What Savings to Reduce Living on One Income

[LegacyWealth2013]

Good Evening,

I haven’t posted in a while, but I can use some Bogleheads advice. My husband and I planned to live off of one income while he left his job to pursue a calling. The plan was for 3 years. That time arrived in May and we planned well financially for that period. However we are now in September in our 4 month beyond the planned for period. So now we need to make adjustments to sustain on one income for another 8 months.

My question: what order of savings reduction do you recommend to support this additional 8 months?

I contribute the annual maximum to my company’s 401k ($23k employee contribution plus the employer match and profit share up to $59k total per year) an HSA (family annual max co tribulation of $8300), a Traditional IRA ($7k individual max contribution). We also contribute $500/month to a brokerage account and $667/month to our children’s 529 College savings accounts.

So what do we cut first and in what order? We need an additional $4000/month to maintain our current lifestyle and at a minimum an additional $2000/month to maintain at a minimum.

I know the reduction won’t last forever but I want to reduce savings and investments at the lowest possible opportunity it’s cost trade-off.

Thank you in advance for your insights.

[bendix]

I think I saw intel on that matter in the BH Wiki. It´s basically the priority of where to save money, just backwards.

[warner25]

I predict that the consensus will be cutting the 529, taxable brokerage, and HSA contributions in that order. I don't even have an HSA, so I'm not sure of its relative value, but 529 contributions are a bit controversial anyway.

I'd take a harder look at whether it's better to cut expenses instead of savings, though. Is this "calling" going to lead to a higher income on the backend somehow? Will he return to his old job?

Mostly I'm just curious to know what he's actually doing and why it's extending into a fourth year.

[FiveK]

I think I saw intel on that matter in the BH Wiki. It´s basically the priority of where to save money, just backwards.

+1

Yes, it's the Prioritizing investments article.

LW2013, how do the suggestions there look to you?

[celia]

What savings did you reduce during the last 3+ years? Can't you continue doing the same thing (or most of it)?

[CaptainT]

What have you done over the last several years?
Why if after 3 years the passion project has failed and is not making money why continue to support that?
Is it time for the passion project to end and a job to begin?

[RetireWhen]

What have you done over the last several years?
Why if after 3 years the passion project has failed and is not making money why continue to support that?
Is it time for the passion project to end and a job to begin?

She never said it was a passion project and never implied it involved making money. Perhaps it was a religious calling or some other calling of giving that is simply taking longer to complete.

And perhaps it is time to move on, but they do seem to have some means to cut back on savings if they chose that approach. Their savings rate is impressive at $81k a year and because of that maybe a slightly lower amount for another year will not hurt the overall picture that much. She said they would need $32K if they don't reduce spending and $16K if they do reduce spending. On the low end that is only about 20% reduction in savings for 8 months. They would still have a positive savings rate, just a reduced rate for a few months. It doesn't appear they are pulling from savings to fund the calling.

I would stop the 529 and that would get to 50% of the low end need. Then I would consider the $500 to the brokerage account. Those two almost get them to the low range of what they need. Plus if they are still saving $81k while the husband is not working for 3 years it implies they have a fair amount of money already set aside.

[gatorking]

Kudos for being so supportive of your husband's call.

[PeninsulaPerson]

Kudos for being so supportive of your husband's call.

+1.

You have done it for 3 years, 4 months, OP. These 8 months will fly by. Keep doing what you're doing and cut a few expenses and you'll be fine.

(Hope you're not worried that 3 years that is turning into 4 will turn into 6, 11, 17. If you are, that's different - very different! - financially!)

[PeninsulaPerson]

Why if after 3 years the passion project has failed and is not making money why continue to support that?

Is it time for the passion project to end and a job to begin?

Because there is this.

No matter how noble the calling, this man has an obviously-supportive wife and kids.

He might need the ballast of talking to an objective "other" - if he hasn't already - to be sure he's not lost in his dream.

Can this calling be pursued half-time?

[Watty]

I contribute the annual maximum to my company’s 401k ($23k employee contribution plus the employer match and profit share up to $59k total per year) an HSA (family annual max co tribulation of $8300), a Traditional IRA ($7k individual max contribution). We also contribute $500/month to a brokerage account and $667/month to our children’s 529 College savings accounts.

So what do we cut first and in what order? We need an additional $4000/month to maintain our current lifestyle and at a minimum an additional $2000/month to maintain at a minimum.

You are looking at some of your numbers as a yearly amount and some of them as monthly amounts which makes it difficult to see the big picture. You are also looking at some numbers pretax and other post tax which also make it more difficult to see what is going on. For example $23K a year for the 401k is about $1,900 a month but if you eliminated that entirely you might only have something like $1,200(??) a month extra in after tax take home pay.

I would suggest that you make a spreadsheet where you have a row for each category then the amounts in columns for each row with the Yearly, monthly, and after tax amounts.

Just eyeballing it it looks like the $401k, IRA, and HSA add up to about $38K a year before taxes which might be something in the ballpark of $30K a year after taxes. That would be $2,500 a month. The brokerage and 529 are about another $1,200 a month for a total of $3,700 a month.

I may be missing something but I do not see how you could free up another $4,000 a month to spend even if you cut out all those expenses.

What tax brackets do you expect to be in for 2024 and 2025?

How much do you have in the brokerage account or other taxable accounts?

If you sell investments in the brokerage account will you qualify for the 0$ federal long term capital gains tax bracket?

What to do really depends on those details.

There are also permutations like if you have a lot on your brokerage account instead of cutting any of your retirement account contributions that you spend $4,000 a month from the brokerage account so you can still max out your tax advantaged accounts.

Other than the tax advantages which accounts you put the money into may not make a huge difference because your net worth will be the same no matter which you choose.

[Admiral]

Please provide more detail on your investment accounts (retirement, taxable, 529) and their balances, as well as marginal tax rate. W/o that it's all conjecture.

In particular you may be better off spending post-tax money (that is, from a taxable account) and not cutting back on anything that gives you a tax deduction.