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Old 08-20-2014, 09:13 PM   #1
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Think I'm Close

Would love some feedback from this forum. I'm 53 single, no children. I currently make 65k taxable salary(plus 8k tax deferred) and 16k from non-qualified dividends.
I have 700k in a company ESOT and 330K in a 401k. I own my home and have no debt. I also have 78k in equities and 97k in cash.
Two reasons I want to retire at the first of the year(the year in which I turn 55) #1- I hate my job. It is physically and mentally taxing and I don't know how much longer I can handle it. I work for a large corp. and I know of only one other person at my age that has the same role as myself.
#2- I am getting very uneasy with so much of my retirement fund in our company's ESOT. Been great so far but all my eggs, I don't think so.
Have tracked my expenses for 18 months and I will need 50k inflation adjusted to support my current lifestyle. Firecalc seems to like my chances but who knows what health care will cost in the future. Kind of in the one or two more year mental loop. But then again the job is getting toxic to my health and well-being. Retire-don't retire. Retire-don't retire. Make it stop
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Old 08-20-2014, 09:34 PM   #2
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Old 08-20-2014, 10:10 PM   #3
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If you really can live on $50k a year in current dollars then you probably have enough after you add in your SS. Your initial WR will be close to 4% but will drop once SS starts (I suspect).

I assume you are waiting to the Jan 1, 2015 because your plan allows penalty-free withdrawals if your leave in the year you turn 55. If so, make sure your plan allows those because not all plans do.

Have you looked into SEPP out of your tax-deferred accounts supplemented by your taxable accounts to carry you from 53 to 59 1/2?
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Old 08-21-2014, 10:06 AM   #4
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If your expenses are $50K I agree you are probably able to retire next year. I would be very concerned about the majority of your nestegg in your co stock. If you can now, or soon as you are out, get that out of co stock and into some diversified funds. What AA ratio is up to your risk tolerance. Since you are still fairly young at that time (55), a 60/40 or 70/30 stock/bonds and income ratio is my suggestion. It will help with inflation concerns and as long as you keep 2-3 years in cash, you can ride the cyclic waves and ensure you have enough for long term.

Any pension, or is your only source going to be the investments and SS? I assume form your question, no ability to stay on corp health plan once you leave? That can be a major concern and one of the biggest unknowns for predicting future costs. At your income, it may be good to qualify for ACA subsidy and get insurance through that path.
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Old 08-22-2014, 03:47 PM   #5
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Hi jrwinfla, welcome to the forum.

I don't know how an "ESOT" works, but if it's all or mostly in a single companies stock, I agree that you should be concerned. If so, can you sell a significant portion and move to something more diversified without tax consequences ?




Quote:
Originally Posted by jrwinfla View Post
I have 700k in a company ESOT

#2- I am getting very uneasy with so much of my retirement fund in our company's ESOT. Been great so far but all my eggs, I don't think so.
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Old 08-22-2014, 04:03 PM   #6
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Welcome. I agree you are close. Like others have said, I'd be concerned that you have so much money tied to your company. And like you said, healthcare costs are a question. If I were you, I'd feel more comfortable if your initial WR were no greater than 3%, but some here would disagree with me. It's your call. You have some time to think about it. Good luck and keep us posted.
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Old 08-23-2014, 03:43 PM   #7
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Some good questions for you above.

I have some more:
- Does your 50k/year include taxes, or is that net? Firecalc assumes GROSS spending - so you have to pay taxes out of the spending.

- Does your 50k/year include increased health care. Most employer plans are a lot less expensive than paying on the private market. Have you looked into how the ACA might work for you as far as subsidies. (I don't know the subsidy "cliff" for single people... but it's 4x poverty level.)

If your 50k includes taxes and healthcare, you're probably good.

The ESOT - (I'm not sure exactly what that is - I had an ESPP at work) - will that incur a big tax hit when you diversify? Have you included that tax hit (if any) in your calculations?


I understand being burnt out on megacorp and wanting to retire. I was there till this past June when I pulled the cord and retired at age 53. But it would suck raw eggs to have the plan not fully thought out and to have to go back to work after tasting the freedom of retirement.

Welcome to the forum and good luck with the plan!
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Old 09-15-2014, 11:43 PM   #8
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Just wanted to give an update after about a month after posting. Well it turns out that my company's 401k plan does not allow for periodic withdraws at all. Turns out that the information on the website has a generic description of payment options that has the phrase "if the plan permits". Ours does not. That threw me for quite a loop but it might have been a good thing. I decided I needed to learn more about just what my my options are. So I've been reading Summary Plans, learning about NUA tax rules and how to minimize tax consequences and and maximize possible ACA subsidies and learning things like how sequence of yields can effect retirement income. Yes I did consider a IRA rollover but I've learned that might not be favorable for tax reasons. No I can't diversify out of my company stock at all till the January after I turn 55 (2016) and then only 25% unless I separate from service. All in all I feel a little less confident that I have enough to pull the income plug entirely at this time but more assured I know a little bit more about what my options are. I want to thank everyone that replied to my post.
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Old 09-16-2014, 01:41 AM   #9
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A rollover from a 401K to an IRA has no tax consequences at all. You have 60 days to complete the rollover. I don't know about doing a rollover while still employed and contributing to the 401k though.


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Old 09-16-2014, 07:04 AM   #10
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Your numbers look pretty much the same as mine did when I decided to pull the trigger at the same age.

Except in my case, only one-third of my portfolio was in a 401K and two thirds were in after-tax accounts. So I had/have plenty to withdraw from until SS and RMD's at age 70.

I've also found that (at least in my case) with my only source of taxable income being dividends and capital gains, health care costs will be low for now starting at $0 after subsidy for the highest deductible bronze plan up to a couple hundred a month after subsidy for a silver or gold plan.

If you can figure out how to increase your after-tax portion of your portfolio to last until SS and tax advantaged withdrawal eligibility, I think you'll be fine.
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Old 09-16-2014, 07:07 AM   #11
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A rollover from a 401K to an IRA has no tax consequences at all. ...
+1 jrwinfla, what tax consequences are you referring to? To my knowledge there are not any if you roll it into an IRA, particularly since most rollovers are trustee-to-trustee.
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Old 09-16-2014, 07:24 AM   #12
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A rollover from a 401K to an IRA has no tax consequences at all. You have 60 days to complete the rollover. I don't know about doing a rollover while still employed and contributing to the 401k though.
If the OP has a substantial amount of appreciated company stock, he may be better off rolling the stock into an after tax account which would make him liable for income taxes on the original cost of the stock. He would then be able to sell the stock for a LT capital gain. I'm not sure if the holding period would start when he transferred the stock or if it goes back to the original award date. That would probably give him a better tax treatment than having to pull it out later at his marginal income tax bracket. This should be confirmed with a real tax expert.

My 401k plan allows for in-service rollovers to an IRA after age 59 1/2. I jumped on that and move a couple hundred thousand into my IRA which greatly simplified my diversification. The only index fund in my otherwise high cost plan was an S&P index fund. The OP indicated that the in-service option isn't available to him. I don't think most plans have it. I know other companies that I have worked for didn't have this option.
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Old 09-17-2014, 07:33 PM   #13
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Sorry I'm afraid I wasn't clear when I said "Yes I did consider a IRA rollover but I've learned that might not be favorable for tax reasons". I was referring to a question from someone earlier in the tread that asked me if I considered a SEPP out of my taxable accounts. In that case I would have to rollover my 401k to a IRA. I have quite a bit of company stock in my 401k with a cost basis substantially lower than the current value. So it would be advantageous to receive the shares from the plan, pay taxes on the cost basis and sell the shares and pay LTCG on the increased value of the stock and transfer the remaining assets of the 401k to a IRA. One question I do have is if I take full distribution from my 401k I read somewhere that I have to take distribution from all employer plans. My ESOP distributes funds in shares in kind, cash value of the stock or a combination of both. I think it's about time to have a conversation with a CPA. My situation at work isn't getting any better. I'm just plain burned out. I need to get my ducks in a row.
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Old 09-25-2014, 09:18 AM   #14
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I have many suggestions. Some are mutually exclusive:
1) You do not have enough after-tax money to make it to 59 1/2. I hate paying the 10% penalty. Cash out enough from your primary residence via a mortgage. Rates are low. Use this to get you to 59 1/2. Retire as soon as the mortgage is closed.
2) Can you survive to age 55? If so read up on getting a penalty free distribution for those who retire at/after 55. Forget the mortgage in 1). Get enough of a distribution to get you to 59 1/2.
3) After getting mortgage in 1) above or getting to age 55, go to the boss and tell her that you would really like to stay with the company but the current position is bad for your health. If they say "No", then retire.
4) Sounds like you have enough suggestions from others on whether you roll to IRA's, etc. By all means, roll that ESOT out.
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Old 09-25-2014, 10:13 AM   #15
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I have many suggestions. Some are mutually exclusive:
1) You do not have enough after-tax money to make it to 59 1/2. I hate paying the 10% penalty. Cash out enough from your primary residence via a mortgage. Rates are low. Use this to get you to 59 1/2. Retire as soon as the mortgage is closed.
He can always do a 72t to get money without penalty from his IRA.
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Old 09-25-2014, 10:37 AM   #16
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He can always do a 72t to get money without penalty from his IRA.
72t plus 1/6 of his after tax funds per year would put him in the 55k per year range. Might do it.
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Old 09-27-2014, 08:41 AM   #17
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I am brand new to this forum, and just posted the following on another thread. Not to be redundant, but I hope this is of help:

What do you think?

It all comes down to math; really that simple. Personally, I would not want to incur the 10% penalty for early withdrawal on my retirement funds. That defeats the purpose of your prior savings strategies. Also, I don't like reverse mortgages - puts you back in debt, which you worked hard to get out of over the years.

Have you considered leaving your retirement assets intact, and finding a different job, to bridge you until 59 1/2 (or whenever you decide to retire)?
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Old 09-27-2014, 11:00 AM   #18
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If the OP has a substantial amount of appreciated company stock, he may be better off rolling the stock into an after tax account which would make him liable for income taxes on the original cost of the stock. He would then be able to sell the stock for a LT capital gain
Agree, and it sounds as if the OP has already figured this out. You should not roll the ESOT or 401K into an IRA until after engaging a CPA to analyze the potential benefits of NUA tax treatment on the company stock. If the cost basis is low enough, that could be a very significant tax advantage. It might also solve the liquidity problem prior to age 59.5. I just ran some quick math however, and your basis needs to be REALLY, REALLY low for this to make sense.
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Old 09-27-2014, 01:36 PM   #19
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....One question I do have is if I take full distribution from my 401k I read somewhere that I have to take distribution from all employer plans. ...
I wouldn't think so. My former employer had a 401k and a defined contribution plan and I rolled the 401k into my IRA but left the DC plan with them because the DC plan had some attractive annuitization options that I didn't want to forgo.
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