Critique my faux-FIRE plan: Becoming a stay-at-home dad.

[welliamwallace]

I’m 35 year old married guy with a baby girl, and have been out of work for 6 months on extended parental leave. My company offers a gracious 12 weeks paid plus 20 weeks unpaid, and I’m taking it all. My wife has now been back to work for 3 months. This experience has been wonderful and has re-affirmed our plan to have me quit my job. I won’t call it “retire early” out of fear of the retirement police, I’ll simply call it “stay at home dad”. However, you all are still exactly the people to help me analyze the financials.

Financial Stats:

• $840,000 in investments / cash
• $350,000 paid off house.
• $55k annual expenses ( includes travel, home maint, savings for car replacement, etc)
• My current gross annual income: $140,000 including RSUs
• Her gross annual income: $70,000.

So we are in the interesting spot of having my wife’s salary just about exactly cover our annual expenses after taxes (if I weren't making money too). That would theoretically leave our stash of $840,000 to just sit there and grow until my wife could also quit. I’m struggling with how to model this. I guess it’s sort of the same as the barista-FIRE problem for a single person: Getting a more relaxing part-time job just to cover expenses while savings continue to grow untouched.

A really simple analysis gives me the following: My wife could also quit work when we have $1.57MM with the 3.5% rule (true retirement). Given a 5% real CAGR on our current $840k, we’d get there in 13 years. But I’m not sure how appropriate this is for worst case modeling. There are many 13 year periods where US stocks haven’t returned 5%. But I’m also not sure how applicable the monte-carlo model used to come up with the traditional “4% rule” is. That approach is based mostly on avoiding sequence of returns risk: A big stock crash early in retirement that forces you to sell investments “at the bottom”. In our case, If I quit working and we have a big draw down, we ideally wouldn’t have to sell anything during that period since my wife would keep working. However, that’s still the worst-case scenario we are struggling with: How would I feel if I quit my job, and a year later the stock market crashes and our $840k turns into $440k?

Contingency Planning

If there’s say, a 15% chance of a large stock draw down happening in the first few years after I quit., what are my contingencies, and am I OK with them?

I’m pretty sure I’d want to go back to work. Otherwise we’d suddenly be looking at 30 more years of working for my wife instead of 13, which doesn’t seem fair even if she currently doesn’t have any desire to retire early.

I’d say that even with a 3-4 year gap in my resume, there’s a 90% chance I could get another position in my field earning at least 100k (but can I really be sure of that? In the scenario where I need to get another job, it’s likely that the economy is fucked. Would I still be able to get another job?)

Even if I had to get a job making $50k / yr, that should be plenty right?

Even though this would all be a lot easier if I just sucked it up and worked for 3-4 more years, those are some precious years with our girl, and I think I'm willing to take a 15% risk of having to go back to work as a trade-off of quitting now and spending this time with her.

Other details

• I feel like I’m made for child-rearing. I ran a middle school mentoring program for years, I’ve always loved children and get a lot of fulfillment out of caring and teaching kids. Might home school our girl for the early years, definitely see myself coaching sports, volunteering for scouting camping trips, etc. I've also got lots of hobbies and passions and am not one to get bored in early retirement even after the kid is in grade school.
• Open and trusting relationship with wife, both aligned with the goals of having me be a stay-at-home dad while she continues a career for at least 10 more years. We've had very open communication about these plans (everything I've written here), and she's fully supportive if we can make the financials work. We've discussed extensively the potential social consequences, whether either of us would have any resentment, etc, and are sure that there are no major concerns.
• Wife really likes her job and gets personal fulfillment out of her career. No desire to quit working at this time. I can’t say the same. She was ready to go back after 3 months maternity leave.
• Don’t plan on more kids.
• I’ve got a pension probably worth $70k-100k present value. I think it might get paid out lump sum if I quit, but otherwise it would be a standard annuity starting at age 60
• I make currently $4k in youtube revenue annually, and would probably ramp up my content creation, but don’t include that in my calculations.
• Nearly all of our current portfolio is in traditional (70%) and Roth IRA (30%). with only 70k in annual income we'd be in a very low tax bracket and I should be able to convert money each year from traditional to Roth at a very low tax rate.
• There is some possibility for career advancement and more earning for my wife, but not planning on anything above inflation for now.
• With our paid off house and paid off cars, we actually have a lot of room to reduce spending. We could go down to $40k a year without any significant pain, just give up some vacations, restaurants, and toy purchases.

[AMandM]

Speaking as a stay-at-home parent, I would encourage you to go for it. If you quit your job and there's a big crash, you can just ride it out. You don't have to sell at the bottom, because your wife's income means you don't have to sell anything. Buy more bargain index funds with your Youtube income. Cut back on spending and use the difference to buy more bargain index funds.

If, after a couple more years, the market is still low enough that your wife's retirement seems too far away, you can cut spending some more and ramp up your Youtube gig. If you're not planning to homeschool for long, you could wait till your daughter is in school to take a more time-consuming job.

[terran]

I wouldn't consider 3.5% WR and a 5% return the worst case, but I also wouldn't consider it the best. I'd probably be using similar numbers and saying she can "probably retire in around 13 years if we have ok market returns. It could be longer or shorter, but probably something like that." If you're both comfortable with a statement like that and you think it sounds better than the alternatives (both grind it out and retire sooner at current spend, or reduce expenses and both retire now) then it sounds like a good plan.

Are you finding that caring for your daughter is a full time job? You could consider doing some part time work (maybe consulting in your current field?) either now or once she starts school. Even just saving $10k/year cuts 2 years off your 13 year timeline which wouldn't take too much to earn even after paying taxes on the extra income.

Check out the saver's tax credit: https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-savings-contributions-savers-credit.

Remember that you'll probably want to generate some income in retirement to qualify for ACA subsidies, and may as well fill the standard deduction, so don't convert it all to Roth now.

[scantee]

I say go for it. I wouldn’t hesitate were I in your shoes.

Does your wife get any sort of retirement benefit through work? I would continue to have her save to get a full 401k match, if she is eligible for one.

You’re in a great situation where you have a healthy amount saved and fairly low expenses. Should you ever feel like things are tight you would only need to work a little to provide you with some additional discretionary income. A weekly shift at a hardware store, building your YouTube presence, or some infrequent consulting in your old career area would probably do it. Or, you could put these monies towards an IRA to reduce the amount of time until your wife can retire. Lot of flexibility here, you’re in a good spot.

Good luck! Sounds like you’re a great candidate for ER/SAHDhood!

[LifeHappens]

Should you ever feel like things are tight you would only need to work a little to provide you with some additional discretionary income. A weekly shift at a hardware store, building your YouTube presence, or some infrequent consulting in your old career area would probably do it.

This is my thought as well. When your child is older and more self-sufficient/at school, you should have some time to earn income if you need it.

[Watchmaker]

I'd say go for it. You could also probably use some of your time to cut a bit from your budget, which would reduce your risks. And you could always go back to earning a bit when the kid is older.

For modeling, running some numbers through cFiresim might help you get a grasp on the possible outcomes.

[wageslave23]

I'm in a similar situation.  For what it's worth I am using 3% after inflation returns. I think that's more reasonable given the current market valuations. In my case, my wife will be the stay at home parent until our kids are school age and then she will go back to work until we reach FIRE.  So if I were you, I'd use 3% and figure out how much you will have to work either now or later in order to get to your FIRE amount within the timeframe you both agreed to.  Then you can decide which you would prefer. My wife chose work more later and I think its the right choice for her.

[lutorm]

You only have sequence-of-return risk when you are drawing down. Before that you have retirement-date risk...

If the market drops until you've hit your number, you're fine, the consequence is that your wife will have to work longer. Maybe a lot longer?

I don't think you can model exactly this is cfiresim, but you CAN model the scenario of "retiring today, with 70k income for another 13 years" and see what the failure rate is. It's not exactly the same, but by changing the 13 to different lengths you can estimate the worst-case of how long your wife might have to work.

[zolotiyeruki]

Generally, I'm pretty bullish on having both spouses work, especially if one spouse is making significantly less than the other.  The additional costs from childcare, taxes, work-related expenses (gas, clothing, having to outsource stuff) often makes the lower-paying job only slightly better than break-even.  Leaving the much-higher-paying job, however, definitely has a greater impact.

I think a few points are worth bringing up:
1) You shouldn't care if the stock market crashes while your wife is still working, because you won't be drawing on it--on the contrary, you'll still be contributing.
2) The stock market tends to rebound pretty well after a crash.  Big drops don't tend to stick.  Even in the wake of the Great Financial Crisis, stock levels returned to pre-GFC levels within 5 years, not 30.
3) I don't know where you live, but $55k of spending for a family of three is probably a lot more than you need.  Have you actually run a projected budget if you were to quit?
4) What would happen if you go back to work?  You could save an additional...$100k/year.  Assuming 5% returns and a 3.5% WR, you'd need about $1.6M.  It would take you about five years to get to that point.  Keep working and cut your budget to $40k, and you and DW can both retire next year or maybe the year after.
5) The fact that you and DW have discussed this at length, and explored it thoroughly, is a HUGELY good thing.
6) You may be overestimating your tax burden if you quit.  $70k - $25k standard deduction = $45k taxable, which gets taxed by $5k, except you have a kid, so it'd be $3k.  Sure, add another $5k for FICA and another $2100 for PA state tax, but you're still around $10k total in taxes.
7) You're young, so even if things go south and you get nervous, you can go back to work.

[insufFIcientfunds]

I think going for it sounds great. My wife is a stay at home parent and it is amazing to have her with the kids, to chat during the day, have lunch with from time to time, etc. We share the chores at home pretty equally. It's awesome.

If you are generating income via YouTube then your channel seemingly has to have that minimum 1k subscribers/4k hours of watched content. That's pretty cool and possibly something to build on. Clearly you are generating content people want to watch. That could provide you an opportunity for growth and to generate somewhat more of a passive income (obviously generating the content and editing/uploading can be time consuming, depending on what you are doing, but you know what I mean.)

Sounds like you are on the right track. Good luck drafting that resignation letter!

[Cassie]

The first 5 years of life are so important in a child’s life. You can afford to stay home and I would do it. I stayed home until my 3 kids were in school. As the at home parent you will be able to take on all the house tasks and your family will benefit with more relaxing quality time when your wife is home versus having 2 stressful working parents.