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Preparing for a Baby: Working Full-time Versus Other Options

June 28, 2018

I have been asked whether or not I’m coming back to work, and my answer has been an enthusiastic yes.  Despite the high cost of child care, there is no question that either of our salaries more than “covers” daycare in a single year.  We don’t even have to think about the extra impact of potential lost salary growth over time to come to this conclusion. I also generally enjoy my work and get to do cool things, so it is a good fit for me overall.

Still, I wanted to see some numbers to understand what the various choices mean financially. My baseline scenario is that we both work full-time and pay for full-time childcare at a daycare center. Considering childcare and taxes, I look at how our savings rate and savings dollars change in a single income case and a case where I work part time.  Just for fun/self-torture, I included our current DINK case.

Here are my assumptions:

  • The cost of childcare includes an assumption that we get a small tax break by using a dependent care flex spending account.
  • I used 2018 tax brackets with current itemizations & the child tax credit.
  • All scenarios assume we keep similar spending levels outside of childcare.
  • In the part-time case, I assume we pay half the cost of full-time care. This is not realistic, but it ballparks the scenario.  Working 50% hours is not very easy to organize anyway, so I don’t see a need to overthink this.
  • I don’t account for work incidentals, like commuting or wardrobe or whatever.  These are not significant costs in my work lifestyle.
  • The exact method of calculating our savings rate calculation isn’t important, other than it is the same in all scenarios. I’ll note it is skewed by our high levels of pre-tax savings since a pre-tax dollar is worth less than post-tax dollar, and taxes are somewhat obscured in the calculation.
  • I assume we fund retirement savings first, and cash savings second.  Realistically, could reduce retirement savings a bit and still be saving more than enough.  We have access to an unusual amount of pre-tax savings (way more than $18.5k/person).

The results are summarized in the table below, obscured a bit by being made into percentages.  The savings rate is self-explanatory, and the retirement/cash savings are as compared to the baseline case,

Screen Shot 2018-06-27 at 8.27.34 PM

These results were better than I expected! The 1.5 income case is particularly compelling, but difficult to implement logistically.  The reason it is so nice is because we are able to maintain a large chunk of our pre-tax retirement savings, which maintains about 2/3rds of the tax savings that we get in the single income case.  That is pretty neat.  I was also happy to conclude that if we both work full-time, we can keep our current retirement savings and maintain some cash savings, even with the high cost of daycare.

At any rate, all of these results make me happy! None of the scenarios scare me, even considering the imperfections in my assumptions. There are disadvantages to waiting this long to have our first kid (too late for that now!), but finances is one big advantage.

[This post is one example of me using personal finance spreadsheets an an anxiety outlet.]

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