Business Sale and Early Retirement

[CaseInPoint]

Not to say that a few hundred thousand a year is necessarily in the category of "wealthy," but...

I’ve noticed many posts from people in their 20s dreaming of becoming wealthy retirees, as well as many posts from people in their 50s and 60s who live wisely but modestly.

While I find those discussions valuable, I was hoping to gain perspective from someone approx. in their early 40s who sold their business for a multi-million-dollar sum, and has retired on an ongoing income of a few hundred thousand per year.

I would be particularly interested to hear about the thought process on whether to retire, work part-time, or continue on to a new full-time venture, how it felt to arrive at that point in life, the ups and downs, etc.

Pretty much, any wisdom that can be shared would be most welcome.

[kevin92610]

ok, found this post after replying to your intro.

I don't have the exact situation you have but it looks like we are pretty similar. If you look up other posts made by me you will see some of the details of my background... saves me some typing.

In short, was part of an IPO, netted approx $7M, retired, used approx $3M to would generate $10K/mo paycheck for me... and invest the rest for growth (although my annual expenditures are more in the $200-300 annual range). Current net worth has grown to approx $9M (down about $1M because of this lovely market we are in).

Been at it for 6 years, it has had its ups and downs but i have loved being there for my kids.

If I can share any experiences that might help you with your decision, feel free to ask.

[CaseInPoint]

Originally Posted by kevin92610

ok, found this post after replying to your intro.

I don't have the exact situation you have but it looks like we are pretty similar. If you look up other posts made by me you will see some of the details of my background... saves me some typing.

In short, was part of an IPO, netted approx $7M, retired, used approx $3M to would generate $10K/mo paycheck for me... and invest the rest for growth (although my annual expenditures are more in the $200-300 annual range). Current net worth has grown to approx $9M (down about $1M because of this lovely market we are in).

Been at it for 6 years, it has had its ups and downs but i have loved being there for my kids.

If I can share any experiences that might help you with your decision, feel free to ask.

Hi Kevin,

Thanks very much for responding. It's a very rare situation, and it's been difficult for me to find others willing to share their experiences.

Our situations seem to be fairly similar and I look forward to reading through some more of your posts today.

Here are some questions. Please don't feel obligated to answer all of them, but these are some of the issues on my mind these days, so I figured I'd ask-

Being in the 200-300k/yr zone for expenditures (like me), it seems that the entire $9M would be needed to yield enough income to achieve those numbers after tax. Yet, you seem to have used only 1/3 to produce income. What do you do to bridge the gap?

How did you arrive at the decision to retire? Did you try taking a break and then found it was the way to go for you?

Presumably your friends/family are not retired, so they're not available to hang out during the day and at night they're too tired. Does it get boring not having too many people around?

How about in terms of being viewed as wealthier than most of your friends/family, or even wealthier than you really are?

Do you encounter resentment for being retired wealthy at a young age?

In terms of an "identity," when people meet you initially and ask what you do, do you say "retired,"? If so, is there awkwardness?

Thanks.

[CaseInPoint]

ok...

I took a look at some of your posts, and can see you've answered some of these questions already. The information was useful. Thanks.

I'd also be interested to hear some of your thoughts about your own next move, and will try to share some suggestions as well.

[kevin92610]

How did i arrive at the decision to retire... I was on a burnout career path in High-Tech industry, way too many hours at work not enough with my family. Once I obtained my financial independence I started to work on finding "balance". Working less, taking a day off a week to teach classes at my kid's school (ran their computer lab). After about 6 months decided to go for a leave of absence to see if I could handle it... loved the time with my kids, family, and at the gym so I never came back.

RE: FRIENDS/FAMILY: It was awkward at first. Most of my close friends knew what I had done and really didn't treat me any differently... except to rib me from time to time about how hard I worked at walking my dog :-). I actually met with my friends for lunch more after I retired (my time was more flexible). By working at the schools I also made new friends with some of the teachers/administrators (especially at the elementary school level.

RE: PERCEPTION BY OTHERS: I really didn't live any differently after I retired than before and being from the LA area buying a new car really didn't set me apart. The only real difference was that I didn't have a loan on anything. It feels really nice not to have a mortgage!!

I can't say I experienced any resentment... occasional envy. When you meet new people and tell them you are retired it can be a conversation stopper... they just don't know where to go from there. Sometimes I just told people I was an Investor, which is true and also very boring so most people just move on to the next topic.

Some other thoughts: Although I don't regret my move to retire for a moment, I will tell you it was not all easy. The first few months are a walk in the park, however, the first year of transition was probably the most challenging.

Some challenges I have encountered:

- My wife was a stay at home mom, so there was an adjustment period. She wasn't used to me being around all the time and I had to learn not to intrude on her time with her girlfriends (especially since I was seeing them as much by volunteering at the school and picking up the kids, as she was). One thing that really helped was when I really stepped in with the household chores (cooking, cleaning, laundry, etc).

- I wanted to help out at my kids schools (as I am sure you are aware all of the schools in CA are tremendously underfunded). I built two computer labs, a weight-room, and refurbished a gym. However, I did not want anyone knowing that I paid for the work (especially my kids). I found by working with the key administrators I was able do all of this with only 1 or 2 people knowing my real involvement.

- I did find that the days when I wasn't at the school could get kind of long and boring, however, I solved that problem by focusing on my fitness. I started going to the gym after the kids went to school and by the time I got done working out, recovering from my work out and getting cleaned up, it was pretty much lunch time and then my kids were out of school in 2 hours and that took care of the rest of my day/evening :-)

- As you probably saw in one of my other posts. I left CA about a year ago to improve our quality of life. This first year has been a bit more challenging since I don't have the established friendships and my kids are now older (middle school, high school and college). If you and your wife have any ideas of leaving the LA area I would strongly recommend doing it before they leave elementary school.... The parent involvement is so much more at that level and it makes it much easier to meet people. Once you hit middle school and especially high school parents are kept much more at arms length and meeting other parents gets much harder.

HOW DID I MAKE THE NUMBERS WORK: I will admit to not being as financially savy as most of the people I have seen on this forum. So this was my process:

- I found an accountant I was very comfortable with... he was a referral from a friend and I worked with him before I was FI. I went to him to get a referral for a financial adviser (he is what I would term a "value investor"). We set up two main accounts (1) for income generation (2) for growth. My target for living expenses was $10K/mo from the income account (after taxes). So I pay all my bills, and taxes from the income account. Then for vacations, 2nd homes, home improvements, big ticket items, etc., I pull from excess in the income account and then from the growth account. I found that with the exception of this year I was typically netting 5-6%, after taxes on the dividends in the income account plus, since I wasn't just invested in bonds I was able to realize some equity gains on this account as well. My income account is a little riskier than a typical retirement account but I am young enough that I can afford the risk and I have the growth account to fall back on if times get tough for a few years.

Hope that helps some.

[CaseInPoint]

Hi Kevin,

This is excellent information, and I'm really grateful to you for sharing your experience. There are so few people in your position who've lived to tell the tale.

It feels really nice not to have a mortgage!!

Definitely. Makes sense financially, too. I've personally held off on doing that, even though I can at any time, because I'm not sure I want to stay in my current house. With the home prices plunging here in SoCal, it's tempting to make a move.

Sometimes I just told people I was an Investor, which is true and also very boring so most people just move on to the next topic.

Right. I'll probably do that. There are a lot of downsides to telling people you're retired in your 40s.

as I am sure you are aware all of the schools in CA are tremendously underfunded

Yes, it's the same thing even in private schools. $16k tuition/child apparently doesn't go all that far, and we're constantly besieged by the school to donate thousands more each year.

I left CA about a year ago to improve our quality of life.

Gotta admit, that's a little surprising. Having lived in NY and FL, I find CA to be a pretty decent place to live and raise a family.

If you and your wife have any ideas of leaving the LA area I would strongly recommend doing it before they leave elementary school.... The parent involvement is so much more at that level and it makes it much easier to meet people.

Right.

I will admit to not being as financially savy as most of the people I have seen on this forum.

I'm new here, but living a good life and not chipping away at your principle would make you a very savvy guy indeed.

My income account is a little riskier than a typical retirement account

May I ask, in general terms, what type of account would you recommend for income? And how often have you made changes to your portfolio or investment strategy?

Again, thanks very much for sharing this.

[kevin92610]

Not too sure what you mean by what type of account? I don't really track my investments that aggressively. I have built up a trust in my financial adviser over the last 6 years and we work together to agree on a fundamental strategy each year and he executes it. However, I try to stay out of telling him exactly what to do. I can tell you that right now I hold essentially no bonds or REITs (which used to be my core income producing holdings). My income fund is currently made up of Blue Chip stocks that are paying decent dividends, various income producing trusts and some oil and gas trusts.

The one thing you will find is that with the higher net-worth you really are in a position now that you can create your own mutual fund which also can help you from a tax perspective because you can control the turnover in your portfolio a bit more than with a mutual fund which is helpful with your end of year tax planning. I can also tell you that as soon as it looks like the REIT market is ready to cycle again, I will be all over that. With a value based approach to REITs you can make an incredible "income" return when they are paying good dividends even though they are only partially tax deferred and the equity appreciation is a nice bonus.

One other thought.... College education. When I first started out I was convinced that I should set aside a fixed amount of money in one of the tax deferred college fund programs. I was successfully talked out of this approach and I am happy I followed it. I didn't really stop to think at the time but because of my good fortune, college expense really isn't a significant impact.

If you have other questions, feel free to ask. I am no expert but I am happy to share what I have done so that you at least have a frame of reference... and I am sure there are others that help as well.