Update: Am I aiming too low?

[jsap819]

Hi, all! Glad I finally got the courage to post our situation here. We welcome any feedback. Here's a quick look at our finances:

Life Situation:

Me - 35
Wife - 36
1 child - 9 months
MFJ living in HCOL in CA

Income (monthly):

15k gross (10k from wife and 5k from me)
7k net (3k from wife and 4k from me)

Pre-tax deductions (monthly):

1.3k goes to 401k, HSA, Insurance, and Dental

Other income:

I have a side business that generates anywhere from $50-500 monthly but I don't tend to count it since this is very inconsistent.

Adjusted Gross:

123k as stated by 2017 income tax return

Taxes (monthly):

$1261 Federal
$589 State
$620 FICA

Expenses (monthly):

Core
Mortgage - $2890
Property Tax - $705
Homeowners - $60
Car Insurance - $120
Utilities (gas/electric/water/trash/internet) - $160
Groceries - $300
Car payment - $460 (16k left at 0%)
Car maintenance (gas/registration/oil change) - $150

Discretionary
Travel - $400 (includes airfare, car rental, hotel, food)
Restaurants - $200
Clothing/Shoes - $50
General Merchandise - $50
Home Improvement/repair - $20
Personal Care - $20
Gifts - $40
Donations - $40

Total - $5665

Assets:

401k - $106k
Roths - $81k
Taxable - $82.5k
CDs - $70k
Emergency Fund - $30k
Cash - $25k

Total - $394.5k

Liabilities:

Mortgage - $587k remaining 3.75% 30 year loan (year 3). Original amount was $623k
Car loan - $16k remaining 0% 4 year loan (year 1)


Our goal is for my wife to either quit or work part time in 5 years to be at home with our child. My income can cover the mortgage, property tax, insurances and utilities which totals close to $4k. Our plan is to save enough in 5 years so that a 4% withdrawal will cover the remaining expenses (about $18k). I don't plan to retire since I love my job and it is very flexible. I own my own business and even though I can increase my income, I'm not counting on this happening as part of my worst case scenario. Do you think it's feasible? Or am I too optimistic about this plan? Thank you in advance for all your input.

[ysette9]

How about you plan on you staying home and your wife continue to work? What you are proposing is voluntarily moving from a position of saving a comfortable amount to being paycheck-to-paycheck. What about the future?

[MDM]

15k gross (10k from wife and 5k from me)
7k net (3k from wife and 4k from me)

What do you mean by "gross" and "net" and why is there $7K difference for your wife but only $1K for you?

Adjusted Gross:
123k as stated by 2017 income tax return

Based on $180K/yr gross income, and $15.6K pre-tax deductions, this should be ~$164.4K...?

[Dicey]

PTF so I can admire your big, long, low interest rate mortgage while I await further details as requested above. Swoon!

[jsap819]

How about you plan on you staying home and your wife continue to work? What you are proposing is voluntarily moving from a position of saving a comfortable amount to being paycheck-to-paycheck. What about the future?

She really hates her job right now. Not so much the work, but the hours. She doesn't have a set schedule. She works every other weekend. Some weeks are early morning shifts (4am) and some are night shifts (5pm). Recently they were told they would have to work grave yard shifts 1 weekend per quarter. We've had conversations about finding another job with better hours or a part time position but as of right now there are no openings. She feels a little guilty always leaving me to care for the baby which is why we are in this current situation.

15k gross (10k from wife and 5k from me)
7k net (3k from wife and 4k from me)

What do you mean by "gross" and "net" and why is there $7K difference for your wife but only $1K for you?

Adjusted Gross:
123k as stated by 2017 income tax return

Based on $180K/yr gross income, and $15.6K pre-tax deductions, this should be ~$164.4K...?

In 2017, my wife only worked for 9 months due to her maternity leave. Hence, the low AGI. The large difference between her gross and net is because the 401k, insurances and HSA is through her income and not mine.

I'm guessing our plan doesn't seem to work long term for this scenario. I've only kept my income low enough to keep us from going above another tax bracket. So if our initial plan isn't feasible, I will raise my income considerably to cover all expenses and let our investments grow without anymore contributions.

[MDM]

In 2017, my wife only worked for 9 months due to her maternity leave. Hence, the low AGI. The large difference between her gross and net is because the 401k, insurances and HSA is through her income and not mine.

OK, that explains the AGI.  But $1.3K still differs much from $7K.  Typo?

I'm guessing our plan doesn't seem to work long term for this scenario. I've only kept my income low enough to keep us from going above another tax bracket. So if our initial plan isn't feasible, I will raise my income considerably to cover all expenses and let our investments grow without anymore contributions.

Note that only the income above a bracket boundary is taxed at the higher bracket rate.  Going above a bracket changes nothing about the amount of tax paid on the amount below that bracket.  From the quote here it seems that might not be clear.

It might be useful for you to put your numbers into the case study spreadsheet.  Use expected numbers for 2018 income and expenses (the program should calculate taxes for you).  See the two charts: the first showing marginal tax saving rates used in the Traditional versus Roth choice, and the second a very simplified "Time to FI" chart.

[Dicey]

In 2017, my wife only worked for 9 months due to her maternity leave. Hence, the low AGI. The large difference between her gross and net is because the 401k, insurances and HSA is through her income and not mine.

OK, that explains the AGI.  But $1.3K still differs much from $7K.  Typo?

I'm guessing our plan doesn't seem to work long term for this scenario. I've only kept my income low enough to keep us from going above another tax bracket. So if our initial plan isn't feasible, I will raise my income considerably to cover all expenses and let our investments grow without anymore contributions.

Note that only the income above a bracket boundary is taxed at the higher bracket rate.  Going above a bracket changes nothing about the amount of tax paid on the amount below that bracket.  From the quote here it seems that might not be clear.

It might be useful for you to put your numbers into the case study spreadsheet.  Use expected numbers for 2018 income and expenses (the program should calculate taxes for you).  See the two charts: the first showing marginal tax saving rates used in the Traditional versus Roth choice, and the second a very simplified "Time to FI" chart.

Thanks, MDM, you beat me to it and explained it better.

[jsap819]

In 2017, my wife only worked for 9 months due to her maternity leave. Hence, the low AGI. The large difference between her gross and net is because the 401k, insurances and HSA is through her income and not mine.

OK, that explains the AGI.  But $1.3K still differs much from $7K.  Typo?

I'm guessing our plan doesn't seem to work long term for this scenario. I've only kept my income low enough to keep us from going above another tax bracket. So if our initial plan isn't feasible, I will raise my income considerably to cover all expenses and let our investments grow without anymore contributions.

Note that only the income above a bracket boundary is taxed at the higher bracket rate.  Going above a bracket changes nothing about the amount of tax paid on the amount below that bracket.  From the quote here it seems that might not be clear.

It might be useful for you to put your numbers into the case study spreadsheet.  Use expected numbers for 2018 income and expenses (the program should calculate taxes for you).  See the two charts: the first showing marginal tax saving rates used in the Traditional versus Roth choice, and the second a very simplified "Time to FI" chart.

I apologize. I forgot my wife gets paid bi-weekly. She actually takes home 6k net per month. Since she plans to work for the next 5 years, our plan is to continue maxing her 401k, both our Roths, any leftover cash into our taxable brokerage account (~2k), switch the cd's over to our brokerage once they mature, and reduce our discretionary expenses by half. All in all, and if all goes according to plan, we would have invested some 298k once it's all said and done. If the market returns returns are average (in theory, of course), we'd have upwards of over 700k in assets after 5 years. If I were to withdraw 18k (2.5% withdrawal rate) per year to cover the rest of the expenses my income can't cover, would it be too much risk? I will go ahead and crunch the numbers in the spreadsheet. I downloaded it but it looked beastly. Felt overwhelmed looking at it.

[MDM]

I will go ahead and crunch the numbers in the spreadsheet. I downloaded it but it looked beastly.

The "Quick Start Guide" at the top of the Instructions tab is supposed to be useful. ;)

[Dicey]

Hi! You've recently made a couple of really good points over at the DPOYM Club, so I thought I'd check out some of your other posts, thinking you were new around these parts. Lo and behold, you started a Case Study way back when. Do you feel like sharing an update, @jsap819? I have a feeling you've made excellent progress...

[Malossi792]

Hi! You've recently made a couple of really good points over at the DPOYM Club, so I thought I'd check out some of your other posts, thinking you were new around these parts. Lo and behold, you started a Case Study way back when. Do you feel like sharing an update, @jsap819?I have a feeling you've made excellent progress...

Holy thread revival Batman!
Count me in, I'm interested too.

[jsap819]

Hi! You've recently made a couple of really good points over at the DPOYM Club, so I thought I'd check out some of your other posts, thinking you were new around these parts. Lo and behold, you started a Case Study way back when. Do you feel like sharing an update, @jsap819? I have a feeling you've made excellent progress...

Of course, Dicey!

Not long after I made this post my wife was able to find a new job that allowed her to work from home permanently and also have a M-F schedule with holidays and weekends off. To this day she still works at the same job and things have been going real well for her. Our son also goes to school full time now in TK and our work schedules allows me to drop him off in the morning while my wife is able to pick him up after.

We have refinanced a few times and was able to lower our rate to a 30 year 2.375% back in 2021. Our spending is pretty much the same still minus the car payment since our primary vehicle is fully paid now. We have been maxing all our retirement space and have been able to save and invest 30-40% of our after-tax income. We are lean FIRE at the moment and have more than enough in our taxable to pay off our mortgage in full if we wanted (we won’t) as well as my son’s college tuition.

When we were knocking on lean FI back in 2021, we downshifted to part time so we can coast but my wife’s company forced her back to full time in 2022. The market also wasn’t kind to our portfolio in 2022 but with our high savings rate, we managed to stay around our lean FI number. We are pretty much in cruise control now and have a lot of options moving forward, especially once the market goes back to normal. We will just keep plugging along and will evaluate at the end of each year. Hopefully we can get back to part time and do that for a couple of years before calling it quits altogether.

[jsap819]

I wanted to give an update since it has been a little over 6 years since I started this case study. It's nice to compare and follow up on the progress we have made over the years. Here are the numbers:

Assets

IRA/401k - $450k
Roth IRA - $220k
Taxable - $925k
Cash - $30k

Total - $1,625k

Liabilities

Mortgage - $510k @ 2.375% with 27 years left (current value of home is $1,200k)
Car - $22k @ 5.89% with 4 years left (will pay in full after a personal injury settlement that resulted in a total loss of our old vehicle)
Credit card - $10k @ 0% 10 months left (replaced hvac with heat pump last year)

Total - $542k

Expenses

Monthly Fixed:

Mortgage - $2185
Property tax - $820
Homeowners insurance - $110
Medical/Health insurance - $800
Car insurance (2 vehicles) - $185
Car registration/repair - $100
Electric - $220
Water - $30
Trash - $25
Gas - $15
Gas for transportation - $50
Groceries - $300
Personal care - $20
Home care/maintenance - $150

Monthly Discretionary:

Travel - $300
Eating out - $100
Clothing - $50
Gifts/donations - $100
General merchandise (Target, Amazon, etc.) - $200

Total - ~$5800 with mortgage, ~$3615 without mortgage

Expenses have been closely tracked and has been the average the past 3 years and have actually been trending downwards. I guess on the surface it looks like we are FI or quite close to it?

What gives me pause is medical insurance and future college cost for our son. Under the ACA and at the income level of our spending, we would expect to pay about $800/month for gold which is about the same exact plan that we currently have through my wife's employer. We can go with silver or even bronze since we are healthy but we are planning very conservatively.

For college cost, goal is $100k for in-state tuition. I'm not even sure if I'm planning for this correctly.

Will also set aside another $100k for emergencies like new car, roof, etc.

All this considered, our FIRE number if you include college cost and future emergencies is around $1,800k which is hopefully achievable in the next 2-3 years. Will continue to pile $100k/year into our stash and evaluate every end of the year. Even though wife works from home, she has been slowly burning out due to the changing landscape of her job. It would be nice to have the option for her to quit if she wanted to. As for me, my plan is to keep working until is no longer favorable to do so. I have downshifted down to 28 hours/week so I can keep this up indefinitely.

[jeroly]

I wanted to give an update since it has been a little over 6 years since I started this case study. It's nice to compare and follow up on the progress we have made over the years. Here are the numbers:

Assets

IRA/401k - $450k
Roth IRA - $220k
Taxable - $925k
Cash - $30k
Primary Residence $1,200k

Total - $2,825k

Liabilities

Mortgage - $510k @ 2.375% with 27 years left (current value of home is $1,200k)
Car - $22k @ 5.89% with 4 years left (will pay in full after a personal injury settlement that resulted in a total loss of our old vehicle)
Credit card - $10k @ 0% 10 months left (replaced hvac with heat pump last year)

Total - $542k

Net Worth: $2,283k
Invested Financial Assets: $1,625k

Expenses

Monthly Fixed:

Mortgage - $2185
Property tax - $820
Homeowners insurance - $110
Medical/Health insurance - $800
Car insurance (2 vehicles) - $185
Car registration/repair - $100
Electric - $220
Water - $30
Trash - $25
Gas - $15
Gas for transportation - $50
Groceries - $300
Personal care - $20
Home care/maintenance - $150

Monthly Discretionary:

Travel - $300
Eating out - $100
Clothing - $50
Gifts/donations - $100
General merchandise (Target, Amazon, etc.) - $200

Total - ~$5800 with mortgage, ~$3615 without mortgage

Expenses have been closely tracked and has been the average the past 3 years and have actually been trending downwards. I guess on the surface it looks like we are FI or quite close to it?

What gives me pause is medical insurance and future college cost for our son. Under the ACA and at the income level of our spending, we would expect to pay about $800/month for gold which is about the same exact plan that we currently have through my wife's employer. We can go with silver or even bronze since we are healthy but we are planning very conservatively.

For college cost, goal is $100k for in-state tuition. I'm not even sure if I'm planning for this correctly.

Will also set aside another $100k for emergencies like new car, roof, etc.

All this considered, our FIRE number if you include college cost and future emergencies is around $1,800k which is hopefully achievable in the next 2-3 years. Will continue to pile $100k/year into our stash and evaluate every end of the year. Even though wife works from home, she has been slowly burning out due to the changing landscape of her job. It would be nice to have the option for her to quit if she wanted to. As for me, my plan is to keep working until is no longer favorable to do so. I have downshifted down to 28 hours/week so I can keep this up indefinitely.

FTFY

[ScreamingHeadGuy]

Bummer about the car.

To everything else: Fuck Yea!

[lhamo]

How old is your kid? 

Depending on your state, you might be surprised how much financial aid you can qualify for at a state institution if you can structure your finances so that you have minimal taxable income starting in their junior year of high school (FAFSA uses prior prior year tax info for financial aid calculations).  My DD is on a full ride at our state flagship because we were able to do this.  Worth looking into/planning for.

Also YMMV but if you are in an expanded Medicaid state it is worth looking into what kind of access to healthcare you might have if you can keep your taxable income below the monthly cutoff limits most of the time.  Here in Seattle you can get really good care if you choose the right network (I am on Molina, which includes UW Medicine and the specialist clinics at Harborview (I use the eye institute and the sleep center).

[jsap819]

I wanted to give an update since it has been a little over 6 years since I started this case study. It's nice to compare and follow up on the progress we have made over the years. Here are the numbers:

Assets

IRA/401k - $450k
Roth IRA - $220k
Taxable - $925k
Cash - $30k
Primary Residence $1,200k

Total - $2,825k

Liabilities

Mortgage - $510k @ 2.375% with 27 years left (current value of home is $1,200k)
Car - $22k @ 5.89% with 4 years left (will pay in full after a personal injury settlement that resulted in a total loss of our old vehicle)
Credit card - $10k @ 0% 10 months left (replaced hvac with heat pump last year)

Total - $542k

Net Worth: $2,283k
Invested Financial Assets: $1,625k

Expenses

Monthly Fixed:

Mortgage - $2185
Property tax - $820
Homeowners insurance - $110
Medical/Health insurance - $800
Car insurance (2 vehicles) - $185
Car registration/repair - $100
Electric - $220
Water - $30
Trash - $25
Gas - $15
Gas for transportation - $50
Groceries - $300
Personal care - $20
Home care/maintenance - $150

Monthly Discretionary:

Travel - $300
Eating out - $100
Clothing - $50
Gifts/donations - $100
General merchandise (Target, Amazon, etc.) - $200

Total - ~$5800 with mortgage, ~$3615 without mortgage

Expenses have been closely tracked and has been the average the past 3 years and have actually been trending downwards. I guess on the surface it looks like we are FI or quite close to it?

What gives me pause is medical insurance and future college cost for our son. Under the ACA and at the income level of our spending, we would expect to pay about $800/month for gold which is about the same exact plan that we currently have through my wife's employer. We can go with silver or even bronze since we are healthy but we are planning very conservatively.

For college cost, goal is $100k for in-state tuition. I'm not even sure if I'm planning for this correctly.

Will also set aside another $100k for emergencies like new car, roof, etc.

All this considered, our FIRE number if you include college cost and future emergencies is around $1,800k which is hopefully achievable in the next 2-3 years. Will continue to pile $100k/year into our stash and evaluate every end of the year. Even though wife works from home, she has been slowly burning out due to the changing landscape of her job. It would be nice to have the option for her to quit if she wanted to. As for me, my plan is to keep working until is no longer favorable to do so. I have downshifted down to 28 hours/week so I can keep this up indefinitely.

FTFY

Thank you for that!

[jsap819]

Bummer about the car.

To everything else: Fuck Yea!

Thanks! Unfortunately, the accident left me with multiple blown discs to my neck and low back that will most likely be permanent. It didn’t require any surgery, but it has altered quality of life a bit. I can still do most physical activities, but on certain days when it flares up, I have to take it easy and rest.

[jsap819]

How old is your kid? 

Depending on your state, you might be surprised how much financial aid you can qualify for at a state institution if you can structure your finances so that you have minimal taxable income starting in their junior year of high school (FAFSA uses prior prior year tax info for financial aid calculations).  My DD is on a full ride at our state flagship because we were able to do this.  Worth looking into/planning for.

Also YMMV but if you are in an expanded Medicaid state it is worth looking into what kind of access to healthcare you might have if you can keep your taxable income below the monthly cutoff limits most of the time.  Here in Seattle you can get really good care if you choose the right network (I am on Molina, which includes UW Medicine and the specialist clinics at Harborview (I use the eye institute and the sleep center).

He turns 7 and entering 1st grade this coming school year so college is still 10+ years away. I have neglected to really plan for this as it's still far away but by what you state gives me hope so thank you for that.

As for medical, I need to start researching more regarding what our state offers. We live in California and I believe we will have plenty of options going forward.

The good news is that there's light at the end of the tunnel. After speaking with my wife recently, she gave me a number that she's comfortable with pulling the plug ($2.5 mil). She chose this number because it leaves our son with a nice inheritance.