flotsamandjetsam
Recycles dryer sheets
Ok, I’m exaggerating a little. I've been reading and learning here since 2007. I want to start by thanking you all for the many intelligent and entertaining threads. I have learned so much about financing and living early retirement. I have been quiet because anything I have to contribute to a particular topic is usually said more eloquently by someone else before I can get my oar in the water.
I would like to retire soon but I am trapped by my work situation. With your advice, maybe I can cut this Gordian Knot.
I and DW are age 52. FI for a few years now through LBYM and steady saving. Most of my career has been as an engineer with megacorp. Ten years ago I decided to spice things up a little and throw off the comfort of corporate life to go to work for a newly formed startup technology company. I worked for equity for the first few lean years while we developed and marketed our technology. I built up a 15% ownership position before drawing a regular salary. Now, a few years later, the company is very successful. We have about 20 employees and sales are strong, about $14M per year, and growing. Earnings are strong, too, and the company has started to return profits to the shareholders. My startup adventure has been enjoyable and is also becoming financially rewarding.
Meanwhile, DW has worked for government for a little over 20 years. Her job security has enabled my startup adventure. We also have our health insurance through her employer. Some days her work is interesting and satisfying and some days she is frustrated by bureaucratic inefficiency. She went to a reduced work week when our son was born 19 years ago and has never gone back to full time. She is in FERS and will become eligible for a small pension and continued health insurance in a few years (reduced, of course, by the number of years prior to 62 if she retires early).
Financially, we are in good shape for retirement. Having set aside funds for our son's college expenses, we can live our current lifestyle at a 3% SWR (not including the startup stock). That's because we have modest appetites for most things and have lived below our means our whole careers. DW and I are on the same financial wavelength. We became FI years ago by saving about 50% of our after-tax income.
My problem is too much of a good thing. I would like to extricate my financial interest from the very profitable but risky business that I sweat-equitied my way into. I cannot sell my stock except to the majority owner (CEO). He is not interested in buying it at any reasonable price. The company is an S-corporation and the profits are passed (on paper) as ordinary income to the shareholders. This is causing us enormous tax liabilities. The company is making distributions sufficient to cover our large federal and state tax payments. In the last couple of years I have received distributions in excess of taxes to the extent that I have now recouped my sweat-equity investment. Going forward, the excess distributions are gravy.
First question: In general terms, how should I compensate for this high risk/high reward investment in our portfolio? We are about 70/30 now, not including my stock in this company. The value of my piece of the company is roughly equal to the rest our investments, combined. I could move to more bonds to balance things out, but this doesn't seem like a good time to buy bonds.
The second question is one of oversight: I feel like I need to be there to keep an eye on things. If I retire, I will lose access to information. I trust the majority owner to operate the business well but he doesn't always have the interests of all the shareholders in mind. I guess I could schedule regular visits to the company offices, maybe once per quarter, to review the financials and chat with the CEO. I have to be sure they cover our estimated taxes each quarter. So far, they have not squeezed me on taxes, but it could happen if relations sour.
Third question: Any ideas on how to persuade the CEO to redeem my stock? More than a year ago we had some discussions in that direction but it came to nothing. I have offered financing, contingencies, partial sale, etc. It seems that only a very low price would be attractive. I think I have a realistic idea of what my stock is worth, including discounts, but that is moot if there is no buyer. The majority owner may be worried that if he buys me out I am more likely to move on. I hope that some day the company will be acquired but I am not holding my breath. There is no exit strategy or even a business plan.
Thanks for listening. Now that I'm out, I will try to participate more.
I would like to retire soon but I am trapped by my work situation. With your advice, maybe I can cut this Gordian Knot.
I and DW are age 52. FI for a few years now through LBYM and steady saving. Most of my career has been as an engineer with megacorp. Ten years ago I decided to spice things up a little and throw off the comfort of corporate life to go to work for a newly formed startup technology company. I worked for equity for the first few lean years while we developed and marketed our technology. I built up a 15% ownership position before drawing a regular salary. Now, a few years later, the company is very successful. We have about 20 employees and sales are strong, about $14M per year, and growing. Earnings are strong, too, and the company has started to return profits to the shareholders. My startup adventure has been enjoyable and is also becoming financially rewarding.
Meanwhile, DW has worked for government for a little over 20 years. Her job security has enabled my startup adventure. We also have our health insurance through her employer. Some days her work is interesting and satisfying and some days she is frustrated by bureaucratic inefficiency. She went to a reduced work week when our son was born 19 years ago and has never gone back to full time. She is in FERS and will become eligible for a small pension and continued health insurance in a few years (reduced, of course, by the number of years prior to 62 if she retires early).
Financially, we are in good shape for retirement. Having set aside funds for our son's college expenses, we can live our current lifestyle at a 3% SWR (not including the startup stock). That's because we have modest appetites for most things and have lived below our means our whole careers. DW and I are on the same financial wavelength. We became FI years ago by saving about 50% of our after-tax income.
My problem is too much of a good thing. I would like to extricate my financial interest from the very profitable but risky business that I sweat-equitied my way into. I cannot sell my stock except to the majority owner (CEO). He is not interested in buying it at any reasonable price. The company is an S-corporation and the profits are passed (on paper) as ordinary income to the shareholders. This is causing us enormous tax liabilities. The company is making distributions sufficient to cover our large federal and state tax payments. In the last couple of years I have received distributions in excess of taxes to the extent that I have now recouped my sweat-equity investment. Going forward, the excess distributions are gravy.
First question: In general terms, how should I compensate for this high risk/high reward investment in our portfolio? We are about 70/30 now, not including my stock in this company. The value of my piece of the company is roughly equal to the rest our investments, combined. I could move to more bonds to balance things out, but this doesn't seem like a good time to buy bonds.
The second question is one of oversight: I feel like I need to be there to keep an eye on things. If I retire, I will lose access to information. I trust the majority owner to operate the business well but he doesn't always have the interests of all the shareholders in mind. I guess I could schedule regular visits to the company offices, maybe once per quarter, to review the financials and chat with the CEO. I have to be sure they cover our estimated taxes each quarter. So far, they have not squeezed me on taxes, but it could happen if relations sour.
Third question: Any ideas on how to persuade the CEO to redeem my stock? More than a year ago we had some discussions in that direction but it came to nothing. I have offered financing, contingencies, partial sale, etc. It seems that only a very low price would be attractive. I think I have a realistic idea of what my stock is worth, including discounts, but that is moot if there is no buyer. The majority owner may be worried that if he buys me out I am more likely to move on. I hope that some day the company will be acquired but I am not holding my breath. There is no exit strategy or even a business plan.
Thanks for listening. Now that I'm out, I will try to participate more.