likely go towards the children's college but I look at all the money as a whole and that these are just buckets. Over time the 529 will likely grow past what could be used for college expenses. FYI the penalties for withdrawal for non-educational needs will get outstripped by tax free gains over time and this does not even factor in the state tax deduction I am able to claim. To me the HSA is just another retirement account but I will take note that with a few reasonable pivots in calculating the withdrawal rate is over 4%.
Also, 100% agree that we cant count on anything staying the same for 60 years. However, the likelihood of going broke in the next 60 years is less than the likelihood of becoming a multimillionaire or dying so its a dice roll either way. I am content to weather the next drop in the stock market whenever it comes. I lived through both 99' and 08' and expect several more in my lifetime. Thank you!
Is there an "Option C" that hasn't been considered yet, such as one spouse quitting and the other continuing to work? Or both spouses cutting back to 20-30 hours per week? The numbers seem tight to me, but maybe I'm overly cautious.
Yes, those are all options and they have been considered. We likely will be looking at a transition period with 1 person stopping work while the other continues for a few months. I appreciate the cautionary note, thank you.
What are your thoughts on the rental house? It is giving you a pretty low return on your equity. I think you should consider selling it and investing the proceeds instead. If not, is there from in the future to up the rent for a better ROI?
Yes, the return on the rental is low, primarily due to the housing price rising faster than we have raised the rent. The current renters are wonderful having only called me for repairs 2 times in 4+ years and have never missed a payment. If/when they leave the rent will bump up to the market rate which is still going to be a lowish return on equity but I value having some diversity in income between the rental and the stock market. Great observations and thank you!
The numbers look too tight to me for retiring however if you simply plan on both taking the next 3-4 years off to spend time with the kids before school I think that is totally reasonable. Do you think both of you can get a job again with that kind of resume gap?
The next 3-4 years are mostly what we care about. I don’t see much issue in finding employment again in 3-4 years however the pay will likely be much lower starting out. Thank you!
I agree with some of the points made above, but your kids won't be little for long. Call it a sabbatical and go for it!
Thank you for the reassurance!
As a father of young daughter your post really resonates with me, and we ironically are talking about similar actions for similar reasons (ironically because we have recently ramped up our careers because we are not quite as far along as you financially). But the motivation is the same.
Your numbers show it could be possible, but there are some big questions here.
1) is the $10k from your rental gross rent, or have you factored in maintenance/repairs/vacancies? Broad-strokes, that’s generally 50% of total rent over long time scales.
2) how easy would it be for you to ‘re-enter’ the job market after a 3-10 year hiatus? Would you be doing the same jobs with similar pay or would you need to change careers and/or salary bands entirely?
As others have said, there are other options as well. One parent working, or (our preference) both parents going to part-time. BOth of those solutions eliminate day care while covering expenses and allowing for additional savings. That’s basically our 3 year plan.
THe final option will be the least appealing to you, but worth mentioning here for its practicality: buckle down expenses tight and keep working for another ~2 years. WIth your salaries you ought to be able to save an additional $100k+ after taxes, which would offer some great padding to your budget. You will still be retired before kid #1 hits kindergarten. Is that the best solution for you? No idea. Depends a lot on your answers to #1 and #2 (above).
Seriously though - if its possible for one or both of you to go part time now, I’d consider that your best option. It’s amazing how much different your life is when you have 4 day weekends every single week. If you are able to stagger your work (e.g. parent 1 works M-Tu-W, parents 2 works Tu-W-Th) you can cut daycare down to a day or two per week, and everyone gets to spend tons of time together.
1) $10k profit, factors in future repairs/vacancy etc and the real numbers have been higher with having 0 vacancy and minimal repairs.
2) Re-entry shouldn’t be too hard though I assume that we would be essentially starting over career/pay wise if we are out anywhere close to 10 years.
I appreciate the alternative plans you laid out, we are still discussing ourselves as completely pulling the plug on work has an unsettling feeling to it. Plenty of ways forward to be sure, a good problem to have generally. Thank you!
