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41 and ready to slow down
Old 08-10-2008, 04:02 PM   #1
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41 and ready to slow down

Hi, from Sunseter . I am 41 yrs old married with 3 children 19, entering college , 13 and 9 yrs of age . I have been self employed for 23 yrs. but somewhat burnt out. I would like to semi - retire next year. I have approx. 3.5 mill in assets 40%equities 60%cash not including my home worth 275k which is paid off. I estimate my companys worth approx. 500-800k. I need 125k per year to maintain my lifestyle. Is this attainable over 40+ years..
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Old 08-10-2008, 09:42 PM   #2
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Hi Sunseter,

Congratulations for amassing more than $3.5M. Very few people can lay claim to that.

If the $125 is after-tax net income, your assets will only last you until you're somewhere between 62 and 67 yrs old.

You have a few choices:

1. Retire later
2. Partially retire and continue to earn an income
3. Reduce your spending to a level of about $100k/yr pre-tax

If there's any way you can have a salaried employee or a partner run your business while you retire, and generate income that way, it would probably be perfect.

Regardless, my guess it that if you're truly an entrepreneur, after 6 month to a year of retirement, you'll want to get back into the game.
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Old 08-12-2008, 11:30 AM   #3
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How were you able to amash such a large sum of money and yet can't figure out how long it's going to last?

What kind of business do you run?
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Old 08-17-2008, 04:16 PM   #4
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Thanks for the reply. I have a potential buyer for my company. Our agreed upon price is around 800k after tax. He would hire me to consult for 5yrs at approx. 70k a year. This would increase my portfolio to 4.3mill. I would still work part time but spend more time with family. The consulting fee would cover more than half my cost of living for 5yrs.
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Old 08-17-2008, 04:26 PM   #5
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Im a contractor not a financial planner. I have been blest with the ability to make money , what i need now is sound advise on how to preserve it.
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Old 08-17-2008, 04:51 PM   #6
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Sunseter, you need to move some of your cash into equities and some into bonds (I like munis as they generate non-taxable cash). If you had 60/35/5 blend of equities, bonds and cash, then you would have about 140k pre-tax at a safe withdrawl rate of 3.3% which is more conservative than the widely touted 4%. You tax rate could be held down by investing in the munis, and your dividends will be taxed at up to 15% fed plus a few % for state. In my estimation your taxes will come to about 15% using an asset allocation as I described. That gives you about 119k per year to live on. However, if you are working at 70k for the next 5 years, your portfolio will grow and will likely cover your needs.

Best bet would be for you to run FIREcalc and play with the numbers a bit to see what happens. Good luck!

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Old 08-17-2008, 07:39 PM   #7
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Thanks for your thoughts Rambler. Would you recommend individual stocks and munis or mutual funds and muni bond funds.
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Old 08-17-2008, 07:47 PM   #8
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None of the above, indexes or ETFs, at least for the stocks. Ones with low expenses ratios.

You are also going to need to develop a withdrawal strategy to keep your taxes down as low as possible on what you are withdrawing.
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Old 08-18-2008, 05:57 AM   #9
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Sunseter, personally I have a variety of mutual funds but I also buy some individual stocks. If you are less than familiar with investing, I would agree with Plex that index funds or ETFs would be best for the equity portion. But if you have big business experience and are very familiar with reading and understanding annual reports and analyst reports, you can do nicely with a few individual stocks as an addition to your mutual funds.

For the munis I have been buying the bonds themselves at yields of about 5%. I have picked up some AAA and AA rated California munis (our intended retirement location is California so that's what I am buying into). I had already decided that my muni strategy would be to buy and hold, rather than trade. With muni bond funds, you do run some risk of having short term cap gains which will be taxed at a higher rate, and possibly a higher yield, but possibly a lower yield. With munis themselves (as opposed to the funds) you invest your money and you know what you are going to get out of them each year and at the end of the term. Everyone has their own needs, opinions, and strategy around this, but the above is what I have chosen.

Regarding the withdrawl strategy Plex mentions, this is why I have gotten into some higher dividend yield individual stocks in addition to the mutual funds, plus the munis. I am in fact trying to engineer a 3.3-3.5% overall yield including dividends and muni/mm/cash interest, but not the capital gains (you need the cap gains to be re-invested in order for the nest egg to grow and generate larger cash flows in future years - to cover inflation).

I don't have a spreadsheet handy that I can post, but with my situation is not too far from your own (age and dollar terms), and with the calculations I have done, I think you would be able to have a 15% +/- effective tax rate on the divvies and interest in an allocation as I have described, provided it is in a taxable account. If it is in a 401k or IRA, then your taxes will be much higher. In my case, I have not been able to participate in the 401k or IRA for most of my career, so most of my FIRE funding is in taxable accounts.

Hope this helps. If you like I can put together a simple spreadsheet that will illustrate what I am talking about. PM me if you like.

R
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Old 08-18-2008, 12:44 PM   #10
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sunseter

R thanks for the info. Don't spend to much time on it , but a spreadsheet would be great.
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Old 08-18-2008, 12:58 PM   #11
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Sunseter, nice going. Your assets should net about ?140,000 per year with inflation adjustments, pre-tex if wisely invested according to one common rule of thumb (4% withdrawals per year, inflation adjusted annually).

Read the archives here including good books, the FIRECalc program, and board discussions. There are many ways to accomplish what you want. You also have the option of reducing your expenses a bit until the business sells, to be sure you have college covered for all 3 kids.

Once the business sells, you should be home free with any luck and care at all.

By the way, what will you do for family health insurance once you are no longer in business? Not always easy to get on the private market...
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Old 08-19-2008, 03:37 AM   #12
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By the way, what will you do for family health insurance once you are no longer in business? Not always easy to get on the private market...
Maybe try to get family health insurance from the buyer of his company as part of the terms of his consulting agreement
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Old 08-20-2008, 03:02 PM   #13
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If there's any way you can have a salaried employee or a partner run your business while you retire, and generate income that way, it would probably be perfect.
Wow. That would be one naive generous partner. They do all the work, and Sunseter just collects regular cheques.

Any partner contemplating such an arrangement would be well-advised to insist on a gradual transfer of equity in consideration for the ongoing (and presumably time-limited) passive income; which would eventually eliminate Sunseter's ownership interest (currently estimated at $500,000 - $800,000). There's no such thing as a free lunch.
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Old 09-07-2008, 04:01 PM   #14
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How about setting up a 2.5 mill cd ladder each under 100k, for a safe temporary income until the market stabilizes.
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