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Retire earlier by taking a pay cut?
Old 10-03-2013, 04:04 PM   #1
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Retire earlier by taking a pay cut?

Hello,
I was able to land a good job fresh out of college at 22 and have done a decent job of saving for retirement. I just turned 28, I'm single and have no kids, make around $135k/year, and have great benefits. I have accrued about $220k in retirement funds including pension, plus around $10k in retirement health funds. Additionally, I have saved about $70k cash and I have around $40k in home equity and no other debts. I feel like that is a decent start for my age although I wish I had done better (At age 24 I owned $10k worth of stock that would be worth about $600k at today's market price. Unfortunately, I sold it after a nominal gain to use as the down payment on my house.)

My big wonder is this: With the recession, you could have jumped into numerous stocks and had unprecedented gains if you had the cash on hand. For those who didn't, why not pick a winner, obtain a job with them, and rollover your current 401k into their retirement plan and invest very heavily into their company stock? I would have loved to sell clothes for Dillard's for $10/hr when their stock was at $4. With a stock price at $80 now, you could have retired in a couple years if you had much at all to roll over. That is only one example of many. Working for a large corporation, I don't get to reap the benefits of a volatile stock (which most people see as a benefit.) I am consumed by this idea that I can get rich by going backward. I must be crazy to want to leave the kind of job that I have for something much less sought after. If an opportunity arises with a company that I feel has a significant amount of potential growth and longevity at a time when they are significantly undervalued, why not jump ship and cash in? I will always have a job with my current employer if I want to come back and I understand the tax implications for someone who's 401k is heavily invested in company stock, which mine is not. I'm just curious what everyone else's thoughts are...
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Old 10-03-2013, 04:16 PM   #2
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Putting most/all your funds into any one investment is too little diversification, and thus very risky. An employer's stock can go down too.
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Old 10-03-2013, 04:31 PM   #3
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When I was working, my 401k included company stock worth about $300k when I retired nearly 5 years ago. It was not somethng I bought, it was an add-on to my own contributions and company match - think of it as a "super-match" instead.

When I left the company, I was able to use something called NUA, or Net Unrealized Appreciation, to lower my federal income taxes when I cashed it in. NUA allowed me to use Long-Term Cap Gains tax rates for any growth in the stock's value over its par value. For me, about 97% of the stock's value (which had grown 3000% since its inception in 1997) was from NUA so this was a huge benefit. The NUA was also exempt from the 10% early withdrawal penalty, something I did not realize until I was preparing my 2008 income tax return in early 2009.

I invested the proceeds of the company stock in a big bond fund, as my signature line suggests, and have been living nocely off its dividends ever since.
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Retired in late 2008 at age 45. Cashed in company stock, bought a lot of shares in a big bond fund and am living nicely off its dividends. IRA, SS, and a pension await me at age 60 and later. No kids, no debts.

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Old 10-03-2013, 05:18 PM   #4
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Not a good idea IMO. Slow and steady wins the race. Diversification is good.

Remember Enron? WorldCom? Each were high fliers you seek at some point in time - and ultimately crashed and burned and also burned employees who were concentrated in company stock.
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Old 10-03-2013, 05:43 PM   #5
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Why not just pick the winning lottery numbers instead?
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Old 10-03-2013, 06:20 PM   #6
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Of course it's a risk. No one will ever recommend putting all your eggs in one basket. All of the mega wealthy took risks at some point though. I'm also not necessarily saying I would put everything in company stock. Let's say 40%. In the case of the earlier mentioned stock I purchased and sold, I had personal insight. The small company had accrued very heavy debt in several oil drilling rigs which were nearing completion, but a harsh winter had prevented them from being able to fracture those wells and actually produce oil. Having personal knowledge of where those rigs were located I knew their potential. When the weather subsided they were fractured and they were in fact "gushers." The company stock went from less than $.20/share to over $12. I now have personal knowledge of an industry leader who's stock price has been beaten up due to a political issue disrupting production in another country. A former colleague is now in charge of a new expansion of this company. The company has patented a new chemical process which will revolutionize the industry. It will completely change how the whole industry operates and I believe it will actually be federally mandated that this process or a process yielding similar results be used as it is the only clean approach thus far. It is slated to be full scale operational in 2014. It wouldn't be a bad company to work for, although it would definitely be a downgrade. Sometimes I wish I could be financially irresponsible and just go for it. For now, it's just a crazy dream.
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Old 10-03-2013, 06:39 PM   #7
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I certainly took more risk when I was your age, though I never had more than 20% invested in any single stock and most positions were less. 40% is a big bet, especially since you're trying to identify a company with substantial growth, that's not as obvious as you may think. But you're young enough that you can recover from investing mistakes if you choose to swing for the fences. I've known way more people who lost money making big bets, than those who won - of course every one of them were convinced they were on to a sure thing.
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Of course it's a risk. No one will ever recommend putting all your eggs in one basket. All of the mega wealthy took risks at some point though. I'm also not necessarily saying I would put everything in company stock. Let's say 40%.
Yes, the mega wealthy who didn't inherit their money took risks at some point - but they were betting on themselves and their own business. Very few people get mega wealthy by investing their own money in public companies, and many who do are purely by chance (original WalMart, Microsoft employees for example). It's an aside in this discussion, but for everyone who became mega wealthy by taking big risks, there are countless many more who broke even or lost their shirts and had to start over...good luck.
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Old 10-03-2013, 07:23 PM   #8
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123GO,

Do you have a WSC account ? You know the Woulda, Shouda, Coulda account. Mine got very large till I gave myself permission to put it where it was, in the past.
Yes, I coulda have stayed in Megacorp stock, right now that would be smart. Coulda done a NUA when i retired. It was too much of my holdings, not at my age(56), thats why I cashed out of most over the last 5 years.

I shoulda exercised options when the same stock was 50% higher but I didn't. Many grants expired underwater.

I woulda bought RGR at the start of the current administration. I knew a lot about the reasons that issue is up so much.

Point is I didn't see those choices when I had to make them. Most folks don't either. Lotta folks gave you a lot of great input. You're doing great, you have time to make mistakes. That said don't get too heavy in Megacorp stock, there's lots of great companies to work for, pick one, invest in it too but no more than x%.

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Old 10-05-2013, 12:09 AM   #9
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My big wonder is this: With the recession, you could have jumped into numerous stocks and had unprecedented gains if you had the cash on hand. For those who didn't, why not pick a winner, obtain a job with them, and rollover your current 401k into their retirement plan and invest very heavily into their company stock?
Always remember than every is an expert with 20/20 hindsight. If you go back to the worse days of the recession most folks were not thinking about jumping into stocks, and many "experts" were forecasting that stocks would never reach their previous levels again.

Odds of "picking a winner" are slim. This is like trying to hit a home run every time you come to bat. Your odds of striking out are much greater. You never know how quickly a single winner will turn. Look at all of the folks who worked for Enron and had that stock as the majority of their 401k.

Historically, diversification and dollar cost averaging works. As I like to tell folks, I'm happy stringing together singles to score runs instead of trying to swing for the fences.

Sometimes early success makes us think we know more than we do. You have achieved a lot at your age, which is great and I applaud you for that. I just advise that you be wary of getting to greedy as you push towards FIRE. It is much more "popular" and makes for good "water cooler" talk to try to find that single stock that will rapidly appreciate and solve all of ones ills; in truth it is rare that folks spot that early and then have the patience to hold on through it for the long term.

JUst my opinion, I wish you the best - but this is a great site for gaining wisdom and insight to achieve FIRE, and in my view the general message that best applies is "slow and steady wins the race".
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Old 10-05-2013, 12:18 AM   #10
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Look at all of the folks who worked for Enron and had that stock as the majority of their 401k.
I had to make sure someone mentioned this. I've seen posts from people who had a million or 2 in Enron stock at one point, and shortly thereafter had almost nothing.

Hindsight truly is 20/20. For everything else, there's diversification.
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Old 10-05-2013, 08:21 PM   #11
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How would you possibly know which stock was going to go from $4 to $80? Good luck with that.

Also not all publicly traded companies allow you to invest your 401k in their stock. My company does not even offer the ability to purchase company stock in your 401k.
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