The Money Mustache Community
Learning, Sharing, and Teaching => Case Studies => Topic started by: knigry01 on November 19, 2019, 08:33:09 AM
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Life Situation: MFJ, 3 kids (5,3,1), MCOL WI
Gross Salary/Wages: 2018 = ~$245,000
Individual amounts of each Pre-tax deductions: 401k=$37,000 HSA= $3,450 FSA= $1,200 Backdoor Roth- $5,500
Other Ordinary Income: None
Qualified Dividends & Long Term Capital Gains: Not significant- rolled into gross wages- total effective tax rate for 2018 = 15% state/federal
Rental Income, Actual Expenses, and Depreciation: N/A
Current expenses: I use personal capital for tracking our averages. My intent with this post is not to get face punches on our budget items as I'm a believer that if you avoid the big problems, the extra $500/month in luxury items isn't significant long term vs. increasing earnings.
Average monthly spend: $6,500
Mortgage: $2,360 (P-$663.67, I-$873.87, T-$723.63, Ins.-$90.75, Overage- $8.42) Value ~500k, 280k remaining
Assets:
PreTax: $757k (401k, roth ira, ira)
PostTax: 209k
529: 41k
50% ownership family cabin: 100k
Saving/checking: 50k
Other items:
No consumer debt
Cars paid for
Mortgage is only liability
Specific Question(s): DW would like to downshift from 100% FTE to 80% with Friday's off. Rationale is to provide relief to family who provide daycare for kids at no cost and increase time with family. Impact would be to salary only, no loss of benefits/bonus calc. Effective gross reduction from 98k to 78.5k. Our goal is to have the option to continue downshifting in career intensity at 45 if desired. DW would stay home tomorrow, DH likes job/industry and both plan to full FR at 55.
Current Savings Plan
Maxing pretax vehicles (401k, HSA, Backdoor Roth, etc.)- ~$50,000/yr
Prepaying 3.75% mortgage with extra payment annually at ~5-10k (30yr to 20yr effectively)- goal to have done by time oldest in college
529- Funding each kid at $3,300 annually- ~10k
After Tax- ~$35,000/yr to mix of Vanguard/Individual stocks (80/20)
Question- On current track stache will reach 1.9musd at 45. Am I missing risk factors for DW downshifting now that would impact our ability to reach the above goals?
Thanks for your feedback!
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$245k income, $78k annual spend - yes, I think y'all can bear to lose $20k in annual income for her to spend a little more time with family.
Edit: spelling
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$245k income, $78k annual spend - yes, I think y'all can bare to lose $20k in annual income for her to spend a little more time with family.
Agreed. Although, from a purely practical perspective you should compare that $20k loss of income (after taxes) to the cost of daycare of Fridays if the only goal is to put less stress on the free-daycare providers. You'd also need to consider the value your wife expects to get from more time with her kids.
One quick thing I notice is you're contributing to both an HSA and an FSA. This is probably fine as long as it's a limited purpose FSA (vision and dental only) and/or a dependent care FSA, but a normal healthcare FSA makes you ineligible for HSA contributions even if the accounts belong individually to each spouse as the FSA can be used for the non-covered spouse.
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Thanks for the feedback.
The FSA is for dependent care through DW's policy at her employer.
I'm on a separate high deductible plan through my employer.
Per your note- we would be breaking the rules if we used the FSA funds on DW's care?
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Per your note- we would be breaking the rules if we used the FSA funds on DW's care?
Yes. It doesn't matter if you don't use it for your care, it matters that you could.
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*3 Year Update
Life Situation: MFJ, 3 kids (7,5,3), MCOL WI; DH-39, DW-37
Gross Salary/Wages: 2021 = ~$292,000
Individual amounts of each Pre-tax deductions: 401k=$39,000 HSA= $3,600 FSA= $1,200 Backdoor Roth- $6,000
Other Ordinary Income: None
Qualified Dividends & Long Term Capital Gains: $30,000- employer stock option exercised- total effective tax rate for 2021 = 20% state/federal
Rental Income, Actual Expenses, and Depreciation: N/A
Current expenses: I use personal capital for tracking our averages. My intent with this post is not to get face punches on our budget items as I'm a believer that if you avoid the big problems, the extra $500/month in luxury items isn't significant long term vs. increasing earnings.
Average monthly spend: $7,000
Mortgage: $2,698.67 (P-$1,305.73, I-$560.48, T-$741.63, Ins.-$90.83) Value ~600k, 244k remaining
Assets:
PreTax: $1.23musd (401k, roth ira, ira)
PostTax: $450k (brokerage)
529: 82.5k
50% ownership family cabin: 100k
Saving/checking: 50k
Other items:
No consumer debt
Cars paid for
Mortgage is only liability
Current Savings Plan:
Maxing pretax vehicles (401k, HSA, Backdoor Roth, etc.)- ~$50,000/yr + employer match of ~$20,000
Refied 2.75% 15 year mortgage to have done by time oldest in college
529- Funding each kid at $3,330 annually- ~10k
After Tax- ~$50,000/yr to mix of Vanguard Index Funds + Individual stocks (80/20)
Question- On current track stache will reach 1.9musd at 45. Am I missing risk factors for DW downshifting now that would impact our ability to reach the above goals?
*Update- Stache reached 1.8musd in Dec '21 (age 39) prior to current pullback and is still at ~$1.7musd w/upcoming inflows in late Q1. We pulled trigger to downshift DW 3 years ago and have seen income go up due to promotions, merit increases, bonuses, etc. I'm starting to realize that 2008 scarred me pretty bad and I'm often running fire calcs from a mindset of fear vs. a mindset of abundance. Long way to say, pulling back for DW to downshift has had no impact to our plans.
Specific Question(s): DW would like to downshift from 100% FTE to 80% with Friday's off. Rationale is to provide relief to family who provide daycare for kids at no cost and increase time with family. Impact would be to salary only, no loss of benefits/bonus calc. Effective gross reduction from 98k to 78.5k. Our goal is to have the option to continue downshifting in career intensity at 45 if desired. DW would stay home tomorrow, DH likes job/industry and both plan to full FR at 55.
*Update- We are basically on coast fire at this point and DW pulling back to 80% and seeing no impact to cashflow/savings/investment gains has given us confidence to be more aggressive in plans. We'll continue to coast as we both mostly like our careers and have ample time off until the kids are through high school. I mostly lurk here but appreciate the few comments as they are helpful in taking the more optimistic view of what can be accomplished.
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She can have a spousal, backdoor Roth, too...
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Thanks for the comment Sandi-
DW has ~80k in her traditional IRA that we would have to convert to do that, which would trigger tax implications.
We also are above the thresholds for traditional IRA contributions being tax advantaged so have split the baby by having her use a Roth 401k and I'm using traditional 401k to end up with a spread allocation in tax deferred, tax free, and taxable buckets.
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She could roll her IRA into a 401k then do a backdoor Roth?
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Hi Annie- That's a good point! The tax rules suggest for this reverse rollover that DW's 401k plan would have to be willing to accept the deposit. I'll have her reach out and determine if this is an option. Thanks-Ryan
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*5 Year Update
Life Situation: MFJ, 3 kids (9,7,5), MCOL WI; DH-41, DW-39
Gross Salary/Wages: 2023 = ~$324,000
Individual amounts of each Pre-tax deductions: 401k=$45,000 HSA= $3,600 Backdoor Roth- $6,500
Other Ordinary Income: None
Qualified Dividends & Long Term Capital Gains: $20,000- total effective tax rate for 2023 = ~22% state/federal
Rental Income, Actual Expenses, and Depreciation: N/A
Current expenses: I use personal capital for tracking our averages. My intent with this post is not to get face punches on our budget items as I'm a believer that if you avoid the big problems, the extra $500/month in luxury items isn't significant long term vs. increasing earnings.
Average monthly spend: $7,500
Mortgage: $2,698.67 (P-$1,305.73, I-$560.48, T-$741.63, Ins.-$90.83) Value ~725k, 200k remaining
Assets:
PreTax: $1.67musd (401k, roth ira, ira)
PostTax: $638k (brokerage)
529: 115k
50% ownership family cabin: 200k
Saving/checking: 30k
Other items:
No consumer debt
Cars paid for
Mortgage is only liability
Current Savings Plan:
Maxing pretax vehicles (401k, HSA, Backdoor Roth, etc.)- ~$53,000/yr + employer match of ~$25,000
Refied 2.75% 15 year mortgage to have done by time oldest in college
529- Funding each kid at $3,330 annually- ~10k
After Tax- ~$50,000/yr to mix of Vanguard Index Funds (90/10)
Question- On current track stache will reach 1.9musd at 45. Am I missing risk factors for DW downshifting now that would impact our ability to reach the above goals?
*Update- Stache reached 1.8musd in Dec '21 (age 39) prior to current pullback and is still at ~$1.7musd w/upcoming inflows in late Q1. We pulled trigger to downshift DW 3 years ago and have seen income go up due to promotions, merit increases, bonuses, etc. I'm starting to realize that 2008 scarred me pretty bad and I'm often running fire calcs from a mindset of fear vs. a mindset of abundance. Long way to say, pulling back for DW to downshift has had no impact to our plans.
**2024- Stache at ~2.4musd, + housing equity = net worth 3.17musd
Specific Question(s): DW would like to downshift from 100% FTE to 80% with Friday's off. Rationale is to provide relief to family who provide daycare for kids at no cost and increase time with family. Impact would be to salary only, no loss of benefits/bonus calc. Effective gross reduction from 98k to 78.5k. Our goal is to have the option to continue downshifting in career intensity at 45 if desired. DW would stay home tomorrow, DH likes job/industry and both plan to full FR at 55.
*Update- We are basically on coast fire at this point and DW pulling back to 80% and seeing no impact to cashflow/savings/investment gains has given us confidence to be more aggressive in plans. We'll continue to coast as we both mostly like our careers and have ample time off until the kids are through high school. I mostly lurk here but appreciate the few comments as they are helpful in taking the more optimistic view of what can be accomplished.
**Update- 2024 Maintain the course!
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We, too, have found coast FIRE to be very different than the full on accumulation phase. DH is so much better about taking time off, even if he is currently spending his vacation days doing a time intensive volunteer activity. I think he will get a lot out of this activity.
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Wow you have big numbers... big salary and big savings. For me a big spend also but considering you have a family and high earnings it's really not all that high.
Looks like you're doing awesome! I got to get my salary up one day... you're quite the inspiration!
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You mentioned HSA contributions but do not list that in your net worth. Is that money not invested? Are you using it for medical expenses? I ask only because I use the HSA as an investment account - extra tax advantaged space.
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Wow, very inspiring! May I ask, what sector are you employed in? Just curious with the awesome salaries in a MCOL. (I understand if you'd rather not say!)
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@ixtap - agree, my stress level at work & paranoia from 2008 have receded greatly having enough of a cushion to not "need" a job
@Malum Prohibitum - HSA is in the pre tax bucket, should have called that out, about 50k not included in numbers. 3x tax advantage mean we don't touch it and i sometimes forget it's there.
@LadyLJCO - I'm a sales director in biotech/DW is a project manager.