How much of a pay cut would you take for a lighter workload?
Paul, 35, is grappling with that question. Like many of us, Paul says he loves his job, but the hours are demanding. He would love to work less. But he didn’t think the opportunity would come so soon.
You see, Paul is a dedicated saver. He’s spent years trying to build financial independence. He’s amassed a net worth of $910,000, with no debt.
His ideal early retirement, which would be filled with travel and hobbies, requires more money. Besides, he enjoys his career.
That’s why Paul thought he’d work full-time for several more years. He felt happy with that plan.
But an interesting opportunity recently arose.
Paul’s workplace has offered him the chance to drop his hours – and his salary – by 25 percent. He’d love to work less. But the salary cut is earlier than he’d planned.
Should he take it?
Today, we kick off the podcast episode with this question.
After that, we turn our attention to an anonymous caller. She and her husband want to retire at 55. They also want a bigger home, a better car, and to start growing their family. Can they afford it all?
Meanwhile, Tim spent his 20’s in medical school. He missed out on retirement savings during those years. He’s eager to catch up. What’s the shortest path to get there?
Finally, Matthew and his family dream of leaving Florida for the Pacific Northwest. Will they regret selling everything to start over?
Former financial planner Joe Saul-Sehy and I tackle these four questions in today’s episode.
Enjoy!
P.S. Got a question? Leave it here.
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Paul asks (at 02:38 minutes): I’m 35, single, and don’t plan to have kids. Though I love my job, I aim to achieve financial independence and eventually work less.
I’d planned to wait at least a few more years, but my company is preparing for staffing changes this year that would allow me to reduce my working hours to 75 percent full-time.
Should I take this opportunity? I’d still be considered a full-time employee with benefits, but my salary would drop by 25 percent to $100,000 annually.
I have no consumer debt, and I could survive on $35,000. However, I usually spend more because I like to travel and enjoy my life.
My net worth is $910,000. I have $20,000 in cash, $390,000 in investments, and $500,000 in real estate equity between a primary home and five rental properties.
I’d like to build up more cash savings. I have safety nets, though, including a Home Equity Line of Credit (HELOC) that I could access in an emergency.
I know I’d be fine, but this reduction will slow down the growth of my net worth and make it harder to grow my real estate portfolio.
On the other hand, after reading the book “Die With Zero,” I think I need to make more time for my hobbies.
How should I think through such a big decision?
Anonymous asks (at 21:32 minutes): My husband and I want a financial plan where we can both retire at 55. Are we on the right path?
We’re in our late 30s and make $200,000 a year in the public sector with pension retirement plans.
Our expenses range from $4,500 to $5,000 per month. Our car payment is $400, our student loans total $500 a month, and our mortgage is $1,500 a month.
Currently, we plan to:
- Start growing our family next year
- Trade our current car for a new one but keep the payment at $400-$500 a month
- Upgrade to another home within three years
- Switch our term life insurance policies to universal life.
- Start investing in a brokerage account at $500 monthly with an initial investment of $1,000.
- Continue saving $1,000 a month in a high-yield savings account
We have $200,000 in home equity, $60,000 in savings, and $30,000 in our IRA. We max out our HSA accounts, and we both have a term life insurance policy.
Are we making the right moves to set us up for a financially stable future?
Tim asks (at 36:11 minutes): I’m 28 years old and late on retirement savings due to years of low income during medical training. What’s the best strategy to catch up and build out a tax triangle?
I’m getting married this May. My fiancée makes $140,000 a year in W2 income, and I make between $100,000 and $130,000 a year in self-employed income at my therapy practice.
Last year was our biggest contribution year by far. We maxed out our Roth IRAs and we both contributed to Roth 401ks. We don’t have access to a Health Savings Account (HSA).
We have minimal student loan debt, own our cars, and rent for housing. Accounting for tax treatment and our late start, what retirement accounts should we prioritize?
Some options we’re considering are:
- Focus entirely on our Roth accounts. We have no dependents and we can stomach a full tax bill, but this option wouldn’t allow us to build our tax triangle.
- Split our 15 percent retirement savings between Traditional and Roth 401ks. My fiancée would contribute to her Roth 401k and I’d contribute to my Traditional 401k.
- Focus entirely on our Traditional accounts. We’d use the extra tax savings to help us save for our five-year goals of buying a house and upgrading our cars.
I’m not sure what our income or expenses will be in retirement, but we’d like to have enough to continue our current lifestyle.
Matthew asks (at 55:17 minutes): My wife and I are both 40, and we have four children, aged three through ten. Our “Afford Anything” is to move from Florida to the Pacific Northwest.
To paraphrase the old saying about the best time to invest: the best time for us to have moved was 2019. The second best time for us to move is now.
How can we do this in a financially savvy way?
Our target area is the suburbs of Portland, Oregon. We’re committed to living at least two years in our next location.
A rental would cost $2,500 a month. A home purchase would cost $425,000 for an acceptable place, and $500,000 plus for one that’d make everyone in the family happy.
I can access a VA loan that would allow for a small down payment and below-market interest rates. We prefer to own the house that we live in, but I’d be willing to rent for a year or two.
Our home in Florida is worth $400,000. We owe $170,000 on our mortgage at 3.5 percent with $1,400 monthly payments. We could rent it out for as much as $2,700 a month.
Should we rent our current house or sell it outright? If we sell, I’m very concerned that we’ll be priced out of ever returning to Florida.
I’m an intensive care nurse and hope to make $120,000 a year after the move. We have $10,000 saved in cash and should be getting another $7,000 back on our income tax return.
I have three monthly loan payments:
- A $500-a-month payment at five percent with $20,000 outstanding.
- A $600-a-month payment at six percent with $25,000 outstanding
- A $200-a-month payment at 0.9 percent with $6,000 outstanding.
If we can find a home close enough to work, I’ll be able to sell my current car and get rid of the $600 debt payment.
I still contribute to retirement, but I’ve comfortably reached Coast FI without accounting for Social Security income. I should be able to walk away from work in 15 to 20 years.
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