When can we stop saving for retirement? (But not retire)

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stlrick
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Re: When can we stop saving for retirement? (But not retire)

Post by stlrick »

KlangFool wrote: --political comment deleted-- So, it may not be worthwhile to earn that much anyhow. KlangFool
It is my understanding that political comments are explicitly prohibited in this forum. This has been an interesting thread, and it would be a shame to see it locked by the moderators. Klangfool, you may consider a brief generalization about Obama to be minor and trivial, but that is the problem with politics - I don't. Please take these comments elsewhere.

Rick
marco100
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Re: When can we stop saving for retirement? (But not retire)

Post by marco100 »

sksavers wrote:I'm in the process of pulling together a detailed investment post for review, but I thought I'd solicit more general advice first.

The situation is this: My husband, age 41, has been making very good money (~180k) for the past few years, but HATES his high-pressure job. So. He would love to quit his job and work part-time, maybe even change careers and train for something new.

Bad move. It actually sounds like your husband might be going through a mid life crisis (job pressure, family pressure/new kids, etc., hitting his forties) and wants to "chuck it all."

What he should do is hang in where he is right now and do certain things which would allow him to remain in this job/career, but reduce the stress level. This might not require much more than a change in attitude on his part, perhaps with an assist by a cognitive behavioral therapist.

Quitting and changing careers mid-stream would most likely be financially disastrous. Esp. if you are going to buy a house, have more kids...if you have more kids you may want to quit working entirely for a few years yourself, to raise them full time.

The most effective thing your husband could do, financially, career-wise, and emotionally, would be to really analyze what particular aspects of his current work situation he finds to be the most stressful, and try to figure out a way to work around them.

In any case, when can he quit? Well since you've got about one million saved I would give a ball park figure of say another ten years assuming earning/savings are at approximately the same level, you should have accumulated 2 - 2.5 million by then. That should be enough.

I cannot stress enough what a terrible blunder it would be for your husband to decide that he has to make such a radical change in his work situation. If he truly wants to develop another career, the best way is to maintain his current employment and figure out a way to segue into the new career. This may take 3-5 years. He should try to find a job in the new career field where he can use many of the same skills he uses for his current job.

But again the real issue is "What specifically does your husband not like about his job?" and then address those particular things if possible.

I've been in graduate school and will continue to be in training for the next few years, making relatively little money (45k-60k), and we'll be living in a very high cost of living area for my training. We have a baby and plan at least one more, probably 2, in the next 5 years. Once I finish my training my income will probably be around 70k (academia, so minor raises from then out).
If you are likely to have another two kids in the foreseeable future then it would be absolutely irresponsible for your husband to quit his high paying job. There is a reasonable likelihood with three kids you will want to put your own career "on hold" for a few years. Then your husband's income will be the sole family income.

I am about ten years older than you and my wife and I went through this precise scenario when we started having kids (3 of them from 1998 - 2001) although are incomes were nowhere near what you and your husband earn. We put our first child in daycare but after having our second child my wife decided that she would prefer to raise the kids full time.

We live on about 75k/year and have about 525k in IRAs/401ks, 250k in other investments, and 325k in cash. No debt other than 95k on an investment property. We may want to buy a house in the next couple of years (that's why so much cash).
You sound like you're doing great from a saving perspective.

The question is this: At what point can we afford to stop saving so aggressively...and thereby survive on much less income, but maintain our lifestyles now and through retirement (more or less, cutting some obvious luxuries)?
Unless you hit some kind of remarkable windfall, your working assumption should be that you will have two more kids and buy a house, you will want the option of quitting work to raise your kids full time at least for a few years, and therefore, your husband will be the sole income for at least a few years. If your husband maintains his income level then say 10 years but to be on the safe side at least one of you should plan to continue working until your youngest child graduates high school.

If it turns out your investments really blossom then you can always stop working earlier, but you (i.e. your husband) shouldn't plan to stop working until the youngest has graduated (assuming paying for their college isn't an issue).


How do we think through how much we need to have saved and continue to bring in (ideally our reduced income=expenses)?

Thanks in advance for your thoughts.

ps...I know we are in a very fortunate position; we have been quite blessed with his income.
Someone said 25x annual expenses but to play it safe you might want to use 30x annual expenses. So between $2 - $3 million.
Sidney
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Post by Sidney »

KlangFool wrote:
Sidney wrote:
the tax on family with income above 250K is going up a lot higher
Can you elaborate on that. Is there anything other than the 3.8% tax on investment income that has been legislated since January, 2009?
http://info.ricedelman.com/lgf/fpr64.aspx

Sidney,

Ric Edelman's report give a better breakdown than what I can do.

KlangFool
Actually, it isn't a very good summary. While there is a 3.8% tax on investment income in excess of $250K (I wouldn't classify that as "a lot higher" in the context of the total taxes a family pays), the article deceptively associates the increase in capital gain tax with the health care bill. The capital gain tax increase was passed in 2001.
I always wanted to be a procrastinator.
KlangFool
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Post by KlangFool »

Sidney wrote:
KlangFool wrote:
Sidney wrote:
the tax on family with income above 250K is going up a lot higher
Can you elaborate on that. Is there anything other than the 3.8% tax on investment income that has been legislated since January, 2009?
http://info.ricedelman.com/lgf/fpr64.aspx

Sidney,

Ric Edelman's report give a better breakdown than what I can do.

KlangFool
Actually, it isn't a very good summary. While there is a 3.8% tax on investment income in excess of $250K (I wouldn't classify that as "a lot higher" in the context of the total taxes a family pays), the article deceptively associates the increase in capital gain tax with the health care bill. The capital gain tax increase was passed in 2001.
Sidney,

When I meant was this report is a good summary of ALL of the tax impact associated with that bill. And, for people at that 250K income level (especially all W2), the total combination of taxes will make the marginal tax level very high. Hence, it is getting harder to see any reasonable ROI for earning more.

As for the politic, I let someone else decide whether that bill is a good thing.

KlangFool
Sidney
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Post by Sidney »

KlangFool wrote:
Sidney wrote:
KlangFool wrote:
Sidney wrote:
the tax on family with income above 250K is going up a lot higher
Can you elaborate on that. Is there anything other than the 3.8% tax on investment income that has been legislated since January, 2009?
http://info.ricedelman.com/lgf/fpr64.aspx

Sidney,

Ric Edelman's report give a better breakdown than what I can do.

KlangFool
Actually, it isn't a very good summary. While there is a 3.8% tax on investment income in excess of $250K (I wouldn't classify that as "a lot higher" in the context of the total taxes a family pays), the article deceptively associates the increase in capital gain tax with the health care bill. The capital gain tax increase was passed in 2001.
Sidney,

When I meant was this report is a good summary of ALL of the tax impact associated with that bill. And, for people at that 250K income level (especially all W2), the total combination of taxes will make the marginal tax level very high. Hence, it is getting harder to see any reasonable ROI for earning more.

As for the politic, I let someone else decide whether that bill is a good thing.

KlangFool
Sorry, I still don't see anything other than the 3.8% tax on investment income in excess of $250K -- I don't see where the bill impacts other income taxes.
I always wanted to be a procrastinator.
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sksavers
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Re: When can we stop saving for retirement? (But not retire)

Post by sksavers »

OP here. Thanks to everyone for the advice and personal stories, and I'm fascinated that our situation seems to have struck a chord with so many. I had to go back to reread Your Money or Your Life this weekend, and I feel better about our hope to downshift.
marco100 wrote:It actually sounds like your husband might be going through a mid life crisis (job pressure, family pressure/new kids, etc., hitting his forties) and wants to "chuck it all."
Heehee. This might be true of someone else, but actually my husband has hated his job since I met him a decade ago. He just hasn't figured out what he would like better...and they keep giving him raises that make it harder to leave. :) But now that he has a family and the time spent working is clearly taking time away from being with us, so the consequences of staying at a job he doesn't like seem more bitter, although the benefits of having banked as much as we have seem even sweeter.
marco100 wrote: If you are likely to have another two kids in the foreseeable future then it would be absolutely irresponsible for your husband to quit his high paying job. There is a reasonable likelihood with three kids you will want to put your own career "on hold" for a few years. Then your husband's income will be the sole family income.
Interesting that you should assume it would me who wants the time off. I've invested 6 years so far into my new career (I had a different one before going back to school), and I'm going to be investing another 4, so my career is pretty important to me. Everyone (including me) thought I'd want to stay home once my first baby was born, but we've been surprised that that hasn't been the case. I still LOVE what I do. But I also love that I can work part-time and a flexible schedule. Hopefully that will continue to be the case. In any case, what I've put forth as my immediate future salary is bare minimum. I could make more by teaching a class on the side. And I could also decide to make money in the for-profit sector (big income potential based on my training). But the point is that my career is at the lowest income potential it will ever be, since I'm starting completely fresh from grad school.

So one scenario we are throwing around is having DH be primary caregiver for the next few years, with us radically cutting out luxuries we currently treat ourselves to (in part because he works so hard!) while my income rises steadily. Yes, I'll take some time out after each birth, but the plan will be for me to return to work full-time.

Another scenario would be for DH to keep working full- or part-time but at a job that pays less and is far less stressful. The key is to convince him that not all jobs suck as much as his current one.

About stopping the savings: In academia matching contributions aren't the norm, so while I agree with previous posters about not giving up free money, I don't think that would be the case. I think we would strive to always fully fund IRAs, and we're going to keep saving for kid(s) college education...so realistically, we'll always be saving. But, I feel a lot better about ratcheting down the amounts since we do have a decent-size egg to grow.

Sorry for the rambling and thanks again to all those who contributed.
livesoft
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Re: When can we stop saving for retirement? (But not retire)

Post by livesoft »

sksavers wrote:About stopping the savings: In academia matching contributions aren't the norm, ....
When I was in academia, my institution contributed 15% of my pay to the 403(b) whether I contributed anything or not. I always thought that academia (universities, colleges) had a much higher match than the for-profit sector and public schools.
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gatorking
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Re: When can we stop saving for retirement? (But not retire)

Post by gatorking »

livesoft wrote:
sksavers wrote:About stopping the savings: In academia matching contributions aren't the norm, ....
When I was in academia, my institution contributed 15% of my pay to the 403(b) whether I contributed anything or not. I always thought that academia (universities, colleges) had a much higher match than the for-profit sector and public schools.
So, it's not a match, just ... deferred compensation.
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House Blend
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Re: When can we stop saving for retirement? (But not retire)

Post by House Blend »

livesoft wrote:
sksavers wrote:About stopping the savings: In academia matching contributions aren't the norm, ....
When I was in academia, my institution contributed 15% of my pay to the 403(b) whether I contributed anything or not. I always thought that academia (universities, colleges) had a much higher match than the for-profit sector and public schools.
Sksavers,

Gotta agree with livesoft here, your comment doesn't (ahem) match my experience.

Just about all of the universities I'm familiar with have pretty good to excellent retirement plans -- for full time employees (for adjuncts etc, maybe not). Matches are the norm, not the exception.

BTW, I think one of the historical reasons for this is because of tenure. Picture a bunch of Crotchety Old Farts on your faculty with permanent guaranteed jobs. If your COFs can't afford to retire, you've got a real disaster on your hands.
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sksavers
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Post by sksavers »

re: matches in academia....matches are not the norm. The norm is the institution pays no matter whether employees contribute or not, up to 15% is what I've heard. It's a very nice set up, actually, and another reason why I think we are being conservative in estimating our future funds.
Die Hard
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Post by Die Hard »

schnoodlemom wrote:This thread really strikes a chord. Thanks to the OP and all that responded. We struggle with the same central issues of what is enough, balancing living well but within our means today while saving for an uncertain future. (Also read and loved Your Money or Your Life, years ago.) I like the idea of downshifting to more acceptable employment, while continue to save in moderation and reassessing yearly, adjust as you go. The best of luck to you as you charter new waters with home-ownership and child-rearing! These can be costly, but much of the costs are within your control. You're doing great! Amanda
Which book is the one several posters have mentioned?
Your Money or Your Life: 9 Steps to Transforming Your Relationship with Money and Achieving Financial Independence: Revised and Updated for the 21st Century by Vicki Robin, Joe Dominguez, and Monique Tilford (Paperback - Dec. 10, 2008) or,

Your Money or Your Life: A Practical Guide to Managing and Improving Your Financial Life by Alvin Hall and Karl Weber (Paperback - Sept. 29, 2009)

Thanks!
The best way to teach your children about money is to not have any.............
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renditt
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Post by renditt »

sksavers

a few thoughts / comments

- the logical thing for me would be that DH keeps working at least until your training is finished.

- impressed that you manage to live off 70k in a high cost area with one child.

- I don't know what your current allocation to stocks is, but how would you both feel if your husband gives up work, the market takes a big hit and your sizeable nest egg is suddenly 30-40% smaller?

- don't be too optimistic with returns going forward: given current valuations stocks will likely not return their historical returns over the next 10-20 years and your best estimate for bond returns are current yields, which are low. a diversified portfolio may not return more than 4-5% over the next 10-20 years

- how marketable is your husband? would he easily find a well paying job if he had to or not?

- finally, I struggle a little with your husbands position. if his job is really that bad, shouldn't he left a long time ago and found something he liked? over all these years, he couldn't come up with something else that interests him? 180k is good, but it's not like other jobs wouldn't pay similarly well

good luck
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schnoodlemom
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Post by schnoodlemom »

Die Hard wrote:Which book is the one several posters have mentioned?
Your Money or Your Life: 9 Steps to Transforming Your Relationship with Money and Achieving Financial Independence: Revised and Updated for the 21st Century by Vicki Robin, Joe Dominguez, and Monique Tilford (Paperback - Dec. 10, 2008)

The one above is what I was referring to. I didn't realize there was another. I read the first edition back in 1994, I think. It spoke of the trade off of life energy for money, how to value life energy over things, the value of simplicity and financial freedom. We were newly married, just started saving and paying down debt seriously. It was the first time I really thought about all this. I found it inspiring and simple to understand at that time. My financial reading list is much shorter and less sophisticated than many others who post here, so YMMV. :-) Amanda
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Post by KyleAAA »

My answer is yes, you can probably afford it. Taking the cash out of the equation, you have almost $800K presently. Assuming you never contribute another dime, return in 25 years (age 66 for him) and earn just 2% over the rate of inflation, you'll end up with about $1.3 million in today's dollars. That's $52,000 per year in today's dollars. Could you live on $52,000 per year today? That might be cutting it close, but remember you'll be getting $30-40K in today's dollars in SS payments.

I think you could do it, but I'd be inclined to keep saving for another 2 or 3 years just to make sure. Once you start working full-time, your husband can get a less-stressful job and not worry too much about the pay since according to you, your salary will be almost enough to pay the household expenses as it is. I believe it's always wise to save a minimum of 10% of your income, but you certainly don't need to save upwards of half your income anymore, that's for sure.
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House Blend
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Post by House Blend »

sksavers wrote:re: matches in academia....matches are not the norm. The norm is the institution pays no matter whether employees contribute or not, up to 15% is what I've heard. It's a very nice set up, actually, and another reason why I think we are being conservative in estimating our future funds.
I Googled for "university retirement plans", and clicked on the first five links that were not advertisements: Northwestern, Boston U, Georgetown, U of Washington, and U. of California.

All of them (with the possible exception of Cal--couldn't quickly tell) has at least some form of matching. Georgetown is typical:
The University automatically contributes 5% of your gross pay, regardless of whether you personally contribute; the University will contribute an additional 5% when you contribute 3% of your salary. If you contribute less than 3% to the Plan (0%, 1% or 2%) the University will contribute less (5%, 6.67% or 8.34%).
AQ
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Post by AQ »

Many made comments that if OP stopped saving, then the initial investment around $1mm could grow x% annually, etc.

A related intersting question might be: if OP decides to do so, what is the best way to invest their $1mm?
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sksavers
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Post by sksavers »

Regarding the matching...it's a no-brainer that if there are matching funds, we'd do our best to get them even if we were "done" with saving for retirement. It's just silly to let money go to waste! But they are still not typical in academia...and anyway since I don't yet have my tenure-track job, it's all hypothetical. ;)
KyleAAA wrote:My answer is yes, you can probably afford it. Taking the cash out of the equation, you have almost $800K presently. Assuming you never contribute another dime, return in 25 years (age 66 for him) and earn just 2% over the rate of inflation, you'll end up with about $1.3 million in today's dollars. That's $52,000 per year in today's dollars. Could you live on $52,000 per year today? That might be cutting it close, but remember you'll be getting $30-40K in today's dollars in SS payments.
Thanks for this analysis. This is really helpful.
KyleAAA wrote:I believe it's always wise to save a minimum of 10% of your income, but you certainly don't need to save upwards of half your income anymore, that's for sure.
We are both savers by nature so even though the premise of this post was whether we could afford to stop saving, I suspect we wouldn't be able to bring ourselves to spend every penny we're bringing in! Plus, as we've mentioned, we would still be planning to save for college, and it is likely that I will have some form of retirement plan once I have a long-term job.

But, based on our analyses and a lot of the great commentary we've gotten here, I feel much more confident that we don't have to keep saving as aggressively as we have been. I strongly believe we work to live and not the other way around, and right now, DH is in a job that is nearly all-consuming.

Someone earlier suggested it would be "irresponsible" for him to quit his job with a young family. I would counter that it is "irresponsible" for him to stay in a job that jeopardizes his mental and physical well-being (through stress), not to mention requires hours that prevent him from fully participating in his family's life.

We are grateful that this job and our (somewhat) simple lifestyle have enabled us to amass a good chunk of savings, but that's not the only goal in life. It's time to focus on other goals now, like enjoying our baby and each other.
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sksavers
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Post by sksavers »

renditt wrote: - the logical thing for me would be that DH keeps working at least until your training is finished.
Yes, that would be ideal but I just don't think he can handle it.
renditt wrote: - impressed that you manage to live off 70k in a high cost area with one child.
Thanks. We practice frugality on some of the big things (1 old car used rarely, much less housing than we could afford, etc...) and some of the little things (cloth diapers, make own baby food, minimal baby gear) and spend wisely on others (vacations, nice clothes, organic and local food).

But I think it's also important psychologically that we know we don't have to live frugally. Knowing we can afford whatever we want keeps us in check. I do worry that once we lose this psychological advantage (when income is closer to expenses), we'll struggle with staying on budget, but we'll see.
renditt wrote: - I don't know what your current allocation to stocks is, but how would you both feel if your husband gives up work, the market takes a big hit and your sizeable nest egg is suddenly 30-40% smaller?
We'd feel horrible. In fact, we were down 30% or so a couple of years ago and then decided to stop looking at the accounts on a regular basis. It didn't seem real since we were still adding to the pile and now we are back to where we were (almost). That was a good learning exercise and it enabled me to convince DH to go with a more conservative investment mix (he had been 100% stock). We're now more comfortable with a 60/40 allocation, although to be honest, I don't think we are there yet. (Detailed portfolio review post coming soon!)

renditt wrote: - don't be too optimistic with returns going forward: given current valuations stocks will likely not return their historical returns over the next 10-20 years and your best estimate for bond returns are current yields, which are low. a diversified portfolio may not return more than 4-5% over the next 10-20 years
Completely agree. I am a pessimist when it comes to guessing future returns...I'd rather be pleasantly surprised but plan for the minimum.
renditt wrote: - how marketable is your husband? would he easily find a well paying job if he had to or not?
I think he would find a comparable job quite easily, probably even going back to his current company if he ever leaves and decides to go back. His skill set is not likely to become outdated quickly and he is well-regarded and valued.
renditt wrote: - finally, I struggle a little with your husbands position. if his job is really that bad, shouldn't he left a long time ago and found something he liked? over all these years, he couldn't come up with something else that interests him? 180k is good, but it's not like other jobs wouldn't pay similarly well
You and me both! It's "the devil that you know..." and this particular devil keeps luring him to stay with raises, bonuses, time off (even paid time to look for a new job!), transition to a different job (that ended up being the same thing different clothes), and now what's holding him is stock options! His feeling has been that if it's all going to be the same then he might as well just stay at this company because it's been good to him. I also can't convince him that there are less-stressful jobs that require fewer than 80 hours/week that pay more than 100k. So on this point, I totally agree with you, and it's been the source of much frustration for me (JUST DO SOMETHING!! I have been known to yell.) ;)
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sksavers
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Post by sksavers »

AQ wrote:Many made comments that if OP stopped saving, then the initial investment around $1mm could grow x% annually, etc.

A related intersting question might be: if OP decides to do so, what is the best way to invest their $1mm?
Yes! This would be a wonderful question. :)
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Yuba
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Post by Yuba »

sksavers wrote:
renditt wrote: - how marketable is your husband? would he easily find a well paying job if he had to or not?
I think he would find a comparable job quite easily, probably even going back to his current company if he ever leaves and decides to go back. His skill set is not likely to become outdated quickly and he is well-regarded and valued.
Has your husband approached his current employer about downshifting his career to a more manageable and less stressful position? If he is that well-regarded they might want to keep him satisfied with less work than lose him all together.

Just a thought to consider.

Rick dba Yuba
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goggles
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Post by goggles »

sksavers wrote:Regarding the matching...it's a no-brainer that if there are matching funds, we'd do our best to get them even if we were "done" with saving for retirement. It's just silly to let money go to waste! But they are still not typical in academia...and anyway since I don't yet have my tenure-track job, it's all hypothetical. ;)
Do you read the Chronicle of Higher Education at all? Counting on a tenure track job is kind of like counting on the sun shining on April 21. Hey, it might. But it might not. And April is known for rain. I'm in the humanities, which is beyond dire (English job postings down 24% two years ago, and another 40% this year! Not my field, but typical). Are you really sure you can get an academic job? Even if you are, odds are probably 90% that you'll have to move for a job.

Your savings are admirable, but this is a major IF that you don't seem to have considered.

Sorry to rain on the parade.
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sksavers
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Post by sksavers »

goggles wrote: Are you really sure you can get an academic job? Even if you are, odds are probably 90% that you'll have to move for a job.

Your savings are admirable, but this is a major IF that you don't seem to have considered.

Sorry to rain on the parade.
Don't worry, you're not raining! We're prepared to move in a few years for the right tenure-track job...that makes the decision about buying a house more complicated. Actually, not getting a tenure-track job would be better for our financial picture because I could make more money in the "real world" or even the government. I'm not going that route now because I have illusions about the ivory tower, but it's definitely something we can fall back on...of course, future income is always hypothetical so who knows what will happen.
Last edited by sksavers on Tue Apr 20, 2010 12:49 pm, edited 1 time in total.
rai
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Post by rai »

this is a real interesting topic.

my 2c

I would advise you to keep saving and your husband to keep working at his high paying job. If at all possible.

It sounds like you are thinking your current savings plus interest plus S.S. will be enough, and also that it's possible to have too much savings.

three things that can occur:

1) you have enough (you die just before you bounce your heat bill, phone bill whatever bill)

2) you have too much (oh no we have too much money darn it, I knew this was going to happen :roll: )

3) you live longer than you expected and run out of money.


Of those choices, the only one I want to worry about is having TOO MUCH MONEY.

What if SS benifits are cut? Could happen

What if the Stock market goes backwards? Could happen (look at Japan)

IMHO, it is far better to have more than enough than not enough.

we don't know how long we are going to live or how much our SS benifits are going buy (spending power).

As far as your 'future income' that's what I call 'in the future' and it is not a sure thing.

call me niave but I would take the bird in the hand over the smaller one in the bush.

-- ------- ----------

If you stop saving and 'lock in your savings' you may have a stock market loss, like we did in 08.

You saw what happened? You kept investing and bought at a low price and viola you are back to the front. But if you just keep the same shares, as you had 18 months ago, you would still be a long way off from the even point.

The stock market usually goes up. But we have no assurance that this is always going to happen. If the stock market looses 5% a year for the next 10 years and i am still adding money I will be ahead of where I am now. But If I stick with what I have now, I would not.
bogle_graham
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Post by bogle_graham »

Golden handcuffs cause heart attacks.

Quit the high stress job.

Just don't quit working.

And you'll be fine.

1 million in the bank being alive and healthy is worth much more than 3 million in the bank dead.

You already have a million. Your plan sounds fine.
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Joined: Wed Apr 25, 2007 10:04 pm

Post by bb »

renditt wrote: - finally, I struggle a little with your husbands position. if his job is really that bad, shouldn't he left a long time ago and found something he liked? over all these years, he couldn't come up with something else that interests him? 180k is good, but it's not like other jobs wouldn't pay similarly well

good luck
I don't think the vast majority of jobs pay anywhere near this kind
of money. Renditt - you are implying lots of jobs do. Poll - who is
correct?
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