2 teacher household with a low income year coming in 2022 due to 3rd child

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Topic Author
BashDash
Posts: 941
Joined: Mon Nov 28, 2016 12:31 pm

2 teacher household with a low income year coming in 2022 due to 3rd child

Post by BashDash »

Hi all!
Thank you for all the advice in the past! Where would I be without the 403b advice I received many years ago? I sometimes look back at my old posts to see how confused I was at that point! Anyways....

Any advice for a 2 teacher household with a low income year coming in 2022 due to the arrival of a 3rd child. I am planning on entire 2022 being just one income and maybe even part of 2023. Switch to roth 457 or 403b? Anything I am not thinking of? Looking back was there any action you wish you would have done looking back?

Thanks! Here is our background.

Background info:

Debt:
no student, CC, or car debt

current residence debt: 177K at 4% with house valued roughly at 400k ( taxes 11k) Mortgage payment is $1400 and I have been paying $1900 in hope of finishing this early.

Tax Filing Status: married, 2 small children and one coming
Each of us have 130k salary
State of Residence: NY
Age: Early 40s

Tax Deferred in 403b and 457 plans ( 60 stock 40 bond).
Currently maxing both the 457 and 403b space.

Traditional 403b
Him:260k
Her 105k

Traditional 457
Him: 118k
Her 100k

Roth IRA ( 100% VTSAX). Currently maxing both.
Him:58k
Her: 58k

Taxable

10k in checking account.
100k in High Yield Savings ( .55 interest rate % )

250k in Taxable Brokerage
Mostly VTI and VXUS and some leftover large cap stocks like Home Depot, Visa, Mastercard, Berkshrie, Nike, Starbucks, Waste Management. All future dividends going to index funds.

2 future NYSTRS pensions at age 55 if retired:
Percent of final average salary. NYSTR

2 College NY 529 plan ( will be opening a third with a lump sum 20k)
Currently 35k in each contributing $200 per month per child.
Money is in Moderate Age Based Funds
User avatar
CyclingDuo
Posts: 4466
Joined: Fri Jan 06, 2017 9:07 am

Re: 2 teacher household with a low income year coming in 2022 due to 3rd child

Post by CyclingDuo »

BashDash wrote: Mon Sep 13, 2021 1:04 pmAny advice for a 2 teacher household with a low income year coming in 2022 due to the arrival of a 3rd child. I am planning on entire 2022 being just one income and maybe even part of 2023. Switch to roth 457 or 403b? Anything I am not thinking of? Looking back was there any action you wish you would have done looking back?

Thanks! Here is our background.

Background info:

Debt:
no student, CC, or car debt

current residence debt: 177K at 4% with house valued roughly at 400k ( taxes 11k) Mortgage payment is $1400 and I have been paying $1900 in hope of finishing this early.

Tax Filing Status: married, 2 small children and one coming
Each of us have 130k salary
State of Residence: NY
Age: Early 40s

Tax Deferred in 403b and 457 plans ( 60 stock 40 bond).
Currently maxing both the 457 and 403b space.

Traditional 403b
Him:260k
Her 105k

Traditional 457
Him: 118k
Her 100k

Roth IRA ( 100% VTSAX). Currently maxing both.
Him:58k
Her: 58k

Taxable

10k in checking account.
100k in High Yield Savings ( .55 interest rate % )

250k in Taxable Brokerage
Mostly VTI and VXUS and some leftover large cap stocks like Home Depot, Visa, Mastercard, Berkshrie, Nike, Starbucks, Waste Management. All future dividends going to index funds.

2 future NYSTRS pensions at age 55 if retired:
Percent of final average salary. NYSTR

2 College NY 529 plan ( will be opening a third with a lump sum 20k)
Currently 35k in each contributing $200 per month per child.
Money is in Moderate Age Based Funds
Kudos to kidlet number 3 coming! Financially, your household looks to be in excellent shape. Well done!

I think the obvious first step would be to develop a 2022 (and the portion of 2023) budget based on the single income first to see what might be leftover - net income wise minus expenses - if your spouse continues with their regular contributions. You certainly look well covered in the checking and HYS's accounts for any unexpected expenses. Maybe pad the checking account just a wee bit going into the leave of absence more because things always crop up when a new little one arrives.

Looking back when my spouse took maternity leave all those years ago, we just kept contributing our regular percentage of gross income based on a single income during those months/years, rather than a dual income. We didn't have the salary to go much beyond that and take care of all the expenses surrounding the addition of a new family member for any extra contributions. We did, like you, keep padding the college education accounts even while on a single income.

Have you already created a realistic budget based on the single income to know how much might be available on a single income?

CyclingDuo
"Save like a pessimist, invest like an optimist." - Morgan Housel
cbs2002
Posts: 119
Joined: Thu Feb 27, 2020 2:10 pm

Re: 2 teacher household with a low income year coming in 2022 due to 3rd child

Post by cbs2002 »

We went through something similar, at a similar time in our financial picture, though the one-income year became a one-income life that is only now changing back again. Congrats on child number three! Reducing time spent at work in favor of time spent with kids is a worthy choice IMHO.

First, it looks like you are in really good shape, especially if your spouse goes back to making 130K/year. Though it's better to plan for a few potential paths. You have more than $1 M, which could easily be $2M+ in 10 years without you adding another dime, plus your pensions.

You could probably do a full point better on your mortgage, either 30 or 15 year. Maybe go for a 30 year to make the required payment as low as possible, then calculate your own amortization table and pay as much as you want to each month to meet your goal.

I'd be using aggressive age-based rather than moderate in the 529s. You have other assets and income to cover college costs should things tank at the wrong time. I've backed off 529 contributions as our kids have gotten older in favor of retirement and taxable accounts that have more flexibility, but this is a personal preference for anyone in a situation where maxing everything is simply not possible.

I didn't calculate your overall AA but with your 60/40 retirement plans, 100K in cash savings, plus pension, and putting extra toward your mortgage - that's a pretty conservative approach for your age. I might back off the mortgage and cut the cash savings in half in favor of growing equity index funds in taxable after maxing retirement.

Curious how you are able to max out Roth making 260K a year? are your pre-tax deferrals sufficient to get you below the income limit?

I agree with CyclingDuo's point about committing to some percentage of income going to savings even when on a single income, if only to keep the muscle memory. We had done well investing before going down to one income, and at the time we chose not to worry about savings for a year due to other things being more important. That ended up stretching into several years and in retrospect we should have had a better plan to keep savings on track.
Topic Author
BashDash
Posts: 941
Joined: Mon Nov 28, 2016 12:31 pm

Re: 2 teacher household with a low income year coming in 2022 due to 3rd child

Post by BashDash »

Cyclingduo thanks for the help! We are guilty of having no budget! We figure just throw as much as possible in savings and then live/enjoy the rest! You are one of my favorite posters I learn from all your posts.
Topic Author
BashDash
Posts: 941
Joined: Mon Nov 28, 2016 12:31 pm

Re: 2 teacher household with a low income year coming in 2022 due to 3rd child

Post by BashDash »

Cbs thanks for the reply!

I made a typo regarding the 529. We are in the aggressive. I will edit. I looked into the refinance but was getting overwhelmed so I decided to just add more per month.

Our AGI does allow for Roth. We tax defer close to 80k per year plus use the dependent care and medical flex spending which also lowers our income.
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JPH
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Joined: Mon Jun 27, 2011 8:56 pm

Re: 2 teacher household with a low income year coming in 2022 due to 3rd child

Post by JPH »

Life and disability insurance?
While the moments do summersaults into eternity | Cling to their coattails and beg them to stay - Townes Van Zandt
User avatar
CyclingDuo
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Joined: Fri Jan 06, 2017 9:07 am

Re: 2 teacher household with a low income year coming in 2022 due to 3rd child

Post by CyclingDuo »

BashDash wrote: Mon Sep 13, 2021 2:14 pmCyclingduo thanks for the help! We are guilty of having no budget! We figure just throw as much as possible in savings and then live/enjoy the rest! You are one of my favorite posters I learn from all your posts.
No worries. Just get out the recent monthly bank and CC statements or login to your bank account and view the e-form statements online. Set up a monthly budget to see where everything is going for a few months (see Wiki link below). As painful as it sounds to set up and track all of that, it is an eye opening experience and will at least help you plan pretty realistically what things will be like for your household in 2022/23.

https://www.bogleheads.org/wiki/Household_budgeting

Templates are available to make it easy in Excel or Numbers, etc...

Plenty of images of household budget forms on the internet as well that you can purchase or download for free: https://www.google.com/search?q=budget+ ... =795&dpr=2

I probably find it less painful to do thanks to having had an accountant for a mother (which means I studied it in high school and for 2 years in college as well), and having to do semester and annual budgets as a professor at work for the past 18 years. Regardless, I would highly recommend it so that both you and your spouse can head into 2022 completely in the know regarding your budget and what you will have to work with on just one income.

CyclingDuo
"Save like a pessimist, invest like an optimist." - Morgan Housel
Topic Author
BashDash
Posts: 941
Joined: Mon Nov 28, 2016 12:31 pm

Re: 2 teacher household with a low income year coming in 2022 due to 3rd child

Post by BashDash »

Thanks for the links Cyclingduo! It probably would help to take a dive into this. My thought process was to just keep business as usual with one income and if we need to use our excess cash then do it. We had planned for a minivan purchase but put that on delay for now. I was also thinking that could always just temporarily give our cash flow a bump by stopping contributing to the retirement accounts in an outright emergency.
trueblueky
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Joined: Tue May 27, 2014 3:50 pm

Re: 2 teacher household with a low income year coming in 2022 due to 3rd child

Post by trueblueky »

BashDash wrote: Tue Sep 14, 2021 7:47 am Thanks for the links Cyclingduo! It probably would help to take a dive into this. My thought process was to just keep business as usual with one income and if we need to use our excess cash then do it. We had planned for a minivan purchase but put that on delay for now. I was also thinking that could always just temporarily give our cash flow a bump by stopping contributing to the retirement accounts in an outright emergency.
re: van
Three little ones might be a good time to rethink your vehicle situation.

DW and I were not van people growing up. (Pre-SUV era) But there came a time when it made so much sense for neighborhood car pools, etc.
Topic Author
BashDash
Posts: 941
Joined: Mon Nov 28, 2016 12:31 pm

Re: 2 teacher household with a low income year coming in 2022 due to 3rd child

Post by BashDash »

Bluesky thanks for your reply! Totally agree. We may come to that conclusion soon. With the state of buying cars we are just temporarily pushing the purchase off I think. In the meantime we are going to just attach a hitch to our current highlander and I am going to use an attachment for extra storage when we go on our short family trips. I'm also curious if the electric car advancements will be in the near future to somehow purchase an electric van. I do know that the Chrysler Pacifica exists. We are honda/toyota drivers.
Topic Author
BashDash
Posts: 941
Joined: Mon Nov 28, 2016 12:31 pm

Re: 2 teacher household with a low income year coming in 2022 due to 3rd child

Post by BashDash »

Thanks for all the detailed replies!
hudson
Posts: 4419
Joined: Fri Apr 06, 2007 9:15 am

Re: 2 teacher household with a low income year coming in 2022 due to 3rd child

Post by hudson »

BashDash wrote: Mon Sep 13, 2021 1:04 pm Hi all!
Thank you for all the advice in the past! Where would I be without the 403b advice I received many years ago? I sometimes look back at my old posts to see how confused I was at that point! Anyways....

Any advice for a 2 teacher household with a low income year coming in 2022 due to the arrival of a 3rd child. I am planning on entire 2022 being just one income and maybe even part of 2023. Switch to roth 457 or 403b? Anything I am not thinking of? Looking back was there any action you wish you would have done looking back?

Thanks! Here is our background.

Background info:

Debt:
no student, CC, or car debt


current residence debt: 177K at 4% with house valued roughly at 400k ( taxes 11k) Mortgage payment is $1400 and I have been paying $1900 in hope of finishing this early.

Tax Filing Status: married, 2 small children and one coming
Each of us have 130k salary
State of Residence: NY
Age: Early 40s

Tax Deferred in 403b and 457 plans ( 60 stock 40 bond).
Currently maxing both the 457 and 403b space.

Traditional 403b
Him:260k
Her 105k

Traditional 457
Him: 118k
Her 100k

Roth IRA ( 100% VTSAX). Currently maxing both.
Him:58k
Her: 58k

Taxable

10k in checking account.
100k in High Yield Savings ( .55 interest rate % )

250k in Taxable Brokerage
Mostly VTI and VXUS and some leftover large cap stocks like Home Depot, Visa, Mastercard, Berkshrie, Nike, Starbucks, Waste Management. All future dividends going to index funds.

2 future NYSTRS pensions at age 55 if retired:
Percent of final average salary. NYSTR

2 College NY 529 plan ( will be opening a third with a lump sum 20k)
Currently 35k in each contributing $200 per month per child.
Money is in Moderate Age Based Funds
You are doing OK. No debt except mortgage...try again to refinance. Extra payments are a plus!
If I were in your shoes....
I would put the college money towards the mortgage or investments. Worry about college later.
I would dump the individual stocks unless the capital gains hurt too much.
I would take a hard look at increasing high quality fixed income. Look at "age in bonds" as a starting point.
Grab that pension.
If you haven't, read William Bernstein's stuff.
Topic Author
BashDash
Posts: 941
Joined: Mon Nov 28, 2016 12:31 pm

Re: 2 teacher household with a low income year coming in 2022 due to 3rd child

Post by BashDash »

Thanks Hudson!
What do you recommend for high quality fixed income?
Currently use total bond, intermediate total bond, and a debt index in my 457.
welldone
Posts: 83
Joined: Sun Aug 17, 2014 2:53 pm

Re: 2 teacher household with a low income year coming in 2022 due to 3rd child

Post by welldone »

Looks like you could probably easily refinance to 3% or lower on a 15 year mortgage - not sure how much longer you have on your current mortgage, but you are paying a way too high rate.
Ron Ronnerson
Posts: 2331
Joined: Sat Oct 26, 2013 6:53 pm
Location: Bay Area

Re: 2 teacher household with a low income year coming in 2022 due to 3rd child

Post by Ron Ronnerson »

If you’ll be in a lower bracket than usual, utilize Roth accounts.

With a mortgage balance of $177k, I’d look into refinancing and probably go with a 15-year loan. You should be able to drop your interest rate from 4% to around 2%. That’s a significant difference.

Make sure you have enough life insurance.

Go through expenses and cut where possible if you will be on one income for a bit.

Congratulations on the new arrival!
Topic Author
BashDash
Posts: 941
Joined: Mon Nov 28, 2016 12:31 pm

Re: 2 teacher household with a low income year coming in 2022 due to 3rd child

Post by BashDash »

Thanks Ron and Well-done!

Can you explain in simple terms how I would save money by refinancing? I feel resetting the loan will pro long my goal of paying it off. I'd like to have this done before college for kid #1.

I'm also not sure if I have the head right now to go through the paperwork and or leg work with the start of the year here. We refinance a previous property years ago and involved a closing with lawyer etc.
hudson
Posts: 4419
Joined: Fri Apr 06, 2007 9:15 am

Re: 2 teacher household with a low income year coming in 2022 due to 3rd child

Post by hudson »

BashDash wrote: Wed Sep 15, 2021 8:18 pm Thanks Hudson!
What do you recommend for high quality fixed income?
Currently use total bond, intermediate total bond, and a debt index in my 457.
High quality fixed? As you know treasuries and CDs are the ultimate.
Quote by W. Bernstein: viewtopic.php?p=5160087#p5160087

Your choices are likely OK. I like Vanguard's Risk Potential 1 and 2 choices.
Here's from an April 2021 discussion...probably too much information: viewtopic.php?p=5928824#p5928824

On refinancing a mortgage: If you can get a lower rate that's a big plus. You can still make double and triple payments.
At least explore it. Check credit unions maybe?
Ron Ronnerson
Posts: 2331
Joined: Sat Oct 26, 2013 6:53 pm
Location: Bay Area

Re: 2 teacher household with a low income year coming in 2022 due to 3rd child

Post by Ron Ronnerson »

BashDash wrote: Thu Sep 16, 2021 6:42 am Thanks Ron and Well-done!

Can you explain in simple terms how I would save money by refinancing? I feel resetting the loan will pro long my goal of paying it off. I'd like to have this done before college for kid #1.

I'm also not sure if I have the head right now to go through the paperwork and or leg work with the start of the year here. We refinance a previous property years ago and involved a closing with lawyer etc.
I’m not sure how long you have left on the mortgage currently but you can continue to make the same payments as now after refinancing even if a smaller payment is required due to restarting the term. More of your payment goes toward principal that way and the house gets paid off faster.

It’s up to you to decide if the paperwork and hassle are worth it. With $177k left and the possibility to reduce the rate by 2%, I’d recommend doing it. If your remaining balance were half what it is and the interest rate spread were only 1%, perhaps then it wouldn’t be worth the bother to me. Basically, in my opinion, you still owe enough and the rate difference is significant enough, that it’s probably worth the trouble. At the very least, I’d look into it.
Topic Author
BashDash
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Joined: Mon Nov 28, 2016 12:31 pm

Re: 2 teacher household with a low income year coming in 2022 due to 3rd child

Post by BashDash »

Thanks Ron for the reply. Have you ever heard of a current mortgage company lowering there rate in hopes of keeping one's business? I know this is a long shot but I'm thinking it could be less of a hassle. I know there are states with no fee refi's but I don't think NY is one of them. I think I remember a refinance being close to 10K last time we did it but I 'm not certain. I'm sure that is still a small number compared to the number I would be saving going from 4% to 2% as you mentnioned. Our current company is Mr. Cooper.
Ron Ronnerson
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Joined: Sat Oct 26, 2013 6:53 pm
Location: Bay Area

Re: 2 teacher household with a low income year coming in 2022 due to 3rd child

Post by Ron Ronnerson »

BashDash wrote: Fri Sep 17, 2021 9:25 am Thanks Ron for the reply. Have you ever heard of a current mortgage company lowering there rate in hopes of keeping one's business? I know this is a long shot but I'm thinking it could be less of a hassle. I know there are states with no fee refi's but I don't think NY is one of them. I think I remember a refinance being close to 10K last time we did it but I 'm not certain. I'm sure that is still a small number compared to the number I would be saving going from 4% to 2% as you mentnioned. Our current company is Mr. Cooper.
I’m sorry but I just don’t know how this all works in NY as I’m on the other side of the country. Here in California, I’ve done three no-cost refinances on my home. $10k in costs is substantial and I definitely wouldn’t want to pay that. My suggestion would be to ask your question on the Refinance Mega Thread. There seem to be refinance experts on there, some of whom refinance over and over again for a profit. I think you have a decent chance of receiving guidance for your specific situation by asking your question on that thread.

In any case, you could call your current lender and let them know you’re considering refinancing. They may be willing to just lower your rate (I’ve heard of this happening for some people but don’t know how common it is or which lenders do this). There is nothing to lose except maybe the time it takes to make a call.
Topic Author
BashDash
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Joined: Mon Nov 28, 2016 12:31 pm

Re: 2 teacher household with a low income year coming in 2022 due to 3rd child

Post by BashDash »

Thanks Ron! I appreciate your insight. I just took a quick look at that mega thread on refinancing and I searched New York in the thread and was seeing that costs are a problem in NY.

viewtopic.php?p=6167308#p6167308

I just can't see resetting that mortgage again when I could just put that 10k to the 170K itself. My math might be wrong so I need to really crunch the numbers.

I just actually read one of your others posts in another thread on I-bonds so I have that rabbit hole to go down now too!
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