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Take severance & retire, or accept another role and save more? 37 y/o ~$2.4M
Old 02-04-2019, 07:47 AM   #1
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Take severance & retire, or accept another role and save more? 37 y/o ~$2.4M

Hola! Been following this site for years as I've been working towards financial independence. Thinking of hiring a financial advisor to get a professional second opinion, but I thought I'd ask you guys in the ERE forums for some advice first.

I am getting laid off from my employer of 12 years. I have been working towards FI for last decade, with the goal of taking some time off and then transitioning to a (much, much) lower-paying job or self employment.

Some general info about me:
* 37 y/o and sole breadwinner in major tech company, spouse is 40 y/o and stay-at-home parent (previously social worker), we have two young children (6 months and 3 y/o)
* $2.4m net worth (excluding house and excluding 529s for kids)
* Cash (checking/savings and CDs): $200K
* Investment accounts:
* 60% in taxable account, 40% in tax-advantaged (401k/403b, IRAs);
* 42% domestic equity, 18% intíl equity, 9% alternatives (mostly REIT), 27% bonds, 4% cash
* ~7% in employer stock, rest is almost all invested in index funds
* We own house (~$1m+); This is our lifetime house so we do not expect to ever sell
* Annual expenses excluding tax is ~$100K
* Kidís college funds are largely funded already ($100K/each in 529s); Only foreseeable major expense outside of retirement is $200K house remodel which we hope to do in next ~2 years
* Life insurance $1m policy for myself, none for my spouse
* I expect a generous severance (~$250K) given my tenure, but I will have some big expenses as I am currently working in Europe and need to relocate my family back home to US
* My goal is take ~2 years off to spend with my family. I expect to earn income again at some point, but may be as little as $50k/yr (huge drop from current income of $400k/yr) as I consider to switch careers. I want to be able to maintain current lifestyle of $100k/yr expenses (ex tax).
* If I am way too off from my goal, I still have an opportunity to take a different role with my employer to save more money at the high income. However, this not my preference as we would have to relocate to undesired location and my job satisfaction is very low.

Some questions for you folks out here:

1) Can I achieve my goal already under current savings, or should I take the other role and get through a few more years to save more? Or, if I decide to leave my employer:
-Under current savings if I want to permanently retire, how much can I comfortably spend per year?
-If to maintain $100K/yr expenses, what is minimum I need to earn per year?

2) Should I make any changes to my current asset allocation?

3. How do I manage cash flow once the pay checks stop coming, and how can I minimise taxes?

Sorry for the long post, but I appreciate any and all of your thoughts and advice! THANK YOU!
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Old 02-04-2019, 07:54 AM   #2
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How undesirable and why?

I would probably take the relocation if it isn't in a dangerous location and stack at least three years' more net income in investments. Then I would ask for a package and go home.
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Old 02-04-2019, 08:21 AM   #3
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At your age you should only take about 3% WR so that would be around $72000 you could take from your assets. If you found a job making $50K a year you would have your $100K to spend.


On the other hand if you worked 3 more years and were able to get your assets to $3M, then you could get close to your $100K per year.
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Old 02-04-2019, 08:38 AM   #4
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Welcome and congratulations on your savings level at 37!

I don't have enough data to answer your questions. The big missing data point is what taxes are you excluding? And why? These are real expenses that are only going up (IMO) and need to be planned. Are you excluding only income tax, or also property tax?

Other things to consider: A $1+M home will have a great deal of upkeep and maintenance. My experience as a home owner is that you need 1 - 2% of the value of the home per year (on average) for upkeep. This includes saving for a roof, taking down trees, window replacement, heat/ac/water heater/appliance/etc. I'd err on the high side here.

Don't forget you need cars when you come back, as well as need to replace them periodically. Oh, and car maintenance (tires, plugs and belts for older cars, brakes, ...).

Kids affect family spend more as they get older. Think about travel sports, band, braces, and car insurance. My experience as a parent is this can add $3-5k/year starting about age 12.

I budget $25k/yr for health care. About 6K in "premium" for my sharing account (BCBS was way too costly), $13K deductible, and $6k for dental, vision and prescription drugs. Others on the forum do it for far less. What is your plan?

When my family and I lived overseas we had an excellent experience, and I hope you too are having one. Our contract stipulated that the company had to move us back and make us whole on international taxes if we were separated without cause while overseas. Please double check your contract. And, will you be credited with any overseas retirement you paid? I was not, but I know others that were. The time to look into that is now.

Our expenses while overseas were also about 60% of what they were when we returned to the US. This was even with many weekend vacation trips. I suggest you take a look again at your expenses. In my case many things were paid for by the company that I overlooked in spending and thus my annual expenses in the US were much higher when we returned. This caught me off guard and was quite unexpected.

Having said all that, if you can come back and take a job that you love at $50+K with good health care you should be fine. But look hard at your expenses, please. I don't think you can afford to stop working now.
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Old 02-04-2019, 08:39 AM   #5
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Sounds like you are in need of a break right now. If you have a favorable sequence of returns, you may have enough without having to go back to work. My own plan in a somewhat similar situation was to put away some buffer while I was in a high income job rather than risk having to go back later for a much lower wage job. Once I was out for a couple of years, my skills would probably be too rusty to return to the higher wage career. I also didn't mind the job any more than I'd mind any job that took hours away from my free time, so why not continue at a higher rate? Your situation has enough differences that I can see why you might decide otherwise.

Tax wise, you'll have to supplement your dividends and interest by selling some assets. I'd be divesting the company stock unless you think there's really a good upside, and then doing tax loss harvesting and selling shares with smaller games. Make sure your mutual funds are set up to sell by specified ID rather than average cost so you can choose which shares to sell. You'll probably find taxes aren't too bad, even needing $100K in expenses, because that doesn't (necessarily) equate to $100K in income.

You may also look at whether it makes sense to do partial conversions of your tax deferred to a Roth, by estimating your current marginal rate vs retirement marginal rate. If the latter is higher, convert until they are at least the same.

Did I miss where you have health insurance covered? Is that included in the $100K?
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Old 02-04-2019, 08:45 AM   #6
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Take a break. And if visa allowed, travel the Europe for 6 months to one year.
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Old 02-04-2019, 08:56 AM   #7
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Another choice to me would be how important it is to stay in SF vs. relocating somewhere cheaper. You probably would be set if you relocated to a lower cost of living area, but that's your choice whether it's worth going back to work in order to stay there.
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Old 02-04-2019, 08:59 AM   #8
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At your age you should only take about 3% WR so that would be around $72000 you could take from your assets. If you found a job making $50K a year you would have your $100K to spend.

On the other hand if you worked 3 more years and were able to get your assets to $3M, then you could get close to your $100K per year.
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Old 02-04-2019, 09:22 AM   #9
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If me, I'd definitely do the LCOL move. Depends on how tied to San Fran you are. Your $1mm+ or your freedom? If you could move and reduce that by half, you'd be up to $3mm net worth and the gains from the sale of the house would likely be tax-free too (up to $500k in gains). That can be your largest win, IMO.

You will likely qualify for big subsidies, likely, on health insurance if you do not continue to earn a big paycheck, so there's some efficiency there. Getting your expenses down is going to be your friend in this.

I just decided to do the same and my wife likes her job. Our expenses are appx. $40-48k (in Dallas) all in and that includes 25-30 days of vaca travel. I've track my expenses (using Mint) for the past 4-5 years, so I know the trend and exact #'s in our lives. Learn to hack life on expenses. I've been listening to ChooseFI podcast for some ideas and we already practice much of what they talk about.

We took a few years off at 40-43 and lived in Mexico and then came back and w*rked during the past 4 years. Made a nice gain on a home sale and saved 50%+ of our salary to repeat if we want. You'll likely find you want to do different things through the years as time passes; family, w*rk, volunteer, travel...

99% of people will never be in your position. It's hard to find good advice because the small pool of peeps to relate to, outside of this site or a few others.

As it looks, you're in the $80-85k (including taxes) with the assets you have currently, IMO.
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Old 02-04-2019, 10:29 AM   #10
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Please don't kill the messenger

It isn't often I tell people with savings of 2.4M, and who own outright a million-dollar house, that they don't have enough.

But you don't have enough. Not at 37. Not with a half-century to provide for.

You want to spend 100k. That means you need to bring in 100k + roughly another 20k* for Federal and State taxes. At your tender age you need to be thinking WR <= 3%. Applied to your stash, that gives 72k. Adding in an extra 50k from your return-to-the-workforce gig puts you at 122k, which is marginally at your target income, but that's it. No cushion, no savings.

What happens if you get laid off again, this time from the lower paying job? Don't count on a juicy quarter-million severance then. Or maybe you don't get laid off, but decide that you really enjoy the freedom of retirement?

If you were 60+ years old, I'd say go ahead. Pull 5% for a few years, drop back when you tap SS, & you'll be ok. But your time horizon is so distant that anything could happen. You need about another ~1.5 million to pull it off comfortably. Sorry.

*Since there is so much uncertainty in a 50-year scenario, it's pointless to quibble about a few thousand over or under. For distant predictions, I figure rough numbers are as likely to be accurate as precisely calculated ones.
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Old 02-04-2019, 01:29 PM   #11
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Have you played with your situation in FIRECalc? Just putting in $2.4m and a 60 year time horizon and 60/40 AA suggests only a 61% success rate... but if I bump up the portfolio to $2.6m (adding in the $250k severance less $50k provision for taxes) that improves the success rate to 80%.

You can then use the Investigate tab to look at certain things. At $2.6m you could spends as much as $90k a year with a 95% success rate... or you would need about $2.9 million to have a 95% success rate with $100k a year spending.

So get on FIRECalc and input your details. My sense is that you are close, and could easily take a couple years off to refresh and then work part-time. Speaking of which, is staying on with your current employer in some sort of part-time role a possibility?

Another possibility would be to sell the $1m house and use a portion of the proceeds to feather the nestegg and move to a LCOL area and fully retire.
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Old 02-04-2019, 04:10 PM   #12
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At 37, with those assets, I would still want to build up more of a buffer. I'd suggest you take a different role with the employer and save more. Is the "undesirable" location in the U.S.?
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Old 02-04-2019, 04:34 PM   #13
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I completely understand the need to take a break but keep in mind that professional skills get stale. As someone else has suggested travel for a couple of months in Europe as a family, then return home.

Your home in the Bay area, if in good repair, is likely worth much more than 1 mil. I assume you have rented it out in your absence. Give the tenants appropriate notice then have a home inspector make a to-do list. Keep in mind the fact that if you do decide to sell it all sellers in the Bay area are required to provide a recent home inspection. Do you have a 'mature' tax basis on the house? That cost should be in your budget. My DD lives in the SV, many parents send their kids to private school. Investigate the public schools in your neighborhood.

Housing is so tight in SV that engineers are living in motor homes parked along the curb in Mountainview. They eat and shower at their place of employment returning home on the weekends.

After a break of 6-9 months, you should pick up a couple of side jobs in your field. Keep in mind the fact that Bay area employers would "kill" for a needed skill set, you are in a great negotiating position in terms of hours and pay.

I agree with other posters that you don't have enough to flat-out retire. You need to augment your reserves. For sanity's sake, you will want to stick your toe in professionally. Been there, done that.
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Old 02-04-2019, 04:45 PM   #14
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I agree with the other posters here...at your age, 3% withdrawals aren't out of line, given your time horizon, and the ages of your kids. If I were you, and that young, I'd personally stick it out for another 3 to 8 years, with the goal of having investible assets of at least $4MM. That would net you $120K before taxes....

Otherwise, sell the $1MM house and move to a lower cost of living area where you can get an equivalent house for $250K, and lower your spending.
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Old 02-04-2019, 07:08 PM   #15
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Take the severence.

Start looking for a new job now. Or do your retirement thing.
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Old 02-05-2019, 05:30 AM   #16
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N.Jenni, you are in a great situation because you have options. You are fortunate on both sides of the time vs money equation. What will you be retiring to? Make sure you are not retiring ‘from’ a relocation unless the move/position change are untenable. Sounds like to retire now would require a more conservative lifestyle - but with more retirement years. If you make one last move with the company, the years will fly by and you will increase the nest egg. You are in a great place. Search your soul and live your best life!
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Old 02-05-2019, 08:14 AM   #17
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I don't think you have enough to never work again, but you have certainly earned a break. You could downshift to a job that covers your expenses while your assets grow. Of course that's easy to say, but it isn't what I did... tough decision. But congratulations on your current financial situation- and good luck
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Old 02-05-2019, 10:24 AM   #18
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Have you considered a long vacation or sabbatical?
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Old 02-05-2019, 04:18 PM   #19
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Hi everyone. Thanks for your thoughtful replies, and thanks for all the encouragement and advice. I think what I'm hearing from everyone is:

1) I better take a very hard look at expenses. HarveyS, thanks for the hard numbers you provided. I really need to get a better handle on healthcare costs, as I estimated far lower. You spend $25k/yr for how many people/age? And you're right that the kid costs will only increase. As for tax, I excluded income tax (property tax included). But if anything changes with CA prop 13, then we're in trouble.

2) If I really want to do this, I should consider relocating. Yeah...I can see us doing that temporarily (e.g. part of year), but long-term home is in CA due to family ties. So that's not an option for me.

3) Otherwise, I should work longer while I have the high income and save another ~1-2m to give myself more cushion. Yeah - I agree.

4) Or take a break now, then go back to work. SureWhitey, thanks for sharing your story. I like the idea of doing work on-again off-again. I've already taken several long sabbaticals (6mo-1yr) throughout my career, and that's what kicked me off in the pursuit of FI in first place. I'd love to hear more of your story. What did you do in Mexico for the ~2-3 years? How did you set yourself to re-enter the workforce?

At this point, I'm still waiting to receive my severance terms. Meanwhile, I'm exploring other roles with the company. Once I get more info (should be by end of month), I can make a better decision.

If my severance is as good as I hope, then an option is to take the money and take a break. Then come back in a year and try to get back with my employer again or find another job in SV. I would be taking a risk (maybe company won't hire me back, or I can't find such a well-paying job again). But, I also feel like I'm in a very special time of life with kids so young and it would be a huge privilege to be stay at home with them, even if just for this period.

I'll keep this post updated and share how things progress...

Thanks again. This is an amazing community and I appreciate how helpful everyone is.
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Old 02-05-2019, 04:20 PM   #20
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Search your soul and live your best life!
Best advice!
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