formerexpat
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Post by formerexpat on May 17, 2011 21:02:11 GMT -5
This is a spin off from the other thread about how much the higher earner would have to make to allow for a SAHP.
For families with children, how much does the lower income person make after accounting for the increased expenses of working outside the home?
Our personal situation would look like this if my wife worked outside the home:
gross income - $50k - likely amount she could make starting tomorrow. taxes - ($24.4k) - rate of 48.7% with fed, state and FICA additional food - ($2.6k) - estimating more meals out child care - ($18k) - two children car expense - ($5k) - $0.50 / mile, 10k miles / year net income - $45, or 2 cents an hour for a 1960 hour work year
We plan on having three or four children.
Sometimes it's just not worth it to have a dual income household.
And my wife could work her way up to $100k in the field that she had experience in [underwriting].
It just doesn't make sense for my wife to spend 50% of her time working for the government [paying taxes, I mean] and another $9 an hour for child care costs, in our opinion.
It's good that we have a strong, secure marriage [as well as a divorce contingency plan] so she doesn't have to worry about depending on me to support her.
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dancinmama
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Post by dancinmama on May 17, 2011 21:31:48 GMT -5
I totally agree with you. The exception would be when the DH is the higher earner with no health insurance and the wife is the low income earner, but has health care benefits for the family. I had a friend who was in that situation.
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schildi
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Post by schildi on May 17, 2011 21:32:27 GMT -5
$45? Not bad .... Yeah, it's not worth it in some cases. The big hit are the taxes in your case. I would guess that for most, it would not be that high.
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schildi
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Post by schildi on May 17, 2011 21:37:07 GMT -5
A few other things though: the spouse would pay SS, but potentially get something back later in life. But that's all a guess. Another reason to still work would be to remain in the business. Sometimes it's difficult to get back in after 10 years at home. And at some point, the kids are out of the house. In your case though, I have to agree that it does not look like working makes much sense for your wife.
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formerexpat
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Post by formerexpat on May 17, 2011 21:40:01 GMT -5
Even dropping down to the 25% tax bracket for federal would be over 40%. Then again, our state income tax is slightly over 8%...but our property taxes are low.
Dropping down to 25% for us would yield $4k a year, or $2 an hour. Not quite illegal Mexican yet.
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Sum Dum Gai
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Post by Sum Dum Gai on May 17, 2011 21:57:29 GMT -5
The $18k in childcare is temporary though. That number usually drops a bit once they're in school full time, and goes away completely once they're old enough to be home alone until one of you gets off work.
I question the car expense a bit too. It would depend on her commute of course, but if you guys are like most families, she has a car and some of that expense anyway. So you wouldn't count the full amount for her working, just the difference between that and what she's already spending now.
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Phoenix84
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Post by Phoenix84 on May 17, 2011 22:21:41 GMT -5
1. Childcare expenses are temporary. 2. You forgot to add future income increases, 401k contributions (and subsequent growth), contributions to SS, not to mention the added security in case you lose your job, or get disabled, or any number of other situations life throws at you. As others have put it, you have to look past the money. 3. You must be a high earner to have a 48%+ tax bill. Most people aren't in that high of a tax bracket, even though it may not make sense for you doesn't mean it won't make sense for others. In the case of high earners married to low earners, it probably doesn't make much sense. 4. 2.6k is a lot for eating out, even for two full time worker, I also suspect your estimated car expense is overestimated as well.
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haapai
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Post by haapai on May 17, 2011 22:30:50 GMT -5
You may get access to a second 401(k). How you'll fund it with that kind of net is another issue. This might work out nicely if you have pots of money stacking up in taxable accounts.
You also get a back-up health insurance option for your large and expensive-to-insure brood.
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haapai
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Post by haapai on May 17, 2011 22:42:28 GMT -5
One way of looking at it is to realize that every year that she puts in netting $45 is a year of grossing an additional $50K a year down the road.
If you ever become unemployed, you're probably in for a long job search, during which her net income from working will be considerably more than $45.
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formerexpat
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Post by formerexpat on May 17, 2011 22:49:26 GMT -5
I'm counting the cost of operating a vehicle per mile for an additional 10k miles per year on the vehicle. It's often said that it costs about 50 cents per mile; using figures from Edmunds.com. Increased gas cost alone is $1.7k. Add in depreciation cost and increased insurance cost and I don't see it being tough to get to $5k more per year.
This is true - a cost that we'd have until all 3/4 children are in school. How old is old enough to leave them home alone?
I noted increases in salary and how her income could increase up to $100k if she focused on her career but 50% of it would still go to the government. Even at $100k and $16.5k 401k contribution, her net pay would be about $17k or $9 an hour [including child care costs, which will continue for a long while still].
SS is not reliable. We're saving 6 figures a year - sometimes you have enough money that you CAN look past the money, as you say.
I'm covered in the event of disability and the probability of me losing my job or remaining unemployed long is extremely low.
While I am a high earner, 25% federal + 7.65% FICA = 33.65% before adding state tax. This is solidly middle class, with AGI over $69k for 25% federal & MFJ.
Ever eat out with four people [five or six in the future]? 1 time @ $50 x 52 weeks = $2.6k. I think it's reasonable that we'd eat out 1 time more per week with my wife working full time and not making dinner every night. 1 time per week might be too conservative and $50 is definitely conservative as we have more children and they are older.
To be fair, I haven't even included the "lifestyle creep" component of the equation. By how much would our lifestyle increase in a dual income household?
I also forgot the newly added Obama taxes for houses making over $250k...another couple percentages.
The point of my post is that many people, even at lower income levels make just a couple dollars an hour after taking their increased expense load into account.
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Sum Dum Gai
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Post by Sum Dum Gai on May 17, 2011 22:50:22 GMT -5
Tax rates don't go to 48%. 48% is FICA, federal, and state, not just federal income.
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formerexpat
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Post by formerexpat on May 17, 2011 22:53:14 GMT -5
Fed 33% State 8.06% FICA 7.65% - since my wife would be the one working, she would be taxed up to $106.8k of earnings at 7.65% = 48.71%
I also forgot the taxes that were just added for those that make more than $250k.
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formerexpat
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Post by formerexpat on May 17, 2011 22:58:06 GMT -5
Why would I probably be in for a long job search? That's an odd statement. It's likely that I, personally, will not ever go a long time being unemployed due to a combination of reasons.
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formerexpat
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Post by formerexpat on May 17, 2011 22:59:25 GMT -5
But the overall post isn't about me - I'm wondering how much the lower earning spouse is really making.
The lower earning spouse that works full time is away from their family for over 2000 hours a year. What is the financial trade off? Is it worth it?
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Deleted
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Post by Deleted on May 17, 2011 23:02:31 GMT -5
But the overall post isn't about me - I'm wondering how much the lower earning spouse is really making. The lower earning spouse that works full time is away from their family for over 2000 hours a year. What is the financial trade off? Is it worth it? Yes because in the long run : - income will/might increases with promotions - daycare costs will go down to being non existent - 401K contributions - extra security in case of job loss. Yes you said you may never be unemployed, but a lot of high earners thought the same till the market crashed. Not every high earner has bullet proof job security.
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Deleted
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Post by Deleted on May 17, 2011 23:09:20 GMT -5
I wouldn't make much after taxes, much less childcare. DH has an independent stream of income in addition to whatever he earns while working. The first year we were married all of my income went to taxes, gas, and the AMT. I'm grateful that DH thinks that my presence at home with DS is worth more than any money I could bring in. Even if I could bring in a lot more. I enjoy taking care of DH and DS and I'm happy that I can SAH without jeopardizing our financial future.
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formerexpat
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Post by formerexpat on May 17, 2011 23:22:41 GMT -5
We'll talk when you've got children. But we already know you absolutely need your wife to work to support her own, high burn rate. Fortunately, I work in an industry that is extremely specialized with not a lot of people that are knowledgeable in the industry. I'm about as bullet proof as you can get for job security.
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Deleted
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Post by Deleted on May 17, 2011 23:28:23 GMT -5
Hello you said: So again, while your job may be secure, not every high earner job is as secure as yours. Also, my wife may have a high burn rate but she more than covers her expenses while contributing over 30% (when you add 401K and ROTH) to retirement
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haapai
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Post by haapai on May 17, 2011 23:45:21 GMT -5
I was just following the general rule that the more you earn, the longer it takes to land a job. There was some metric being thrown around a decade ago about expecting to search a month longer for every $10K of income. I haven't heard it repeated in a long time.
Tears come to my eyes when I think of the EF necessary to get a six-figure type from one job to the next. All that stagnant income! The implied interest costs and/or capital gains make me want to weep.
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Deleted
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Post by Deleted on May 18, 2011 0:04:18 GMT -5
Let's use this guy: money.cnn.com/galleries/2011/news/economy/1105/gallery.jobs_under_employed/4.htmlWe can all agree that 250K is a nice high income right, and could easily afford to support a Stay at home wife. He lost his job and nice high income and now earning 1/5 of what he used to earn. Same can be said for some real estate agents that were making some serious money till the market went south. One thing the past 3 years thought me was : don't take your current income for granted, so save as much as you can.
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lurkyloo
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Post by lurkyloo on May 18, 2011 1:25:01 GMT -5
I just posted in the other thread; I'll summarize here.
DH is well over 200K just by himself. I make just under 100K. I put 22.5K in 401k and HSA, counting the match; that reduces taxable income to about 78K. 7 K in state, 7K in FICA, 23K in Fed taxes. I'm still worth 40K, disregarding the 401k and HSA bennies, and if I had all that time to myself I can guarantee I'd spend more on gas and shopping and general mischief-making than what I do. We would also pay more in health insurance costs--for both of us, the primary worker is almost entirely subsidized but the spouse/family is significantly more expensive.
The bigger issue for me is that I love my job and would hate being stuck at home with kids. I'm sort of ADD and don't have much patience. Given the current state of my field, it might well be committing career suicide to bow out; certainly it would folly to assume that I could step back in whenever and wherever I wanted. Finally, I am head over heels in love with and 150% committed to DH, but it still goes against my nature to be entirely dependent on someone else. I have to be contributing and pulling my own weight (and I wouldn't be as a housewife; I'm allergic to the vacuum cleaner!).
If the math and just as importantly the personalities/emotions work for you to SAH, that's great. Like so many other areas, the money here is only a part of the story.
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upstatemom
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Post by upstatemom on May 18, 2011 6:27:52 GMT -5
My DH makes 95k and I work part time and make 25k. We save a decent portion of our income in 401ks and a nice EF. Our children are old enough not to require day care but working part time allows me to attend their sports games, volunteer in organizations they are in, and in the community, have dinner on the table most nights. I try to do my shopping during the week which leaves weekends for family time. We use that time to camp, ski and hang out. I work in the town we live in so the commuting costs are minimal and the flex ability of this part time job is priceless! Once both kids are in college I will either get a full time job or a second part time job. I consider myself very fortunate that our lifestyle has allowed me to work part time at this point in our lives.
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Frugal Nurse
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Post by Frugal Nurse on May 18, 2011 7:18:55 GMT -5
After taxes, insurance, 403b contributions, etc., DH brings home about $2500/month. When we have children, childcare for us will be about $60/per week per child (we only plan to have one, maybe two, since my future pregnancies will be high risk). So, total lost money will be, maximum, 480 per month. Because DH gets a 200% match on his retirement contributions, plus he'd still be bring in home $2K/month, then yes, it will be worth it for both of use to continue working after kids come along. I make quite a bit more than that, so me quitting my job wouldn't make sense either. I guess I'm lucky that my job is only 3 days per week, and one of those days is a weekend.
So for me, my personal situation, it makes sense. For someone like yourself, with a very high income, it may not make sense. But I would say most Americans do not fit your profile, and both incomes are usually needed to live a decent life.
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Cookies Galore
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Post by Cookies Galore on May 18, 2011 7:43:14 GMT -5
You've never just made a sandwich for dinner? It happens to the best of us. Is your estimate of annual take home pay accurate (I'm sure it is)? Granted, PA only has a 3% tax, but I also pay 3.5% of my salary to Philadelphia, and my take home pay on $38,000 is more than the theoretical $50,000. My thinking could be wrong, because it usually is, but that number just struck me as low.
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Colleenz
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Post by Colleenz on May 18, 2011 7:54:20 GMT -5
Another expense to potentially consider with a SAHP is preschool. It can be really helpful for 3-4 year olds to spend some time in a structured learning environment with other children before they start Kindergarten.
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Deleted
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Post by Deleted on May 18, 2011 8:04:03 GMT -5
Your DH will bear the financial costs of not working, trust me. If there is SS, I will pay the price for all those years of $0 earnings; they are averaged in. I imagine you earn too much for a spousal IRA, which means that she will be dependent on an equitable split (at least 50/50?) of your 401k in case of divorce to have any type of retirement at all.
You are 100% committed to your marriage; I believe that. But life isn't as predictable as most of us would like. If that commitment fails on either part, you will be like every other poster on here who says, "Why should she get 50% of the assets? I earned it all."
Once the kids get old enough to go to school, bringing your child care costs significantly down, you should encourage her to think about going back to work . . . for her OWN sake.
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telephus44
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Post by telephus44 on May 18, 2011 8:17:47 GMT -5
I think this is one of those questions where it really comes down to running the numbers. For some people it's not an easy answer, and it depends on a lot of factors.
We are a 2 income household. For what I make and where we live (MHCOLA) I would question whether it's worth it for me to work if we had 2 kids in daycare. For one kid, it would absolutely be worth it for me to work. If we had 3 kids, it would be a financially losing proposition.
However, there are so many factors - even beyond tax rates. Yes, you might eat out more, but we ate out 2-3 times a week even without kids. Spend more on clothes? Spend more on a commute? Possibly. It's kind of like having a baby - you can spend tons of money on a baby, or you can do the whole cloth diaper/freecycle/handmedown route and never spend a dime. Having a job doesn't necessarily mean having tons of extra costs, although you can certainly go that way.
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luckyme
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Post by luckyme on May 18, 2011 8:21:28 GMT -5
{ lower earning spouse that works full time is away from their family for over 2000 hours a year. What is the financial trade off? IS IT WORTH IT? }
DH and I decided no. I had planned on working after our first child was born and than when he died, my priorities shifted big time. I realized how fleeting life can be and I vowed I was going to be there for any other children we had. I didn't want to miss one development, first word, first step, nothing. My children and being a SAHP became my priority. Luckily, my DH actually preferred me staying home w/ the kids. He's old school, although he was OK w/ me working if I wanted to. We made a lot of financial sacrifices, most of which were the luxuries. And even though we aren't building a huge retirement fund, it's a balance. We built a good life, and it works for us. We don't live to earn, we earn enough to live the life we want. I don't care what anyone else chooses, but the constant haranguing against SAHP gets real old, real fast on this board.
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NomoreDramaQ1015
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Post by NomoreDramaQ1015 on May 18, 2011 8:26:15 GMT -5
If we had two or more kids it'd make no sense for DH to work. I slightly out earn him AND I carry the benefits. If I were to lose my job I could find one much faster than he could. I also stand out earn him as I progress in my career. It'd make sense for him to stay home if we had more than one kid.
With one kid it is doable and as of right now with wage freezes I don't make enough to carry us AND the benefits and neither does he. Got a general email from the president of my university that sounds hopeful when it comes to wages and I do plan on getting my master's so I can bump up the next paygrade when I lab hop again.
We don't eat out more, where the hell is the time? Plus we have to find someone to babysit her or take her with us and while she is a darling when we go out, she's still only nine months and has her days. We cut out most fast food because DH has been struggling to lose the sympathy weight he gained while I was pregnant and I am working on eating better too for DD.
Most of our discretionary income has become baby income, there isn't as much to go around as when we were DINKs.
It's really a personal choice on the part of the couple and whatever decision they make other people should respect it and back the hell off (not saying you personally OP, just people in general).
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Deleted
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Post by Deleted on May 18, 2011 8:31:15 GMT -5
Very roughly, my DW nets about $15k by working versus staying home.
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