Very odd situation

[OddGuy]

I'm 45, and was recently laid off from a lucrative but soulcrushing corporate job. The writing was on the wall (isn't it always?) and I got a decent exit package, which I was sticking around in hopes of getting.

I'm forming a consultancy, but have had difficulties getting a client base established. I figured it would be slow, but going the summer without a paying client (been doing some pro bono) has me thinking realistically about the worst case scenario.....what if I have no work again, ever? How would the numbers work?

DW (age 42) makes $75K, we get an additional $10K in family gifts. Our assets are $335K in my retirement and $90K in hers, and about $80K in cash. Our house (lakefront, which we figured would one-day be our retirement place) was just appraised at $515K with a mortgage of $450K. We just successfully refi-ed at 3.65% based solely on DW's salary and our assets. The application suprised the mortgage broker, who listed my occupation as "RETIRED", since my consultancy/LLC is showing no profit right now. That word got me thinking.

The other factor is 3 children, one of whom is enrolled in a state college (fully funded through a 529 account - the other two 529 accounts are well under way for the others) and DW doesn't want to move. No debt of any kind other than the mortgage.

In doing the numbers for the worst case scenario, I looked at what it would take to supplement DW's income to cover basic living expenses. Once severance and 25 weeks of unemployment are exhausted, we're looking at spending liquid cash, then tapping into retirement, paying the penalties. Again, this is not a PLAN, it is a fall-back position in case I never land proper paying work again...a reaction to unemployment or underemployment.

As you can imagine, the numbers showed a fairly long period of staying afloat, even without adopting an excessively frugal lifestyle.

The final financial factor, the really unusual part of this scenario, I should assume, is that my parents (both aged 77) recently enlisted my help in organizing their finances - centralizing their records, etc. - and I discovered just how well off they are. Their accounts top $10M, which would one day be split three ways after taxes.

So, it is not my current plan or intention to retire early, and I want my parents to be around a long, long time, but there is a possibility that if things turn out really badly in my life (never working in my field again) that I may, in fact, be retired early.

We'll see.

[LOL!]

Since you already get substantial family gifts, I would suggest the following....

1. Cut back expenses to live off the one income, so you do not need to raid savings nor retirement funds

2. Express to parents that they will have estate problems and ask if they wouldn't rather see their money used now when they can see the pleasure it gives people. You might give them the book "Die Broke" If they go this route, make sure they give to all potential heirs equally.

[GrayHare]

Some thoughts: Did your worst case scenario consider if DW's job is cut? Health care costs could escalate substantially if that happens. Upon a brief glance, looks to me you should keep working. IMO it's best to consider any inheritance to be icing on the retirement cake. If your parents reach the century mark, you may collect Social Security before an inheritance.

[obgyn65]

Welcome, OddGuy.

[FIREd]

Hi OddGuy,

welcome to the forum.

The numbers show a fairly long period of staying afloat but only if your wife does not lose her job. Sounds like your expenses are pretty high if you need to supplement your wife's $75K annual income just to cover basic living expenses. I don't see how it can work unless you cut your expenses substantially. When your wife retires in 25 years, social security will replace only a small fraction of her income and your nest egg might be in pretty bad shape after 25 years of withdrawals. As for the inheritance, I would be careful not to build my financial plan around it. Lots can happen before you get your cut.

[W2R]

Quote:

Originally Posted by FIREd As for the inheritance, I would be careful not to build my financial plan around it. Lots can happen before you get your cut.

+1000

My suggestion is to never, never NEVER count on a future inheritance to fund your retirement.

[Tractor guy]

In addition to financial reasons, I wouldn't count on the inheritance for family/emotional reasons. I have a cousin who is obviously doing what you propose. (He's been playing golf for a decade and has rich parents). His siblings don't speak to him any more. They consider him a freeloader and are upset that he's taking advantage of their parents generosity.

BDW, his parents are now approaching 90 and look like their going to live a lot longer.

If it were me, I'd be beating the bushes for a new job. I'd also consider moving. I know you like it where you are now but I've found that there are a lot of good places to live.

[sunnysideup]

My thoughts regarding parents' monies:

Personally I wouldn't ask my parents for money, but that's me, that's also the way my relationship is with my parents, and observing my siblings relationship with my parents. My parents are depression era and they squeeze every nickel even though they are blessed and do not need to.

I also agree with not "counting on" inheritance money. Your parents may live to 100 and even if their balance remained intact (which depends on so many factors), you would not receive the money for 23 years and that's a long time.

If you get it, you will still enjoy it, but better to plan on funding your own retirement.

[MichaelB]

Quote:

Originally Posted by W2R +1000 My suggestion is to never, never NEVER count on a future inheritance to fund your retirement.

+2

Oddguy, regarding the new business, summer months are a loss and business activity falls off completely. If this continues through the fall you would have more reason to worry, but right now it doesn't mean anything. Use to time to develop a prospect list or work on other things so you are free after Labor day.

[meekie]

Congrats! It looks like you've set yourself up pretty well. Being able to lose your job and still do ok is great!
I hope your consulting business picks up, it looks like if you could get a little bit out of it you hopefully won't have to raid the retirement accounts.

[Brat]

It takes a year to build a business, three years for it to be profitable.. at least that is what my Mother (who had her own business) taught me. You need to look at your business plan to determine if it really has potential and if it does - work your prospect list, hard. One way to find prospects is to teach a class at your local community college, often a professor would love to have a visiting lecturer. Get out and hustle.

Do not have tunnel vision. Be prepared to modify your business plan to take advantage of opportunities. My son and his wife purchased property with one use in mind but three years into their business plan discovered a more profitable related use.

Make sure your family knows you are working hard to develop your business but don't hold a pity party.

With a three year break even time horizon realign your household budget. Do not borrow from your parents, in fact if they offer tell them to save that for a true emergency because you are realigning your economic priorities. Then, should you really be in need because of an unexpected event they are more likely to be generous.

[ShortInSeattle]

Quote:

Originally Posted by Brat It takes a year to build a business, three years for it to be profitable.. at least that is what my Mother (who had her own business) taught me. You need to look at your business plan to determine if it really has potential and if it does - work your prospect list, hard. One way to find prospects is to teach a class at your local community college, often a professor would love to have a visiting lecturer. Get out and hustle.

Good advice. It took me three years to earn a modest salary in my business, I'm currently in year six and will finally break six figures. I took on a part time teaching gig when I started, and will probably drop it next year. Solo consulting is rewarding and flexible, but more than a full time job for the first few years. It takes a big push to earn your momentum.

SIS

[paul h]

It's always important to look at your assets, not just cash, but other factors that will help you succeed. You don't have the financial burden of having to find a job, any job, right now. That's about the best possible asset, you can with a clear head and without pressure put the time and effort into building your business the way you want it. And that's the followup huge asset you have, time.

Any thoughts of what if you never work again are defeatest. Just concentrate on building your business. Cultivate contacts, network, fine tune what you can offer that other firms can't offer, look into continuing education etc. There are always opportunities to make money, what one needs to capitalize on those opportunities is being available with both your time and money to take advantage of them. You are well suited for that and it's an enviable position that most people who are out of work do not enjoy.

Asside from helping your parents get their finances together and establishing a trust and other instruments to provide the best possible protection against inheritance taxes, probate etc, ignore the money that is there. Trust me, if you put your thoughts into that money being yours when it really isn't, it puts you in a mentally unhealthy spot. Enjoy the time you have with your parents, I just lost my mother this summer, and my father 5 years ago. I'd gladly not have a dime of inheritance and have both of them back.

[pb4uski]

Quote:

Originally Posted by FIREd ...... As for the inheritance, I would be careful not to build my financial plan around it. Lots can happen before you get your cut.

+1 A friend of mine's retirement plans were largely based on an anticipated inheritance - he inadvertently alienated a couple of key relatives and what he will ultimately receive is substantially less that what he planned.

[FreeAtLast]

I was I'm business for over 20 years, however, I eventually lost my largest customer due to a corporate take over and a few other things went wrong. I quickly realized that my business was not going to make me the income that I needed. I started to do Computer contract for a temp agency and kept some of my small accounts.

Perhaps you should also be looking for a job or some temporary work to bring in extra money so you don't have to use your retirement accounts.

[texasdiver]

My advice? Find a way to reinvent yourself into a new career even if it takes going back to school or spending some extended time with little or no income. I was in a similar situation 7 years ago. Well, not exactly the same, we relocated for my wife's profession and I had to find something new to do. I could have chosen to become a stay home dad as we had young kids and could have afforded it, but I chose not to because:

1. The worst could always happen and you could lose your wife. Then what do you do? Hopefully you have good term insurance but still, what do you do if you are on your own?

2. Marriages do break up. Where would that leave you?

3. Do you have really good disability insurance? I have a friend at work who's wife had some heart issue, lost blood to the brain, and is now basically like a child. She sits in the bed and watches TV all day and can't function in any meaningful way. This happened at age 40 so he basically had to raise his son as a single dad while taking care of his wife.

4. If you go into semi-retirement for a decade and then really NEED to go back to work for any reason, how much harder will it be with a decade-long gap of unemployment?

It sounds like you are financially sound enough to withstand a long period of unemployment until you get your feet back under but do have a plan for the future that involves being able to support your family if necessary. Doesn't mean take the first crappy job that comes along. But be thinking how do I get back into the workforce not how to I swing early retirement.

I took off 2 years to go back to school and get a teaching license and now teach HS science at 50% of what my previous salary was. We can't live on my salary at our current lifestyle but if the worst happened we could figure out how to manage it with a lot of downsizing without having to eat our retirement accounts or become homeless. And I enjoy what I'm doing.

PS, if your parents are that wealthy then instead of just asking for money it might be more appropriate to borrow capital to start some kind of business or buy an existing business that is profitable. Have them invest in you rather than support you.

[OddGuy]

Hello, everyone, I'm back on! Revisiting a thread I started 4 years ago.

At that time, I was just recently laid off, and insecure about my consultancy taking off, given the fact that the work I do is primarily based in cities other than the one where we live, and DW was adamant about not moving (and I really didn't care to either, as we love the area and our kids love the schools.)

The solution, we determined, is for me to split my time between work from home and mega-commuting to client sites. Fortunately, I was able to mine my old contacts and develop new ones...in fact, my first travel gig came about a month after my August 2012 post. I now have some folks who send me stuff that I do in a home office I built, and I travel to sites in the Northeast, where I'll stay to work during the week, coming home on the weekends.

Basically, I wind up working about 10 months of actual days out of the year, and spend about half that time away from home (M-F only), bringing in $70k-$100K net/yr, across the past 4 years.

DW has seen her position grow from a $75K job to a $92K job within that period. Oldest child is finishing college, then we have a 15 year old and an 8 year old. Oh yeah, and the intervening years brought us a newborn (now 2 and a half)...so, there you go - you can only plan your future so much, huh? Yup, here I am, about to turn 50, with one kid in college, one in high school, one in grammar school, and one in diapers. And I'm hustling to make a buck on the road while DW amazingly holds things together.

I appreciated all the advice given in regard to inheritance. I must admit, it has been difficult to impossible to disregard that as a source of future income, particularly since my parents have enlisted my sister and me as executors, and they're turned over their investments to a fiduciary, who will now send monthly statements to sis and me, first one due after July 1. I know, I know - I read and re-read everything written, but once those 8-figure statements are in the in-box every month, it'll be extremely hard to look at that number and not divide by 3. Plus questions from Mom like, "Do you want the beach house, or do you want your sister to buy you out?" bring everything to the surface. My parents are nothing if not utterly transparent.

Knowledge of a financial legacy being passed on has been a mixed blessing. It has allowed me to take risks I otherwise might not have in growing my consultancy (I probably would've thrown in the towel at various setbacks and gone with a significantly lower paying "job" job,) but I really don't like the feeling of knowing that money is there - it's very easy to say "ignore it", "disregard it", etc. but a lot harder to put into practice. And I certainly want my parents to live long, healthy lives. But in the interim, I am pouring every resource of energy into the business, while still being lucky enough to have a good portion of the year where I can work from home around the kids, and also enjoy about 2 months off when times are slow.

I have learned from this that, assuming DW and I are blessed someday with the financial future it appears we'll be, that I DON'T want to have the same sorts of estate planning conversations with our children. I'd rather have them live their lives with no idea what is in store. Who's to say which path is the right path - I think that's what we as humans do...look at what makes us uncomfortable in the prior generation and do the opposite.

[CaliKid]

Glad to hear things are going well. in terms of estate planning you just never know when that day will be. Wealthy people, who can easily afford the best doctors, can easily live until 100 or 105 if you are all lucky. So it's always been my stance that you need to assume you will receive zero. If it happens it happens but I would assume zero and keep working hard and stashing savings!

[euro]

Thanks for taking the time to come back and write an update! And congratulations on your newest addition, as well as on finding a path forward with your business.
It's been said multiple times, but I agree completely: perish the temptation of relying on the inheritance. It probably WILL happen (eventually), and 8 figures is a lot, but there ARE scenarios that could leave your parents with a lot less than you might expect (including medical issues, but also fraudsters, and criminals etc). You just never know

Again though: well done!

[OddGuy]

Another update. Fiduciary statements have been rolling in for my parents' holdings. Current value is $9.6M. Real estate adds roughly $1M.

I feel honored and blessed that my parents trust my judgement and that of my sister such that they are so transparent with their finances. It's certainly a level of knowledge that is better to have at this stage of life than it would have been in my 20's or so.