The pay stubs are finally in from my first month of reduced working hours (80% time) and I’m only down about $550/month on a take home basis since I conveniently just got a raise which offset some of the reduction. That amount is just about the same amount of extra income my wife will be taking in this fall with some new kids for her daycare.
Of course my wife has some expenses and in the mean time will have lost one older child she used to care for before and after school. Taking those into account we are down overall by about $200/month. On top of that I’m also losing out on some pension contributions since that is tied directly to my salary so that’s another $120 a month. So in grand total overall reductions for our family is $320/month. Which is a lot softer of a hit than I was expecting. My initial estimate for potential loss was closer to $750/month.
With regards to my retirement plan to be free from having to work at 45, well that is an interesting story. I did the calculation, but I won’t bore you with the exact numbers but the results go something like this. During my last calculation set it was starting to look like I would actually be able to retire at 43 rather than 45. Today that has shifted back to 45 so in reality my decision to work less now has cost me 2 years on my retirement date, but put me back to my original goal to be free at 45.
You might wonder how it is possible to take a 20% pay cut and still be mostly on track. It’s because I always do my calculations with several conservative estimates build it. In this case the ones that come to mind are:
- I assume my salary only keeps up to inflation. The reality is I tend to roll over all of my non-inflation raise which was 3% this last year. So this slowly creeps up the amount I’m saving to offset the pay reduction.
- I assume I only get a 5% real return on investments. The reality was I’ve exceeded that at times. The classic example is the TFSA accounts which turned out a stunning 48% average increase in a year (which was from dumb luck).
- I don’t include any extra income. For example the plan does not require me to make any money at this blog or have my wife take on any additional clients beyond what she will have this fall. We just need to keep the base savings the same and anything beyond that just accelerates our goals or can be spent on other things.
Overall I feel a little like a kid who got to have his cake and eat as well. Things turned out much better than I was expecting with this decision. So have you ever had that feeling where things turned out better than you hoped? If so, please share your story.