One of my beliefs as a stay at home dad is that I wouldn’t trade the time I spent with my son for any amount of money. Given time is way more valuable than money, especially as you get older, this sounds like a logical statement.
But perhaps this statement is a bunch of BS.
Maybe it’s just a rationalization to make myself feel better about missing out on what I could have made if I had continued to grind it out in finance. If you spend $500 a head on a meal, of course you’re going to say it was the best dinner you ever had unless you want to feel like a fool.
Maybe I’m just making stuff up to mask my shortcomings as someone who hit a glass ceiling and decided to negotiate a severance instead of facing the reality that I simply wasn’t good enough to get promoted.
After all, to justify failure is human nature. Some even blame others for their failures instead of looking within.
The Money You Could Have Made
To see if we stay at home parents are delusional in our beliefs, it’s always good to do the math. Crystallize the value of money by figuring out what it can buy, otherwise, money doesn’t have much meaning.
When I left my finance job in 2012, I had a base salary of $250,000. My bonus ranged from 0% – 200% of base, depending on my performance, the company’s performance, and the overall economy.
Let’s say I go back to work today at 41 with a similar salary and slightly above average bonus. I’m going to assume my total compensation would be $500,000 a year.
Now let’s see what I might have done with the $1,000,000 I forewent given I was a stay at home dad for two years. In reality, I think I would have saved at least 50% of the compensation, but let’s have some fun and say I spent it all.
Breaking Down $1,000,000 In Lost Income
The first thing you’ll notice about the chart is that $1,000,000 quickly turns to about $620,000 after paying an effective tax rate of 38%. 38% includes California state tax and FICA tax. $380,000 is a lot of taxes to pay any way you cut it.
I really tried to realistically think of all the stuff I could spend the $620,000 on and not feel like a completely wasteful person. The Range Rover is nice to take the family around, but after a year or two, it’s just another car.
The 10 years of private school tuition is a great cover if my son doesn’t win the SF public school lottery. I shudder to think how much private high school will cost in San Francisco in 12 years. Oh please let him be allowed to go to a public school near our house.
I don’t need to remodel my kitchen or bathrooms because they were done not too long ago. But if I bought another fixer in Golden Gate Heights, it would be nice to have a $100,000 budget for such a project.
I definitely wouldn’t spend $35,000 on any fancy clothes, shoes, watches, or jewelry. But if you forced me, I might buy a rare Patek Philippe watch for $30,000 as they tend to appreciate over time.
Finally, I would donate to a foster center I volunteer at and to the American Nystagmus Network to help find a cure for this eye condition.
Let’s say I spend $220,000 of the $620,000 after tax (65% after-tax savings rate). I would most likely invest $400,000 of the proceeds to build passive retirement income.
Investing The Proceeds For Retirement Income
Below is a chart that shows how much annual retirement income I could earn by percentage return if I invested the entire $620,000 after-tax income.
It’s probably prudent to choose somewhere around a 4-5% annual percentage return to be realistic and more conservative. With a 4-5% annual return, $1,000,000 of gross income could generate $24,800 – $31,000 in retirement income. Not bad!
$31,000 would leave me just $25,000 short of my ultimate goal of generating $300,000 of retirement income a year to support a family of up to four in expensive San Francisco.
However, given I would have spent $220,000, I would be able to invest only $400,000 of the proceeds. With a 5% return, this could still generate about $20,000 a year in retirement income.
The thing is, making $245,000 a year in retirement income currently versus $265,000 – $275,000 a year in retirement income if I had continued my job and made $1,000,000 in gross salary over two years, wouldn’t make a big difference in our lives.
The reason is that, even in San Francisco, we do not spend all of our current $245,000 a year in retirement income. Any extra retirement income would simply be an added financial buffer just in case we have a second kid or need to support my parents and in-laws.
Do The Math Yourself
After going through this exercise, I reaffirm my belief that I would much rather be a stay at home dad and forego two years worth of income.
It’s not like the money I forewent would have been easy to make either. I’d have to put in 10-12 hours a day in the office and then spend another 45 minutes a day commuting. I’d probably also gain weight, lose hair, start grinding my teeth again, and feel way more stressed.
Conversely, it’s been a joy to watch my boy grow up every day since he was born. Every single milestone witnessed feels like a priceless gift. There have definitely been days when being a stay at home parent has been extremely hard, but those days are less frequent than the days I had in the office.
Yes, it’ll take me a couple more years longer to achieve my ultimate retirement income target. But in the meantime, I have been able to spend more time with my family, which is what living the good life is all about.
I’d like every parent who is considering being a stay at home parent to do the two exercises above as well. What would you buy and how much retirement income could you generate with the money you earn? Also figure out the income threshold where going to work is no longer worth it and vice versa.
The less you make, the easier it may be to be a stay at home parent so long as the other parent can make enough to provide for the family. Childcare cost is expensive. If you’re taking home $35,000 a year after tax, but have to pay $20,000 a year for childcare, is it really worth it? Maybe only if you really love what you do.
Finally, I now know why some families have so many children despite the cost. It’s simply because children are a wonderful joy to these parents. Money doesn’t even come close. I wish someone had told me this when I was younger.
If you are a stay at home parent, how much did you forgo in lost income? If you are not a stay at home parent, how much income would you require not to be a stay at home parent and why?
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