Financial checkup, and reducing savings?

**Like2Plan** · 10-18-2017, 04:39 AM

Kork13,
I have always been impressed with your posts and the progress you are making! I think you are doing great.

It sounds like you are pretty sure your wife is not going to stay in for 20 years. Is your wife going to switch to the new blended retirement system to get the match?
Are you able to transfer your GI bill educational benefits to your children (or will your DW be using some of hers for her masters program?)

One comment about the TSP--while she might not be making contributions if she becomes a SAHM, TSP will accept roll ins on non Roth type money. If she qualifies to make traditional IRA contributions (or if she goes back to work at some point in the future) it might be nice to have the flexibility to do a roll in into the TSP.

One thing you could do is use taxcaster (or simliar program) to model taxes with the scenario where your DW stays at home. My guess is you are in good shape either way.

**Nutria** · 10-18-2017, 06:13 AM

I've stated previously that my family is saving nearly 50% of our gross income, which I know is excellent, and it has put us in a very good position to this point. However, our current budget is starting to show signs of strain...

our current budget is a little strained at the moment by childcare expenses, which leads me to consider reducing the amount that we're saving...which I'm finding to be surprisingly difficult (mentally/emotionally).

Circumstances change, and therefore your budget must change. If that means you must now save less than 50% of gross, then so be it.

Just be glad that you've been saving 50% of gross for all this time instead of pissing it away frivolous stuff.

Should we reduce our savings to enable us to carry out some of our desired spending?

Is your desired spending on "frivolous stuff", or does it add value to your (you and DW) life?

**MonkeyMama** · 10-18-2017, 07:34 AM

Quick thoughts:

I wonder why DW is considering getting a degree before leaving to "stay home"? Is she thinking she wants to stay home more temporarily and employer will cover most the cost?

I would evaluate retirement savings in terms of X number of expenses versus X numbers of income. This is a more practical approach, especially when you are saving as much as you are. & keep in mind that retirement maximums are just arbitrary numbers. I wouldn't put too much weight on them. (I've never been a big fan of being too retirement heavy, and I say this with an early retirement plan).

The tax hit on your income is massive, and is another big reason to think about retirement savings in terms of spending/expenses. Just as an example, we've been a one-income household for 15 years. First $100k income is income tax-free. Because of that and also because my spouse has the time to economize and keep our expenses down, and we are very efficient anyway, I often feel we live the same lifestyle as many of our friends with twice the income. Literally. (& to be clear, most of them don't have any savings/wealth. We are on the opposite end of the spectrum as we tend to over-save).

On the spending/saving side of things, we never ever ever reduce our savings EXCEPT if it's temporary or one-time expenses. We obviously cut our savings dramatically to stay home with kids. Daycare is another one that comes to mind. (We paid for the luxury for several reason, even with spouse at home). I Wouldn't think twice about making a one-time splurge or paying cash for a one-time expense. We are just more focused on not increasing our monthly commitments (something like a bigger mortgage or even a subscription that costs more every month for eternity). I think the more accurate way to say this is that we don't increase our (monthly/ongoing) expenses. If we want to both work full-time and save like half our income, whatever. If we don't want to do that, whatever. We focus on keeping our expenses in check more than the income side of things.

You are doing everything right to prepare for transition. For us, we never relied on second income, but we made the leap when we had our first kid at 25. We had about 1 year of income in taxable savings, but we were prepping for "sole breadwinner maternity leave, could be put on bedrest" kind of situation. Probably overkill if the woman is the one to stay home (and you've already had kids anyway). We had kids on the young side. I noticed most my age had not prepared at all, were lower income and were totally broke. Most the older moms seemed to be reeling from the loss of income they had gotten used to, and all the time they had put into their careers. You are no doubt better than most financially, but that will probably be the hard part. (Though you are young enough and financially prepared enough, congrats if you find the sweet spot we did. I always felt very *shrugs* about all of this financially. We over-thought it ahead of time, as we tend to do, but the execution was very *Shrugs*. If you lose an income you never relied on, and you have some assets to fall back on, it's probably a bit like a well executed retirement).

**MonkeyMama** · 10-18-2017, 08:38 AM

P.S. Most "savers" I know (or deal with professionally) have massive tax hits in retirement. So, I don't know that "kicking the can down the road" indefinitely is the most useful tax strategy. If you want to work and make tons of money, it just is what it is. But if you have any desire to slow down, is something to consider.

**LivingAlmostLarge** · 10-18-2017, 10:14 AM

Personally it's not about money right now. It's a lifestyle choice. Great that you've been saving 50% of your income. basically living on 1 income. But if you lived on 1 income and saved 50% of that income it's the same thing.

I'm with MM we've never been true 2 income family. DH and I haven't lived up to our income ever. And our lifestyle I will admit has been BETTER I think than most 2 income working families and pretty much 100% of them say that to our faces. I say they make a choice of more money and we made a choice of less stress. 1 income has been for us super easy. We'd be MMM retired by now if I had been working.

But working an extra 5-10 years it turns out is not a big deal to my DH. He took a year and recharged and now is deeper in the game than ever. He's making serious money now and we're on turbocharge adding to our net worth annually with investments and savings and we're pretty much a 1 income family.

I think you need to sit and prioritize what you want out of life. I don't see the point of your wife going for a masters to stay at home. It's a lot of time and money. But is it something she needs to do because she dreams about it? Then fine. Or if she needs to do it to get her dream job? Then also fine. But otherwise you should look at what are you getting back from the degree?

I refuse to go back for another degree and so did DH. We both have changed careers but we did it on our own dime and time and without taking away too much from our family life. Now that being said we both did worthless degrees in some sense because phd are never useful financially. It's worth it professionally for some because you can't get where you want to be without it. But it would have made more sense going to work right out of college and saving every penny.

So I know what I'm talking about when I say at 31 sit and think where you want to be in 5 years, 10 years, etc. Really consider what sort of job and lifestyle you want. Want flexible job that you can work from home and still volunteer at kids school? Want a job with less travel? Or higher salary because it's going to be just one?

No one can tell you what's important. We can however help strategize where you are trying to get.

I'd ask your wife does she want to work or stay at home? Work later? Part-time? Loves what she does? Do you? Do you want to live in Alaska? Every move you make now can impact later so sometimes you have to take a step back now for the right step later.

**scfr** · 10-22-2017, 06:11 AM

As you already know, for your age you are doing quite well. It sounds like you’ve done an excellent job of maximizing savings in your younger years, when you have fewer financial obligations, in order to buy yourself some flexibility as you start to get older. It’s also a nice advantage that you get to save “Alaska dollars” for possible spending later in another location where costs are lower. Congratulations on your progress so far!

There are many aspects of your situation where I’m not qualified to offer an opinion, because I don’t know anything about military benefits or programs.

But a couple suggestions I do feel comfortable offering are:
1. Retirement Savings: I recommend you continue to max TSP and Roth savings for the time being. At least until we know what the new tax plan is going to look like. Some of the options we savers currently have to help us reach our retirement savings goals may be trimmed, or may go away. Take advantage of them while you can. Once the tax reform situation has shaken out, then reconsider your plans.
2. Cash savings (outside of TSP and IRAs): You are at a stage in life (solid start on retirement savings, 2 young children, and the possibility of temporarily switching from a 2-income to a 1-income household) where, yes, it may be the right time to scale back the savings a little bit. And it’s extremely rare that I say “save less!”
3. Expenses: Financial decisions are all about trade-offs – You already know this. If you and your wife both have the goal of her being a SAHM for a few years, then go over the budget together and figure out where you can cut back in order to make that happen. Look at the recurring expenses that are within your control (grocery budget, clothing, entertainment, etc). Then, look at the irregular ones. I know you’re already weighing the home remodels as “wants” so I won’t comment on those. But also look at the travel. Is it to visit and stay with family in the lower 48? If so, then I’d encourage you to continue that because time with aging family members can never be made up. But if some of it is purely for leisure, then think about whether there are less expensive options that could give you & your family the same amount of stress relief, family bonding, and personal enrichment. Some of my favorite “family moment memories” from my childhood involved day outings that were local, and very low cost or free. Speaking from personal experience, “mini-frugal-vacations” can be awesome with the right mindset and proper planning.

It sounds like you are at a major life milestone. Good luck getting it all figured out. I have a feeling you are going to come up with a great plan and keep on sailing (or should I say flying).

**kork13** · 10-23-2017, 06:43 AM

Thank you all for your thoughts, both here and in PM's. To clarify some points...

I have run some scenarios with going down to a single income, and we would likely still be able to save ~30% of our income... largely, because as pointed out, we've mostly already been living on a single income. That was always sort of our plan when we got married -- live on my income, save the equivalent of hers, so that it's less of a shock if/when she decides to stay home. Alot of our saving to this point has been geared toward giving us that flexibility later on...a later time which might finally be approaching.

My wife doesn't plan to completely abandon professional work -- we're thinking that she'd probably do part time work, whether with the military in the guard/reserves, maybe a co-incident job such as becoming a childcare provider, or perhaps just wait until the kids are in school then get a part-time job during the school day. Long term, she wants to become a physical therapist, but it's not a high priority yet. So that's why she might do the masters degree before leaving the military, while she can get Tuition Assistance to help pay for it. Neither of us have immediate plans for the use of our GI Bill funds, though I sort of plan to use them on ourselves vs. transferring them to our kids. But then, none of it is a firm decision yet....

...and I think that probably speaks to the real root cause -- We both have the failing of being quite indecisive at times, so we've never been able to successfully have that sit-down discussion about what we really want to do with our lives. We have desires and goals, but the "how" and "when" frequently don't get resolved.

For now, I think I'll try to not worry so much about maxing out all of our retirement accounts (good point by MM that the maximums are arbitrary), and instead just stick to saving 15% or 20% of our income toward retirement. The TSP/401k limits are increasing next year -- perhaps I'll just let it ride, and not adjust our contributions. Realistically, we're doing fine as is, and besides needing to take more time off from work, we're living a relatively comfortable lifestyle. I probably just need to make some minor adjustments to trim here and there, wait for my promotion to add to our monthly buffer, and probably just stress less about it (and life in general).

The biggest thing that still nags at me is just trying to strike the right balance between saving enough and not saving so much that we're too heavy in retirement accounts, and not having enough in other accounts that is more accessible. For example, a while ago, I put together a sort of 'glide slope' for our retirement savings, laying out what ratio of our expenses we should have at 5-year age increments. So 1x expenses at age 25, 2x at age 30, 4x at age 35, and so on, to end up with 25-30x expenses when we retire. By that metric, we're already ahead (~3x expenses at age 31). Meanwhile, I've raided my/our taxable accounts multiple times over the last 5 years to buy homes, cars, etc. (in all nearly $175k), so it continues to seem like our taxable accounts sort of stay stagnant while retirement & real estate assets keep growing. I think that dynamic is a part of what triggered this line of thinking/inquiry for me.

(btw... sorry for my hugely verbose posts. I guess sometimes I work through my thoughts by writing them down, and these discussion boards just happen to be the medium for doing that...

)

**LivingAlmostLarge** · 10-23-2017, 08:24 AM

Just sit and start talking. If the point is your wife staying home with the kids, does it make sense to work and go to school to stay at home? Is there even a master's in physical therapy? And if it takes 5 years will she regret the kids are in school and she will stay at home?

Financial checkup, and reducing savings?