Our Plan

[Itnetpro]

I have a transitional plan I been working on for a while and would like some ideas.

My wife works for an iconic company (33 years) that is private and provides ESOP to their employees. They are a well known iconic company thats consistently retuned double digits over the years. Even during the worst market downturns their private stock has lost at most 1/2%. They are methodical and consistent with their expansion. They are also one of the largest landowners in the North East region with one of the best funded ESOPs in the country. They are consistent with little to no risk over the next 10 years of potential loss in their shares. They are the complete opposite of an Enron so please don't debate my logic in putting most of our eggs in their basket.

Conservate projections have them retuning as little as 12% per year over next 10 years to as much as 21% per year from past history, current management and future plans.

We plan to retire 5 years from now with the following projections.

Based on 6% market return over next 5 years we project having $500,000 in 401k
Based on 12% returns company quarterly dividends and distributions around $3,000,000 in 5 years. We are allowed to keep our ESOP for an additional 5 years after retirement. Projections are $4,500,000 in ESOP after 10 year period including selling of shares in years 9 and 10.

Please note that yes when ESOP math calculated years 6 to 10 my estimate is lower then projections assuming 12%, dividends and distributions. This is intentional as I plan for variations in estimates. Kinda plan for the worst hope for the best.

Combined my wife and I now earn $110,000 a year with expected salary increases of anywhere between 2.5-5% per year until we retire in 5.

We plan to wait until 70 to take social security and will be retiring at 56 and 53 years of age (Im younger)

We budgeted $24,000 a year for heath insurance

My main objective is to have at least 150% of our current income at the 10 year mark.

Objective 2 is to maintain this income through end of life to have best options for long term care facility if necessary. I want to be able to afford the best. So I don't want my money to last a specific date I want the income to be consistent through to end stage and beyond to ensure this.

We don't have kids so not concerned with leaving anything for airs.

The plan...

I love idea of fixed income for life without market risk so I love idea of Simple Lifetime annuities from AA- and better companies. They have been rising as of late and at are age we are close to 5% already if we bought in for guaranteed lifetime with 100% death benefit for spouse.

I want to secure lifetime of 150k Per year when we take full control of our ESOP in 10 years.

For the first 3 years of retirement I plan on spending down our 401ks at our $150k per year.

In year 4 and 5 of retirement I pan to cash shares from ESOP of 150k per year for the next 2.

In year 6 of retirement when we gain full access. I plan to buy a home in North Carolina. Part of the reason is their annuity guarantee of $300,000 unlike PA where we live now of only 100k.

We plan to take around give/take $3,000,000 of that money and purchase 10 300k Annuities from various AA and higher insurance companies for a fixed income to continue around $150k a year.

I then plan to take $1,000,000 and place it in a Vanguard Index fund of my choice at that time with optimistic intent of 5% or better return over its lifetime.

The remanning is $500,000 or so I plan to invest aggressively in a large cap domestic fund of my choice.

Beginning in the first year of retirement we plan to save 10% of any money withdrawn in whatever investment mechanism we decide.

The 10% savings per year is designed to offset eventual erosion of fixed income from lifetime annuities with inflation.

Projected income as follows...

Age (Wife) 56 - 61 = Min $150k
Age 62-70 = Min $150k Annuities with $50k Investments = 200k
Age 70 beyond Min $150k Annuities $50k Investments $60k Social Security=$260k per year

Suggestions on this scenario?

Will my long term goal of having $250+ available for end of life care be achieved using this model?

Will that be enough?

Thoughts?

John

[gwraigty]

Welcome! Quite a complex first post. I can't answer your specific questions. However, I'm not a fan of turning over large sums of money to an insurance company and waiting for it to be trickled back to me. Because of that, admittedly, I haven't researched annuities in depth and don't care to. Of course, my viewpoint takes into account that I do have heirs. Some people without heirs consider leaving any leftovers to a charity, which sounds preferable to letting an insurance company keep it.

If you're able to amass $4,500,000, then you should be able to manage your income stream from that yourself and have at least $250,000 near your life's end.

Every 1% you can generate on that $4,500,000 is $45,000 of passive income. If you're looking for $150,000, you only need to generate 3.34% on that sum, which is quite doable even today, and the interest rate hikes aren't even finished yet.

[VanWinkle]

I also believe that you can produce the income you need with minimal effort and risk. You seem to have an increasing income scenario that maximizes income as you get older- 70-90. Most studies show that income requirement decreases during this period due to age at a rate of about 1% per year. I think you could use immediate annuities to establish a base income along with SS that will handle your basic expenses. This would be more like 35-45000 in additional income above your SS. You can then create your own safe annuity with a TIPS ladder if you require less risk.

I like that you are thinking long term, any plan is better than no plan.

Best to you,

VW

[Itnetpro]

The other options I was considering were just having Vanguard manage the funds and pay 1/3% fee. I would make my requirements about 5% minimal earnings per year plus their fee.

The other since I assume they would just spread it out amoung their index funds would be just put 3 years in cash, pick a Vanguard S&P 500 and let it ride.

I just have such a low tolerance for risk and prefer a set it and forget it. At the same time we want twice our standard in living from retirement starting year 10 when we can no longer participate in her ESOP.

This is why I am here to learn so thank you for the ideas!

John

[pb4uski]

One thing to think about... if you put $3m into SPIAs with a $150k annual payout, in 10 years the spending power of that $150k will only be $117k (assumes 2.5% annual inflation).... $104k in 15 years and $92k in 20 years.

A better option might be to put $4.2m into something like the Vanguard Managed Payout Fund that is designed to make inflation adjusted payouts and would initially pay $12,500/month... but the downside is that the payouts are not guaranteed like a SPIA.

https://investor.vanguard.com/mutual...aged-payout/#/

Or better yet, just plunk everything in a balanced fund with an AA consistent with your risk tolerance and set up automatic monthly distributions and increase them annually for inflation.

[Huston55]

Quote:

Originally Posted by pb4uski One thing to think about... if you put $3m into SPIAs with a $150k annual payout, in 10 years the spending power of that $150k will only be $117k (assumes 2.5% annual inflation).... $104k in 15 years and $92k in 20 years. A better option might be to put $4.2m into something like the Vanguard Managed Payout Fund that is designed to make inflation adjusted payouts and would initially pay $12,500/month... but the downside is that the payouts are not guaranteed like a SPIA. https://investor.vanguard.com/mutual...aged-payout/#/ Or better yet, just plunk everything in a balanced fund with an AA consistent with your risk tolerance and set up automatic monthly distributions and increase them annually for inflation.

+1

Don’t forget the risk of losing so much liquidity (control) with the annuitization route. I’d personally be a bit squeamish about annuitizing so much of my NW, if I had other choices.

You might also consider VWINX, versus VPGDX; lower stock allocation, lower ER, and better historical performance.

[Itnetpro]

Quote:

Originally Posted by Huston55 +1 You might also consider VWINX, versus VPGDX; lower stock allocation, lower ER, and better historical performance.

Ok that’s so funny!

I was literally on Vanguards sit looking at this fund when you posted this email!

https://investor.vanguard.com/mutual.../profile/VWINX

One thing I look at is how much they loose in down market years. I can tolerate up to 20% loss personally since we will have a 3 year cushion I hope to grew to 5.

Wellesley lost just short of 10% in 2008 and averaged slightly over 6% over past 10 years.

I think all things considered and this remains the same this might be way to go!

Thanks for advice!

Any other suggestions out there?

John

[Huston55]

Quote:

Originally Posted by Itnetpro Ok that’s so funny! I was literally on Vanguards sit looking at this fund when you posted this email! https://investor.vanguard.com/mutual.../profile/VWINX One thing I look at is how much they loose in down market years. I can tolerate up to 20% loss personally since we will have a 3 year cushion I hope to grew to 5. Wellesley lost just short of 10% in 2008 and averaged slightly over 6% over past 10 years. I think all things considered and this remains the same this might be way to go! Thanks for advice! Any other suggestions out there? John

I do the same things: (1) look at past losses in bear markets when evaluating funds and, (2) keep 4+/- yrs in CDs/short-term bonds.

[MI-Roger]

One question: What will be your plan if you do not have $4.5M in your wife's ESOP in 10 years time?

Your wife has worked there for 33 years and her current ESOP balance is well under $500K, yet you are planning on it being $3M in five years and $4.5M in ten years? Something seems disconnected between these statements. Are the ESOP and 401(k) two separate plans?

You need two or three other detailed scenarios reflecting smaller sums to sustain you for life.

[nativenewenglander]

Quote:

Originally Posted by Itnetpro Ok that’s so funny! I was literally on Vanguards sit looking at this fund when you posted this email! https://investor.vanguard.com/mutual.../profile/VWINX One thing I look at is how much they loose in down market years. I can tolerate up to 20% loss personally since we will have a 3 year cushion I hope to grew to 5. Wellesley lost just short of 10% in 2008 and averaged slightly over 6% over past 10 years. I think all things considered and this remains the same this might be way to go! Thanks for advice! Any other suggestions out there? John

I put our funds in VWINX several years ago as I eased into retirement. Although in my late 50's now I was thinking longer term and to help my wife manage the funds should I suddenly be out of the picture. She's smart, but not interested in finances, so this seemed prudent. My accounts are at Schwab, which doesn't allow me to take advantage of the admiral version.

[Golden sunsets]

Quote:

Originally Posted by MI-Roger One question: What will be your plan if you do not have $4.5M in your wife's ESOP in 10 years time? Your wife has worked there for 33 years and her current ESOP balance is well under $500K, yet you are planning on it being $3M in five years and $4.5M in ten years? Something seems disconnected between these statements. Are the ESOP and 401(k) two separate plans? You need two or three other detailed scenarios reflecting smaller sums to sustain you for life.

I wondered the same thing but initially thought I must be misunderstanding the post. Wife with 33 years at same company and to date has $500,000 in company stock, but anticipates growing that dramatically to $3,000,000 within 5 years


Sent from my iPad using Early Retirement Forum

[pjigar]

Most on this forum will tell you to hold a diversified index fund portfolio. Concentrating assets to a single vehicle or class can lead to great profit or great loss. I don't won't either of that so I aim to have a "golden butterfly" by the time I retire. Look up the term: "golden butterfly"

[Itnetpro]

Quote:

Originally Posted by MI-Roger One question: What will be your plan if you do not have $4.5M in your wife's ESOP in 10 years time? Your wife has worked there for 33 years and her current ESOP balance is well under $500K, yet you are planning on it being $3M in five years and $4.5M in ten years? Something seems disconnected between these statements. Are the ESOP and 401(k) two separate plans? You need two or three other detailed scenarios reflecting smaller sums to sustain you for life.

I'm sorry, I was providing projections based on conservative worst case examples from minimal 10 year period of her company since their ESOP was established and rounded down 2%.

Her company ESOP is passive and given to her. There was one year when they needed cash to buy shares from a family member and they opened it up to purchase from employee 401ks. At that time against the advise of others we moved half her 401k over into the stock, plan. This is why she only has a little over 300k today in 401k.

It was the best thing we ever did since it only went down 1 year 1/2% and has averaged mid teens/low 20%s since then. trended over 10 year periods.

Currently

401k balance is $312,000 We are putting $12,000 a year in a growth fund that has performed well above 6% but wanted to project low to stay on safe side

ESOP Balance $1,473,000 Between dividends and distributions they put in close to $40,000 per year (Adjusted after corporate tax adjustment). Calculating 2% below the Lowest 10 year (Average over 10 year period 14% lowest since creation) period and not adjusting for increased dividends that will increase every year.

I know it seems too good to be true for the income she makes but company is privately majority family owned by quakers and they share the wealth. Its actually very common for long term non management people to retire in their 50s as millionaires. She has been with the company since she was 18.

When I calculate the 401k and ESOP together we get over $5 million. However, what I did not say because I would have been criticized was that we intend to spend down the 401k balance over 3 of the 5 years she is allowed to keep the ESOP after retirement. So I did not calculate that with total value.

After spending down 401k in 3 years the last two we will cash out enough share to live allowing the ESOP to continue to grown until we need to move it.

So assuming conservate 12% over total 8 year period in ESOP (5 years till retire and 3 years after while spending down) Another 2 years cashing out $150k in shares to live not factoring increased dividends or changing distributions we will really have conservatively closer to $5,000,000...

I know I know my math is off by 500k but I really like to project lower then low and hope for the best.

Plus I am a little hesitant telling you folks my wife has this much but at same time really did want ideas.

So far I like the Vanguard Wellesely fund over my original idea. So new plan so far we would place $4,000,000 in there and leave the rest out whatever it is for cushion taking enough to pay the mortgage and bills off the first year we cash the ESOP out and $150-$200k to live at that time.

Oh one last comment, my wife has been asking me about us retiring sooner with less. Its possible that could happen. I want us to go out with a bang having enough to do what we want that includes lots of philanthropy and having enough in savings that we can choose any end of life facility in the country when the time comes. There is a real possibility we might retire in less then 5 years.

John

[imoldernu]

Itnetpro:

Congratulations and best wishes for a healthy and happy retirement.

No advice on money, as we don't invest. The numbers are out of sight for me.

Our thinking on retirement was and is to enjoy life, doing whatever makes us happy. Now, 30 years into being unemployed, we've been everywhere we wanted to go and done everything we wanted to do. Retired at 53, with a total net worth of a little more than $500,000. With two possibly fatal health scares for me, in 1989 and this year, and one for my bride in 1994, looking back, we wouldn't have changed a thing.

Along with the financial planning, a good time to do some dreaming of what you will want to do when you're free of the obligations and worries that go along with being employed.

Best of luck,
bob

[Itnetpro]

Quote:

Originally Posted by pjigar Most on this forum will tell you to hold a diversified index fund portfolio. Concentrating assets to a single vehicle or class can lead to great profit or great loss. I don't won't either of that so I aim to have a "golden butterfly" by the time I retire. Look up the term: "golden butterfly"

Interesting...

https://portfoliocharts.com/2016/04/...den-butterfly/

I would have to put some real thought into this. Its logical, I like things to be a little more straight forward set it and forget it.

However, out of curiosity are there any funds out there with a track record using this model that you can suggest I can look into?

[robertf57]

Quote:

Originally Posted by Itnetpro ....... So assuming conservate 12% over total 8 year period in ESOP ....... John

I wish you good luck with your financial plan. Not many people would be willing to call a 12% return "conservative" on any investment over a long period of time.

[Itnetpro]

Quote:

Originally Posted by robertf57 I wish you good luck with your financial plan. Not many people would be willing to call a 12% return "conservative" on any investment over a long period of time.

Remember I am talking about my wife's private company stock. If you knew her company you would understand why they constantly return double digits year after year. They have done this for decades.

Not only is their ESOP one of the best funded in the county but they are also one of the largest land owners in the East USA. Add to this consistent performance year after year in double digits on a service thats recession proof and they should continue to perform.

Management is carefully selected and groomed to continue their values for years to come.

The 2008 recession was the 1st in 2 decades their private stock dropped. It fell 1/2 of 1 percent that year.

The second lowest year they had over the past 20 years was 12% and highest 30%.

With a long conservative track record of expansion both in company value and stock price. 12% average worst case over the next 5 years is very reasonable.

This year they are again on track to gain 20%. Next since they are flush with cash and slightly increasing their expansion I suspect they will duplicate this gain again.

So having history on their side I would estimate with high certainty...

John

[HI Bill]

Quote:

Originally Posted by Itnetpro Remember I am talking about my wife's private company stock. If you knew her company you would understand why they constantly return double digits year after year. They have done this for decades.

Have you read 'Good to Great'? Basically, the enduring companies are those without a single, 'key person' leader. Those with a long-term corporate structure that isn't tied to any one person. Elon Musk's companies, along with Jeff Bezos' Amazon, are two that could crumble when their leader falls, IMHO. Very few companies consistently produce that type of gain continuously. Even the greats like HP and IBM have faltered recently. So, I hope you are right. However, if you have the opportunity to diversify your ESOP shares when you reach 55, I would strongly recommend doing so...regardless of how well the company is doing at the time. Diversifying risk, even if you are giving up some gains, may lead save your retirement if something catastrauphic were to happen to the ESOP company.

I have ESOP shares in a diversified archictecture/engineering/construction/planning/water and infrastructure company, and although the overall returns have been ok, and the shares weathered 2008 nicely, they're no where nearly as solid as your wife's company sounds.

[Teacher Terry]

If you had kids they would be “heirs” not “airs.” Sorry I couldn’t resist)

[Itnetpro]

Quote:

Originally Posted by HNL Bill Have you read 'Good to Great'? Basically, the enduring companies are those without a single, 'key person' leader. Those with a long-term corporate structure that isn't tied to any one person. Elon Musk's companies, along with Jeff Bezos' Amazon, are two that could crumble when their leader falls, IMHO. Very few companies consistently produce that type of gain continuously. Even the greats like HP and IBM have faltered recently. So, I hope you are right. However, if you have the opportunity to diversify your ESOP shares when you reach 55, I would strongly recommend doing so...regardless of how well the company is doing at the time. Diversifying risk, even if you are giving up some gains, may lead save your retirement if something catastrauphic were to happen to the ESOP company. I have ESOP shares in a diversified archictecture/engineering/construction/planning/water and infrastructure company, and although the overall returns have been ok, and the shares weathered 2008 nicely, they're no where nearly as solid as your wife's company sounds.

This is exactly what make my Wife's company stock and future so secure. Even though the family owns half the company each CEO is groomed from with-in and starts at much lower position in organization. Years ago there was a CEO who they were grooming who had ideas about going private to raise tons of capital and expand at a much higher rate. That CEO was encouraged to move on. After he did the company made an announcement of how committed they are to staying private and the ESOP.

The curent CEO is young and shares the same values of the family.