Author Topic: Stay At Home Dad Investment Advice  (Read 1046 times)

coffeepotkiller

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Stay At Home Dad Investment Advice
« on: August 11, 2021, 07:13:44 PM »
Hi Mustachians,

My wife and I are working out a plan for about 1 year from now for me to stop working and stay at home full time with our newborn and preschooler while my wife continues working part time.  I wanted to share a summary of our situation and plans here and ask if anyone has any financial or budgeting advice on this plan especially if youve been in a similar situation!

I currently work 40 hours/week and my wife works at a hospital every Thursday and Friday.  Our son is in daycare for those days when were both working...this costs $1500/month.

We are expecting our 2nd kid this November.  Between maternity/paternity leaves and help from family, we can avoid daycare until June 2022, and thats when Im planning to leave my job.  If we were to start our 2nd kid in daycare, the infant room is over $2k a month for part time so wed be paying almost $4k a month in daycare expenses!! 

We could make this work financially between our two salaries, but both decided its not worth the immense monthly cost.  We want to capitalize on this precious baby/toddler time before our kids are in school and actively try to avoid us with their friends and activities :-)

Okay.with all that backstory here is the part that were really looking for advice from mustachians:

Based on our mortgage payment and monthly expenses (minus childcare costs) we wont be able to fully cover our expenses with just my wifes part time salary, so our plan is to sell about $1-2k of stock to make up the difference each month from our taxable accounts that weve been building up.  Here is a current snapshot of our taxable stock accounts and savings:

Taxable stock accounts:
Betterment (90 stocks/10 bonds) - $60k
VTSAX - $90k
VTIAX - $15k
VASIX (Vanguard LifeStrategy Income Fund) - $30k

Savings
Health Savings Account - $15k
Savings account (emergency funds, we built this up 5 years ago and we dont touch it) - $15

Were thinking that we would primarily sell the VASIX (life strategy) at first since its less volatile than the others but depending on what the stock market is doing each month we could sell from the other funds (especially the Betterment since the higher mgmt fee I would like to eventually clear out that account and just have Vanguard).  The plan would be for me to be a SAHD for 5 years until both kids are in school at which point I would likely get another fulltime or partime job, so there will likely be a 5 year stretch where were not buying any additional stock.

Does that seem reasonable?  Any other advice on how to most efficiently sell a portion of one or more of these stock funds each month to cover living expenses?  Well be in a lower tax bracket while we just have my wifes salary- are there any other ways we can make the most of this?

And one last area that I wanted to run by the community - since Ill be working for one more year Im planning to do the following to best prepare before my paycheck stops:
maximize my 401k contributions and an HSA account
In an average year, Im able to save about $50k that in previous years I split 50/50 between the taxable investment funds above and extra principal mortgage payments
I had a plan to pay off our mortgage in about 3 years from now.  But with this change of plans, I might allocate the $50k I can save this year into the various Vanguard accounts above to build them up and skip the extra principal payments.  We refinanced our mortgage to a very low rate last year and we can live with monthly payments and accrued interest over the coming years


Sorry for the essay just wanted to try to provide as much detail as possible, appreciate your time and advice!

JJ-

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Re: Stay At Home Dad Investment Advice
« Reply #1 on: August 11, 2021, 09:32:44 PM »
Welcome to the forum

I have some questions as you've presented just a portion of your financial picture. It looks like you've intentionally excluded incomes as well as savings rates/spending rates. Also, we don't know what % the $1-2k drawdown is on your entire portfolio.

Based on daycare rates it sounds like you are in HCOL. However if you are able to pay off a mortgage in three years at $25k/year I'm not sure. What is your mortgage payment? Suddenly going down to one part time income , especially one at two days, can really put a strain on a portfolio if you are not properly set up for a big dip in the near future (sequence of returns risk). You've got an e fund and some taxable amounts but what happened if your wife lost her job?

I think as far what to sell goes the life strategy is fine. However, again not knowing your total financial portfolio if we were making a big jump from full time and part time to just one part time job and I were $75k from freeing up a required monthly payment I'd be hard pressed not to pay that off. Especially given the fact you refi'd to a low rate but are still making extra principal payoffs.

As far as what to do with "low income" not knowing if that's relative for you or something below FPL, think about harvesting capital gains or doing Roth conversions. You may also look into seeing if you can qualify for EITC one of the years.

You also didn't mention health care. I assume your wife has health care through work? Do you have a plan for that?

Jumping back into the workforce can be hard after 5 years especially if you are technical.

Feel free to share more details for some more targeted advice.

Good luck.
« Last Edit: August 11, 2021, 09:38:11 PM by JJ- »

coffeepotkiller

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Re: Stay At Home Dad Investment Advice
« Reply #2 on: August 12, 2021, 07:53:29 PM »
Thanks for the response and initial info! We're definitely in a HCOL.  You're right, there's definitely some important numbers we left out, let me try to provide those details:

Income
My Salary:  $150k
Wife's Salary:  $55k (currently working 20 hours a week. If I stop working she'll likely bump up to 30-36 hours, but carry insurance so would probably still take home the same amount)

Mortgage
15 year fixed 2.375%
Monthly Payment:  $2700
Current balance:  $285k
Estimated house value:  Who knows these days but best guess from Zestimate $650-700k

In regards to paying off our mortgage in a few years...my plan was to continue doing an extra $25k extra principal each year + monthly payments (~$1,500 principal in our current mortgage payment) + once it's low enough..say <$100k...selling a chunk of our stock to finish it off)

While it's enticing to me to try to expedite this and fully pay the mortgage before we move to single income within a year...we would need to sell most, if not all of our stocks and this seems far too risky of a move!

Monthly expenses
Mortgage:  $2700
Daycare $1500 (for now :-) )
Utilities/bills/food/etc: $2500  (Admittedly we need to spend some time going through our expenses to understand these better and categorize them further)



JJ-

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Re: Stay At Home Dad Investment Advice
« Reply #3 on: August 12, 2021, 10:07:41 PM »
Thanks for the response and initial info! We're definitely in a HCOL.  You're right, there's definitely some important numbers we left out, let me try to provide those details:

Income
My Salary:  $150k
Wife's Salary:  $55k (currently working 20 hours a week. If I stop working she'll likely bump up to 30-36 hours, but carry insurance so would probably still take home the same amount)

Mortgage
15 year fixed 2.375%
Monthly Payment:  $2700
Current balance:  $285k
Estimated house value:  Who knows these days but best guess from Zestimate $650-700k

In regards to paying off our mortgage in a few years...my plan was to continue doing an extra $25k extra principal each year + monthly payments (~$1,500 principal in our current mortgage payment) + once it's low enough..say <$100k...selling a chunk of our stock to finish it off)

While it's enticing to me to try to expedite this and fully pay the mortgage before we move to single income within a year...we would need to sell most, if not all of our stocks and this seems far too risky of a move!

Monthly expenses
Mortgage:  $2700
Daycare $1500 (for now :-) )
Utilities/bills/food/etc: $2500  (Admittedly we need to spend some time going through our expenses to understand these better and categorize them further)

Maybe consider getting a 30 year mortgage and that takes a ton of pressure off income by reducing that payment by $7-800. I would not pay it off.

You didn't list other assets but when you say sell all stocks to pay it off I assume taxable accounts. If you really want to pay it off you can use the low income years to harvest gains without paying taxes so 100% of those funds can go to the house. If the goal is to pay off the house don't max 401k or HSA. You'd probably need all of that. You can also tap into Roth contributions if you have them.

You didn't ask should I do it, but it seems like your wife is OK working more. Are you sure she wants to double her hours? I'll just leave that there.

And yes getting a handle on your spending is necessary. You're going from being able to not worry about it with your salary to not being able to make ends meet. Between the refi and cutting $5-600 /mo you may be able to not tap your taxable account.


FLBiker

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Re: Stay At Home Dad Investment Advice
« Reply #4 on: August 13, 2021, 05:19:13 AM »
Personally, I agree with not paying off the house, and possibly getting a new mortgage to lower your payments.  At these interest rates, I'm in no rush to pay ours off -- we'll have ~23 years remaining when I plan to downshift to part-time next year.

And if you're planning to rely on mutual funds for income, you might want to shift your AA to something more conservative (at least for the amount you're planning to use in the next couple of years).  I wouldn't personally have money I was planning to use in a year or two in the stock market.  I'd probably just stick it in a "high" interest account.

ericrugiero

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Re: Stay At Home Dad Investment Advice
« Reply #5 on: August 13, 2021, 06:31:20 AM »
If I was trying to do what you are suggesting, I would follow JJ's suggestion and lock in a 30 year mortgage now which would reduce your payments significantly.  This reduces the amount of stock you need to sell each month to survive on your wife's income. 

Something else that would influence how comfortable I would be with this plan is how much retirement savings you have.  If it's zero, you are looking a spending a large percentage of your savings to live over the next five years.  That would bother me because it would feel like we were "going backwards" doing something that's not sustainable.  If you have a significant amount (say $500K) your retirement growth would likely be more than you are pulling from taxable.  That would make me feel much better. 

JJ-

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Re: Stay At Home Dad Investment Advice
« Reply #6 on: August 13, 2021, 07:00:37 AM »
Something else that would influence how comfortable I would be with this plan is how much retirement savings you have.  If it's zero, you are looking a spending a large percentage of your savings to live over the next five years.  That would bother me because it would feel like we were "going backwards" doing something that's not sustainable.  If you have a significant amount (say $500K) your retirement growth would likely be more than you are pulling from taxable.  That would make me feel much better.

Agreed. I tried to get at this in my first post but the portfolio wasn't posted on the first update.

nessness

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Re: Stay At Home Dad Investment Advice
« Reply #7 on: August 13, 2021, 10:51:45 AM »
Have you verified that you don't need to pay back your paternity leave if you quit your job?

coffeepotkiller

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Re: Stay At Home Dad Investment Advice
« Reply #8 on: August 13, 2021, 06:00:28 PM »
Thanks all for the comments and advice, my wife and I are finding the suggestions and perspectives very helpful!

Something else that would influence how comfortable I would be with this plan is how much retirement savings you have.  If it's zero, you are looking a spending a large percentage of your savings to live over the next five years.  That would bother me because it would feel like we were "going backwards" doing something that's not sustainable.  If you have a significant amount (say $500K) your retirement growth would likely be more than you are pulling from taxable.  That would make me feel much better. 
Across our various 401k's, IRA's, and Roth IRA's my wife and I currently have $630k saved up in retirement accounts (She's 35 and I'm 34).

And here's one last portion of our portfolio I realized I also left out:  We have a 529 college savings plan for my son with about $47k in it at this point.

Have you verified that you don't need to pay back your paternity leave if you quit your job?
Great question - I've already checked my company's internal paternity leave documentation and I did not see any requirements around this.  I wish I could talk to my HR to be sure but I feel a little nervous about bringing this up to them and clearly giving away my intentions....either way I'll probably discuss with them further to be sure when I get closer to this plan in another 6 months or so.



JJ-

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Re: Stay At Home Dad Investment Advice
« Reply #9 on: August 13, 2021, 07:37:33 PM »

Across our various 401k's, IRA's, and Roth IRA's my wife and I currently have $630k saved up in retirement accounts (She's 35 and I'm 34).

And here's one last portion of our portfolio I realized I also left out:  We have a 529 college savings plan for my son with about $47k in it at this point.

You've done a great job saving up. Between your retirement accounts, taxable accounts, and I assume HSAs you have close to 850k. $2k a month is $24k/year and is a safe withdrawal rate of 3%. If you are going to do this the first few years look into bond tents to ensure you are protected against a massive market drop.

I will triple down on the advice to refi to a 30 year and think about where you can cut spending. it will lower your fixed monthly payments and even potentially prevent you from drawing from investment accounts.

One question though that I still didn't quite get an answer to is insurance. My assumption is your insurance is through your job, and if your wife were to put you on her employer's insurance her take home would go down. Is this why you mentioned she would work more? To cover insurance? Just making sure that you've got cash flow and insurance covered.

Tyler durden

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Re: Stay At Home Dad Investment Advice
« Reply #10 on: August 14, 2021, 05:24:14 AM »
First just want to say i think its admirable that you are giving this much thought to trying to spend more time with your kids. That right there shows you are going to be a super parent. Enjoy.

I think the other folks who commented did great on some areas that can help, I'm going to throw out another perspective based on what my wife and I did. Something that may work for you or not at all.

We decided to do the daycare thing with both of us working full time for our 3 kids. We got some help on daycare relief from family but the costs were still high. We are both high income earners so as it put a dent in how much we could save, we still fully funded 401k / Roth / HSA etc.

We choose this route, so that now my wife could go part time, which she has and I could stay in a job that offers great work life balance, and I wont ever have the need to take a high paying long hour job. So the idea was we would have more time and options when the kids are a bit older. I've been there with 3 newborns and they are awesome! but spending time with my kids now ages ranging 4-8 is even better. We can do so much more and have more fun. When they are under 2, even under 3 its great but lets face it, the kids dont remember a thing.

I guess in the end its a choice for most of us when we want to have that time. Either early when they are young or maybe when they are toddlers plus. We choose the latter and its working great for our family. Either way, you are actively setting yourself and family up for some great times. Congrats on your expanding family and enjoy it all!

ender

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Re: Stay At Home Dad Investment Advice
« Reply #11 on: August 14, 2021, 06:33:52 AM »
You could do a cash out refinance to a 30 year mortgage and get enough cash in the bank you don't have to sell any investments during this time and still reduce your mortgage payment.

coffeepotkiller

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Re: Stay At Home Dad Investment Advice
« Reply #12 on: August 15, 2021, 05:50:01 PM »
I will triple down on the advice to refi to a 30 year and think about where you can cut spending. it will lower your fixed monthly payments and even potentially prevent you from drawing from investment accounts.
You could do a cash out refinance to a 30 year mortgage and get enough cash in the bank you don't have to sell any investments during this time and still reduce your mortgage payment.
Acknowledged on the advice from you both in this area, we will look into this option and definitely consider it!


One question though that I still didn't quite get an answer to is insurance. My assumption is your insurance is through your job, and if your wife were to put you on her employer's insurance her take home would go down. Is this why you mentioned she would work more? To cover insurance? Just making sure that you've got cash flow and insurance covered.
Yep, our medical insurance is currently through my employer.  If we go forward with this plan we'll need to switch insurance over to my wife's job so even with her increased hours her take home pay would likely stay around the same as it is today with less hours and no insurance.


I guess in the end its a choice for most of us when we want to have that time. Either early when they are young or maybe when they are toddlers plus. We choose the latter and its working great for our family. Either way, you are actively setting yourself and family up for some great times. Congrats on your expanding family and enjoy it all!
Thanks so much and really appreciate you sharing your family's similar but different plan, I can definitely see the benefit of having that quality family time later down the road in a few years.