My New Retirement Lifestyle Cash Flow

Posted by Madison on August 28, 2008

Since I announced that I quit my job and plan to leave the workforce at 29, you have been very encouraging! So it’s only natural that you have lots of questions about how it is going to work.

I would like to hear more about your cash flow situation. Has your side income grown to the size of your “regular job” income? Do you have contingency plans in case business income turns south? –Million Dollar Journey

The Old Income

Walking away from a job that had a six-figure compensation and benefits package sounds a bit crazy. However, once you break it down, I don’t actually have to replace anywhere near that much money. I estimated that in the end, over 2/3 of my salary was going to taxes and childcare alone! Just getting rid of the job is going to save me a ton of money.

In other words, the typical estimate of needing 80% of expenses in retirement, was nowhere close for me! In fact, mine is actually only about 30-40%.

The New Income

There are two components to replacing my lost income. New income and avoided expenses. Let’s talk about avoided expenses first, because it accounts for such a large portion of my old income.

Avoided Expenses

The great part about not working, is that I don’t need nearly the same cash flow that I used to have. Here are some of my huge savings categories.

  • Childcare. Our old childcare costs were about $27,000 per year. Now we’ll pay $11,000, avoiding $16,000 that I don’t have to earn.
  • Taxes. I estimated that just before leaving my job, taxes were eating up well over 35% of my income. That’s even after some of my creative ideas to shelter additional income.
  • Stopped retirement contributions. Since I was saving about 15% of our combined salary recently, not having to contribute any longer freed up a big chunk of change.
  • Reduced job expenses. I will likely spend less on gas, work clothes, eating out, car insurance, etc. I didn’t add it in though, because I might spend it on my new leisure activities!

New Income

I plan to replace about 40% of my former income with a combination of business income and retirement money.

  • Minimum “draw” from my business income. I set up a minimum withdrawal described in how to handle irregular paychecks. This is after setting aside a good chunk for taxes. I plan to withdraw about $23,000 per year from the business next year.
  • Withdrawals from investments and retirement. I created CDs ladders that will redeem every 3 months with some money I pulled out of investments. In addition, I set up withdrawals from my Roth IRA, which can be done at any age if you follow the rules.
  • Alternative income. Credit card arbitrage, free money, and lots of other creative ideas bring in a fair amount of money per year. However, I don’t count on this money in my budget, as it’s more of a fun hobby than a reliable source of income.

Contingency Plans

  • Withdrawing less than I need to. The great part about the plan is that while I’m going to be using my business income for current cashflow, I don’t need to. I’m still well below the 4% safe withdrawal rate on our retirement portfolio.
  • No dependency on the business income. If everything falls apart with the business (or I get bored with the business, which is actually a much more likely scenario), I’ll just live off the retirement money. And I’d save even more by avoiding the cost of our nanny all together.
  • Checking and double checking the numbers. I ran some possible scenarios (including the worst case of no income) through Firecalc and they all passed with 100% certainty.
  • Option to go back to work. As a back-up plan, I officially took a one-year leave of absence from my employer. Just in case, the option will be there. Although I don’t expect to use the option.
  • Flexibility. Also, I actually like to work part-time, make money, and be creative. I can’t imagine not earning any money for the rest of my life. It’s just that now I’ll have the freedom to earn that money when I want, and how I want.

I’m Still Married

Oh yes, don’t forget about Scott. He’s still working. Not necessarily for the money, but for our awesome health insurance. While I used to make more than he did, the fact that he gets us great health insurance for almost nothing out of pocket makes it worth it for him to stay at work.

So how can I live off retirement money if he is still working?

I know what you are thinking, that doesn’t make any sense. Sure it does, lots of couples leave the workforce at different times… my mom retired, but my dad hasn’t yet.

For the record, I did give my husband the option, but he declined. (And actually that was our original plan.)

If he quit, how would it change the assumptions above?

I’d have to withdraw much more from our retirement accounts, and I’m a bit uncomfortable with the certainty of the money having to last 60-70 more years, as the data for that long isn’t very reliable. I’d prefer if we staggered out our retirements by a few years.

Maybe I’ll come up with a “new” dollar plan to count down until his retirement.


In addition to the risk of the business income disappearing, there’s a few others that I can think of:

  • Kids. Our kids could get very, very expensive. However, we’ve already saved for their college educations. In addition, we’re planning to have at least one, maybe two more kids.
  • Different choices. We may decide that we want to increase our standard of living significantly.
  • The unknown. The biggest factor is that I’m only 29. It’s incredibly hard to predict my expenses 10, 20 or 60 years out, since I really have no idea what the future holds.

There’s the new cash flow plan. If you see something I’ve overlooked, feel free to chime in!

Update: I’m done! See 29 Steps I Took to Leave the Workforce at Age 29 for a recap of the last 13 years.

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Comments to My New Retirement Lifestyle Cash Flow

  1. Thanks for sharing your new cash flow plan. Very interesting as my wife and I decided a similar strategy, although I am the once staying home with the kids and working. You mentioned that you gave your husband the option to stay home with the kids, and he declined. I’d love to hear some of the reasons behind that decision. It was easy for me as my wife made a lot more money and I love being with our kids.
    Also, looking forward to hearing more about your new income source working at home. Do you plan on utilizing the nanny part-time and spending $11k with her? Could you do your job from home without the nanny? If so, you could save another $11k.

    Scott @ The Passive Dad

  2. Hi Madison, thanks for the detailed summary. It seems that you have thought everything through very carefully.

    I’m not too familiar with U.S tax strategy, but would it make more sense to simply live on Scott’s income alone, and use the business (and other income) to top up portfolio accounts?

    Congrats again! I’m jealous 🙂


    Congrats again!

    Million Dollar Journey’s last post: 4 Reasons Why Index Investing May Not Be for You

    Million Dollar Journey

  3. I read your post with interest as I am also a 29 year old (but don’t have the guts to give up work yet). Can you enlighten me to what your business is? Sorry for being dim!


  4. A multiple-goal forecasting tool could be useful for these kinds of questions …

    Just couldn’t pass it up !

    Todd A

  5. Like everything you have a great plan, good for you, this is an action plan for anyone planning to retire. Good for you as always.


    Tabs at Levnow’s last post: Take a Personal Inventory of Your Life – Science of Getting Rich Levnow Series

    Tabs at Levnow

  6. Congrats on your detailed plan for maintaining a stable cash flow situation in retirement.
    Have you considered buying some dividend growing stocks such as JNJ, PG, WMT etc that are more likely than not to yield 8% in 10 years based on your cost if you buy them today?

    Dividend Growth Investor

  7. You’re not exactly retiring. You’re moving from one workplace to another. IMHO, child care is work. So is the care of a home and yard, plus whatever social and charitable activities you perform to support your husband’s career, plus keeping your husband happy in all ways, in and out of bed.

    Instead of earning whatever you were paid in the commercial workplace, you’re about to start working for $16,000 a year. If you took over all the childcare responsibilities, laying off the nanny or pulling the kids out of daycare 100%, you would be earning $27,000 a year, not counting the value of the many other “jobs” you will do, which are significant. This, we might add, is a mighty bargain for the price, particularly since it does not earn Social Security credits for you. Or a pension plan.

    LOL! Ladies, we need to unionize!!!!

    Funny about Money’s last post: Ikea: Better than bricks and boards?

    Funny about Money

  8. This is really something–I am 31 and years from leaving the workforce (unless something takes off on the side very, very quickly). If you are 20 and reading this post don’t make the same mistakes in your twenties as I did. The author of this post and her husband no doubt made some sacrifices in their twenties to get to this point. I didn’t, and I’ll be paying for it for the next decade!

    Frugal Dad’s last post: Enjoying the Labor Day Holiday

    Frugal Dad

  9. That is crazy that childcare costs your family so much. I had no idea that things had gotten so expensive over the years. I mean $27,000 a year is a full-time job making $13 an hour. I can really see how cutting that expense is really going to help your cash flow.


  10. This is my first time here, and I want to say congrats! I would also love to read more about your strategies. I think that one parent leaving the workforce can definitely be worthwhile.

    This was a very detailed and informative post, thank you for that. You are giving me inspiration (as a 23 year old) of what is possible. 🙂

    Nathalie Lussier from Billionaire Woman’s last post: One Number That Has The Power to Change Your Life

    Nathalie Lussier from Billionaire Woman

  11. Sounds great. But just make sure you have health insurance in case you husband loses his job or wants to switch.

    LAL’s last post: Fannie and Freddie Mac bailout?


  12. I am also a 23 year old reading this post and I am very inspired. I’ve already scheduled a financial strategy talk with my husband for this weekend so we can get a plan together to diversify our income and begin to put money away for our retirements. Although we both have 401Ks they are not substantial. I also really appreciate your credit arbitrage explanations. I think those will free up some money for us to begin on alternative income sources.


  13. My cashflow is currently around $2500/month. I’m in school so hopefully I’ll get a decent job I enjoy when I graduate.

    Living Off Dividends’s last post: The Trillion Dollar Bailout

    Living Off Dividends

  14. So you basically became a stay at home mom?

    You are far from retired. Wait until your children are in college. You will be putting on our office monkey suit again.


  15. @ The Passive Dad: Scott stayed home with our oldest for a few months after I went back to work. He decided that he likes work. Some people are just wired that way. He’s a great day, but staying home just wasn’t for him.

    We’re spending about $6700 for preschool for my oldest and about $4300 for the nanny for my youngest. We could do without it, but we want the kids to play with other kids, and I’d like some time for myself to pursue my hobbies.

    @ Uncommonadvice: Yes, the business revolves around advertising here at My Dollar Plan and writing for as the Kids and Money guide.

    @ Dividend Growth Investor: Yes, I actually own JNJ and PG.

    @ Liz: Congrats on sitting down with your husband. How did the conversation go?

    @ Robert and Funny About Money: Yes, I’m staying home part time with my kids. I want to spend more time with them and going to work every day was taking me away from that. As I mentioned, they still will go to preschool and with their nanny though, so that I have time to pursue my own interests.


  16. I’m having problems with your assertion that you “retired” at 29… You said taxes and child-care was eating up 2/3 of your salary… and that child care cost you $27,000 a year… so your salary was in the $80,000-$100,000 range I’m guessing… Still confused how you managed to save the $2 million or so you’d need for both you and your husband to quit working completely forever…

    And then there’s your side-business… If you have a side-business, you’re not retired!! You’ve quit the rat-race, you’ve started your own business… Good for you!! But you’re not retired…


  17. You went from a two income household to a single income household. Big deal. You do not work. I am not sure I would call that retired. I believe housewife would be the historical reference. Your household has income and health benefits from your spouse. Getting a spouse is not a retirement plan. (Okay, maybe it is.)


  18. I would tend to agree with the last comment (#16). You’ve only just left the office job for a work at home job which I too am in the process of doing. However, I have no doubt that your income from this site will grow exponentially. It has only been a year and the timing couldn’t be better for your site.

    Mr. R

  19. @ RR: I think you hit the nail on the head with “quit the rat-race” … that was my goal, and there are many paths to get there.

    @ Mr. R: The nice part is that instead of spending 40 or so hours at the office, I can spend about 10 hours writing. Good luck, I hope you can achieve the same, life is grand not having to report to the corporate life!

    In retrospect, I should have titled the article “Happiness Lifestyle.” I was trying to accurately capture the part about making retirement withdrawals to fund part of the new lifestyle.


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