Plug about to be pulled on me -- don't want another job if I can help it

[tiredofwork]

Will be terminated from my job within the next couple of months, after 13 years of service. I've seen it coming for a couple of years and, being a paranoid analytical INTJ personality type, have probably run a couple hundred scenarios through Firecalc and other planners. I'm 50 and my wife will be 51 next month. We have 2 teenagers - one goes to college next fall and the other is a high school freshman. I've excluded their college funds from the following figures:

Roth IRA -- $12,000
Traditional IRA/401K -- $232,000
Taxable accounts -- $415,000 (no unrealized capital gains)
S-Corp shares, book value -- $85,000 (illiquid, but has been generating 40-60% pretax returns on book value). A buyout offer, while not on the table at this point, might yield me $200-300,000 for my shares.

Military pension, COLA'd with TRICARE medical benefits begins at age 60 -- $18,500 per year
Social Security (me) age 66 -- $23,300 per year, not discounted for future reductions (I take a 15% discount when I'm running Firecalc)
Social Security (wife) age 66 -- $11,650 per year, also not discounted
Wife's pension at age 62 (no COLA) $1,400 per year

House paid for and I believe I can conservatively live on $55,000 per year (includes taxes and $1100 per month for medical insurance and medical out of pocket expenses).

I think it's doable, as long as I have a reasonable exposure to the stock market, but maybe there's some angle I haven't considered. I'm willing to teach a community college course and/or do some seasonal tax work if I need to.

Thanks for your advice.

 

[Ed_The_Gypsy]

It looks like your disposable assets seem to add up to about $944,000 (assuming 200k for your S-corp shares). If you have unrestricted access to them, $55k/year is about 5.8%, which should be OK until you hit age 60.

However...

Your access to your Roth may be limited. You can only get at money that has been there more than 5 years.

Your traditional IRA can be accessed by the rule of 72T, which would only be about 2.9% this year (1 over 34.2 from this table
http://www.retireearlyhomepage.com/letable02.html

Since you are not separating in the year you turn 55, you won't have unlimited access to your 401K, the only way to get at it without the 10% penalty is by 72T, which is only 2.9%, as noted above.

That gives a total of about $18.8k/annum total from your traditional IRA and 401K. Add 40% returns off your stock book value (if I understand correctly), or $34k, you get $52.8k before taxes, leaving you short about $2.2k /annum--before taxes, always remember. Over 10 years that comes to about $35k, which is your Roth growing at about 6+%/yr (very rough numbers; I didn't do an annuity calculation).

It looks do-able, but tight until you get to 60.

Myself, I would think about part-time work for a cushion for ups and downs and maybe medical insurance. After all, "What are you going to do all day?" (ducking)

Does that sound about right, or have I missed something?

 

[d]

i think you can get more from the 72T route than Ed suggests... see http://www.dinkytown.net/java/Retire72T.html

 

[jdw_fire]

Roth IRA -- $12,000
Traditional IRA/401K -- $232,000
Taxable accounts -- $415,000 (no unrealized capital gains)
S-Corp shares, book value -- $85,000 (illiquid, but has been generating 40-60% pretax returns on book value). A buyout offer, while not on the table at this point, might yield me $200-300,000 for my shares.

Military pension, COLA'd with TRICARE medical benefits begins at age 60 -- $18,500 per year
Social Security (me) age 66 -- $23,300 per year, not discounted for future reductions (I take a 15% discount when I'm running Firecalc)
Social Security (wife) age 66 -- $11,650 per year, also not discounted
Wife's pension at age 62 (no COLA) $1,400 per year

House paid for and I believe I can conservatively live on $55,000 per year (includes taxes and $1100 per month for medical insurance and medical out of pocket expenses).

Hey tiredofwork, when I run your numbers through FIRECalc I get 100% for a $55k/yr WD and a $64,008/yr WD gets 95.8%. I put in all of your pensions/SS as you described them (w/ no reduction) and put in the income from the S-corp as a constant $34000/yr but did not add its value to your current portfolio. I used the default investment settings and made it a 40 yr plan. If you are sure of your expenses it looks like you are good to go. BTW don't worry about taking money from your retirement plans prior to 59.5. Just maintain your asset allocation across your portfolio and pull money from your taxable account to supplement the S-corp income until that time (<10yrs).

 

[tiredofwork]

It looks like your disposable assets seem to add up to about $944,000 (assuming 200k for your S-corp shares). If you have unrestricted access to them, $55k/year is about 5.8%, which should be OK until you hit age 60.

$200K for S-corp shares would yield disposable assets of $844,000

Your traditional IRA can be accessed by the rule of 72T, which would only be about 2.9% this year (1 over 34.2 from this table

I've looked at the 72T calculation and come up with something north of $14K per year

Thanks for the feedback.

 

[Ed_The_Gypsy]

i think you can get more from the 72T route than Ed suggests...

He probably can, but I don't like the 'reasonable interest rate' withdrawal method, myself. I have a friend who was using it and had to revise it later. Very big headache.

 

[slepyhed]

He probably can, but I don't like the 'reasonable interest rate' withdrawal method, myself. I have a friend who was using it and had to revise it later. Very big headache.

Why did he have to revise his withdrawal rate?

 

[tiredofwork]

Hey tiredofwork, when I run your numbers through FIRECalc I get 100% for a $55k/yr WD and a $64,008/yr WD gets 95.8%. I put in all of your pensions/SS as you described them (w/ no reduction) and put in the income from the S-corp as a constant $34000/yr but did not add its value to your current portfolio. I used the default investment settings and made it a 40 yr plan. If you are sure of your expenses it looks like you are good to go. BTW don't worry about taking money from your retirement plans prior to 59.5. Just maintain your asset allocation across your portfolio and pull money from your taxable account to supplement the S-corp income until that time (<10yrs).

jdw_fire, thanks for the feedback. It's a little scary taking the leap, even though the numbers seem to indicate it's OK.

 

[Ed_The_Gypsy]

Why did he have to revise his withdrawal rate?

Beats me.

I guess the government did not agree with his basis or interest rates changed. Or both.

Earlier, I had looked at the method and decided it was too much trouble. My friend's experience confirmed that first impression as far as I was concerned. It is a stone in my karmic path. I step over it and move on my way.

 

[MooreBonds]

S-Corp shares, book value -- $85,000 (illiquid, but has been generating 40-60% pretax returns on book value). A buyout offer, while not on the table at this point, might yield me $200-300,000 for my shares.

What industry is the S-corp in? With cash flow/income like that, it would be crazy to sell - unless your participation is an integral part of the business and you want to part ways, or unless you think there would be questionable future revenue. The reason is that even if you were to get $300k (6x annual income can be pretty darn high for a private company....often they sell for 2x-3x annual net, depending on the willingness of the buyer and the industry) for selling it (assuming no income/capital gains taxes payable on the sale) and even if you were able to reinvest it and averaged rich 9% annual returns, you'd only get $27k from your investments...compared to $34k to $51k per year in returns from your S-Corp.

 

[tiredofwork]

What industry is the S-corp in?

It's a finance company - borrow from the bank at about LIBOR + 2%, then lend out at about 20%, making money on the interest margin, less expenses. It is a highly leveraged business.

The S-Corp has allowed my net worth to grow where it is today. I expect I'll just transition from being an active investor to a passive investor in the company, unless a buyout offer comes down the road that I can't refuse.

 

[brewer12345]

It's a finance company - borrow from the bank at about LIBOR + 2%, then lend out at about 20%, making money on the interest margin, less expenses. It is a highly leveraged business.

The S-Corp has allowed my net worth to grow where it is today. I expect I'll just transition from being an active investor to a passive investor in the company, unless a buyout offer comes down the road that I can't refuse.

In that case, I would expect it to sell at a multiple of book value.

How did you get involved in the first place? What are the receivables? Subprime auto? Something else?

 

[TromboneAl]

Another thing to consider are ways to cut your living expenses without any pain. Can you downsize the house and move to a less costly area?

 

[Martha]

In that case, I would expect it to sell at a multiple of book value.

How did you get involved in the first place? What are the receivables? Subprime auto? Something else?

Value likely will depend on how much of an interest he has in the company--is he a minority owner?

I represent a lender who makes loans to these kind of finance companies. It's customers are two types. One is a company that makes commercial loans on riskier deals and does bridge financing until permanent financing is in place. Another does a fair amount of subprime manufactured home lending.

 

[tiredofwork]

How did you get involved in the first place? What are the receivables? Subprime auto? Something else?

I've been the CFO for 13 years. $50 million. Insurance Premium Finance.

 

[tiredofwork]

Another thing to consider are ways to cut your living expenses without any pain. Can you downsize the house and move to a less costly area?

My financial status already assumes I sell the house at current depressed market value, take $270K of equity out after real estate commission, apply $200K to a downsized house in a cheaper part of the state, and add $70K to taxable part of portfolio.

 

[tiredofwork]

Value likely will depend on how much of an interest he has in the company--is he a minority owner?

minority owner - 4% interest

in my firecalc scenarios, I usually assume 3 years of income then a buyout at about 2X book value

 

[brewer12345]

I've been the CFO for 13 years. $50 million. Insurance Premium Finance.

Interesting. I didn't know that the rate on premium finance money was so high. Do you do any of the "investor owned" stuff for life insurance, or is this mostly commercial P&C stuff?

 

[tiredofwork]

Interesting. I didn't know that the rate on premium finance money was so high. Do you do any of the "investor owned" stuff for life insurance, or is this mostly commercial P&C stuff?

P&C commercial and personal lines