How are we doing?

[earlybird]

Hey everybody, this is a great place, and I"m just dying to pick your brains!  Here goes:

Hubby is 52, can retire with pension and most of our health insurance premiums paid (about 70%) if he waits til age 56.  He's getting ansy to get out sooner - stress level on job.  I'm trying to get him to stay the 4 years.  I'm of no help financially, I stayed home to raise the kids.

Here's where we are financially.  when hubby gets here, I'll fine-tune the information.  Would like your thoughts on our situation and early retirement.

Income now is about 90k.
Home: mtg of 134k, value about 240k
vehicles.. 1 '98 pu, 1 '03 suv both paid off
no credit card debt
small (about 9k) loan for travel trailer which we use as second home tax deduction
health insurance paid by company
2 22' boats - no loans

we live on the water, like to boat, fish, crab, camp, travel by auto occasionally, have 3 giant dogs to maintain (read that as $$$ )

We have just over 1M stashed for retirement.  95% in stock.  And exclusively in oil stock.  The other 5% is in a fund of some sort.  We have about 700k in stock options after we cash them in and 400 or 500k in 401k.

We live paycheck to paycheck after 401k deposit of about 8 or 9%.

When we were kids, the thought of a million dollars was something we never thought was achievable... today, it's probably not enough to retire on.  And what about 20 years from now?  will we be paupers?

So.... are we able to retire in 4 years?  able to retire now?  what would you do with the money? 

Hubby thinks we could retire on 50k a year if we take some of the money to pay off the house.

We are pretty happy with the performance of our stock and would like to continue risking for a little while at least.  What do you think? 

Ask away, I probably left out something important here.....  Lin

 

[brewer12345]

Holy concentration risk, Bat Man!!!!

I don't know if I am reading this right. Do you have $1 million plus the 401k and options, or $1 million including the k and options?

One thing is for certain: you desparately need to diversify. I would sell all but 10% of the stock. What happens if oil goes to $30 again?

 

[Dawg52]

I have to agree with Brewer. No doubt the oil stock has been a big winner for you, but it's time to diversify.

 

[SteveR]

I agree too. By the way, welcome to the board.

I have some additional questions beyond what Brewer asked.

You said:
"We have just over 1M stashed for retirement. 95% in stock. And exclusively in oil stock. The other 5% is in a fund of some sort. We have about 700k in stock options after we cash them in and 400 or 500k in 401k."

What is the 401k invested in? I hope not oil stocks. Does hubby work for an oil company? If so, then his options are also in company stock and that is even more exposure to a single area and single company. Also, the options carry a pretty steep income tax hit too. If ISO then you have AMT taxes to play with. If NQ, then you have income, SS and Medicare taxes due when exercised. It all depends on what you mean by "cashing them in." Tax planning is important too; especially since most of your $$$ is in taxable accounts it would appear.

People here can help you a bit more with some additional specifics on these areas.

Again, welcome to the club!

 

[tryan]

exclusively in oil stock. The other 5% is in a fund of some sort. We have about 700k in stock options

Too many eggs in one basket ... but the good news is you can diversify at/near highs (assuming the options have matured).

 

[earlybird]

Yep, everything, 401k, options are in oil.  There are 2 oil companies involved.  One is an old company and the second one where the money was made was a newer oil company.

Kramer or is it Cramer on CNBC likes the stock and says to hold onto it for the longrun.  Now don't know if I'm opening a can of worms or not by bringing up Cramer...... 

Brewer.... yes a llittle over 1 mil total in 401k and options

Steve.. yes the 401k is invested in oil with the other little bit (5%) in some kind of fund. Hubby will have more info on that when he gets here. And when I say "after we cash them" I mean once we've paid the original purchase price the company paid for the stocks - we will have about 700k

I think just about all if not ALL of the options have matured and are cashable.

Yes, we do have all of our eggs in one basket... we are aware of that and that's where we need help.  Want to know where to move it to as we cash them.  We will definitely be taking a HUGE irs hit when we cash in the stock options.   

Anyway, if we get all the money where it's safer and not all in oil... what is your opinion of being able to retire?

Where do you suggest putting the money?

Thank you!!! for your help.

 

[SteveR]

I want to share some personal experience with having too much of your $$ in one company or in a market segment. Mine was in drug stocks. My wife and I were up to our eyeballs in 401k stock shares and stock options; both exercised and held as well as vested only. Things were going fine for the company; stock splits about every 2-3 years; good growth, nice dividends...sweet deal right?

BOOM; the company gets hit with a number of back to back legal issues at the same time the market as a whole tanks. The stock price dropped by over 40% in a week and is still well below where it was 5 years ago.

I lost a ton in my 401k---otherwise I would have ERd several years ago and not had to go back to work.

I had to short a ton of $$$ options we had bought prior to my wife's ER. We lost a ton on payment of income taxes and asset value.

Current options will all expire in the next couple of years and they are all well underwater. These would have been worth a lot of $$$ but are worthless now.


Morale of the story....don't put all your eggs in one basket...even if the basket appears to be laden with golden eggs.

As for where to put your $$$, I guess I am not the best person to tell you that....mine is in my mattress. 8)

 

[Dawg52]

Yep, everything, 401k, options are in oil.  There are 2 oil companies involved.  One is an old company and the second one where the money was made was a newer oil company.

Kramer or is it Cramer on CNBC likes the stock and says to hold onto it for the longrun.  Now don't know if I'm opening a can of worms or not by bringing up Cramer...... 

Brewer.... yes a llittle over 1 mil total in 401k and options

Steve.. yes the 401k is invested in oil with the other little bit (5%) in some kind of fund. Hubby will have more info on that when he gets here. And when I say "after we cash them" I mean once we've paid the original purchase price the company paid for the stocks - we will have about 700k

I think just about all if not ALL of the options have matured and are cashable.

Yes, we do have all of our eggs in one basket... we are aware of that and that's where we need help.  Want to know where to move it to as we cash them.  We will definitely be taking a HUGE irs hit when we cash in the stock options.   

Anyway, if we get all the money where it's safer and not all in oil... what is your opinion of being able to retire?

Where do you suggest putting the money?

Thank you!!! for your help.

Kramer does not recommend holding just one or two stocks. As wacky as he is.......he recommends money in all major sectors of the stock market. I will admit, he can be entertaining.

I would try to encourage your hubby to hang on for the health benefits. That will also give you more time to get the house paid off. Take a look at the  Vanguard Target funds. They are a good for diversification.   

 

[earlybird]

Thanks Dog! Hubby will be in soon, hopefully to read up here... well maybe I can get him to take me to dinner first... it is Friday afterall


Here's a new question. How do you go about finding the right financial advisor? And how does that work? do they get a 'piece' of every thing you make or do you pay them an hourly fee or a 'going rate'? Where do you look for in one? Again... totally naive about this.

Thanks guys!

 

[SteveR]

financial advisor

Oh My, now you have done it! You said the F word here.

 

[JohnP]

How are we doing?

I'd say you are doing extremely well - congratulations!  With a pension, taxable savings, tax deferred savings, stock options, and social security in your future you will have significantly more than your 50k living expenses - by anyone's calculations.  

Your main concern is going to be (1) how to spread this out so that you aren't paying a huge amount of taxes and (2) avoiding the high-cost financial services leaches salesmen who mascarade as financial planners.  Before you go to a neighborhood brokerage or insurance agent, consider going to a fee-only financial planner or sign up for Vanguard's retirement planners (free if you have $250k in Vanguard) for advise.  Try to avoid Variable and Fixed Annuity products from your bank, financial planner or insurance man - if you want to do them go to the low-cost Annuities from Vanguard.

Back to "How are we doing?"  Here we talk generically about a Safe Withdrawal Rate "SWR" of 4% as reasonably appropriate from your retirement savings;  this assumes that with a reasonable amount of diversified equity stocks and mutual funds mixed in with bonds, you can draw 4% of your savings each year and should be able to do that for 25-35 years or more and still beat the inflation rate.  If you tap your 2m$ for 4% you should easily have 80k per year that will increase with inflation and then you can add the pension and social security on top of that.  

I'd have to say that, for you, your income WILL be sufficient in the level of retirement you discussed.  

Best regards

JohnP

 

[wildcat]

Jim Friggin' Cramer and financial planners

Welcome and I agree with the others. No need for that much risk, esp. when you practically have one foot in the ER door. Get out of oil or scale it back significantly. Think about it. As SteveR wrote, you could be down big if the oil stocks tank. Why do it?

Now excuse me while I recover from your post mentioning Jim Cramer and financial planner Welcome.

What kind of giant dogs do you have that are $$$? Newfie or Saint?

 

[Outtahere]

Just one more horror story. A friend worked for Lucent Technologies for years, all his retirement was tied up in company stock. His children told him to diversify but he was a loyal company man and besides things were going great. Retired at 62, bought motorhome and left for FL. It went all down hill from there, lost about all his retirement nest egg and now has to work to pay the bills. Lesson learned the hard way.

Cj

 

[brewer12345]

Thanks Dog!  Hubby will be in soon, hopefully to read up here... well maybe I can get him to take me to dinner first...  it is Friday afterall 


Here's a new question.  How do you go about finding the right financial advisor?  And how does that work?  do they get a 'piece' of every thing you make or do you pay them an hourly fee or a 'going rate'?  Where do you look for in one?  Again... totally naive about this.

Thanks guys!

I think the most popular answer here is that most of us DIY. It isn't that hard, and there is a nice community of people here who will help you brainstorm if you need it.

If you really decide you want a planner for some hand-holding, you should find a fee-only planner. The arrangement is that you pay them an hourly fee for what they do for you. That's it. No commissions, percentage of assets, etc. Once you are set up, you only really need to adjust things once a year or so. You could start with the napfa.org website to track down some planners in your area and find someone who you are comfy with.

But I really think you would be better off educating yourself and DIYing.

 

[WanderALot]

Anyway, if we get all the money where it's safer and not all in oil... what is your opinion of being able to retire?

Where do you suggest putting the money?

I don't think there's any question that you need to diversify. I'm guessing that you are looking for the perfect solution for where to put the money. Why not sell the majority of the oil stocks and put it in a money market while you contemplate your decision? This would seem to be especially prudent since oil is so richly valued now. As you learn more about investing and by reading you can slowly get into the market.

 

[earlybird]

Well okay then!  Looks like we need to take care of some business huh?  We are waiting for a little while, we have had a whisper in our ear that the stock is going to split   .  We'll hang in for that and let it climb up again and then pull out.  

John P...  Would it change your opinion regarding being able to retire if I told you we have $1 mil, not $2 mil ........ you misunderstood.  Guess that would mean only $40,000 a year instead of $80?  

Quote:
What kind of giant dogs do you have that are $$$?  Newfie or Saint?  

WILDCAT!!! How did you know?   Newfies!!! THREE of them!!! Did the $$$ give you the hint you needed?

Hubby is reading now (and looking up Vanguard   )

Thanks a million !!  Will be back shortly with more questions.  

 

[Sheryl]

It was a little confusing,  I thought I read $2M at first, too.

$1M is different, obviously :

Your 4% withdrawal is then only $40,000.  The Newfies will eat that in no time 

I don't want your DH to hate me, but I'd urge him to stick it out for the healthcare.

Stay AWAY from financial planners -  ESPECIALLY people you think you know and trust - they're harder to fire later.

Start simple, like others have said. 

Decide what % you will allocate to stocks, bonds, and cash, then select a few good general funds in each.   As you learn more you can always complicate it - if you feel the need!

I have learned a LOT on this forum, and also read Yahoo finance and Motley fool stuff. (the free part).

Good luck, and welcome!

 

[wildcat]

WILDCAT!!! How did you know? Newfies!!! THREE of them!!! Did the $$$ give you the hint you needed?

The $$$ and Newfies love water (you mentioned you live on the water). Have only seen one in person. He didn't seem that big until he got out of the water

 

[Zipper]

Kill the mortgage!

 

[JohnP]

earlybird -

It doesn't change my mind with the smaller withdrawal savings amount!  Just guestimating - you still should have plenty of cushion based on your estimate of 50k for living costs with your pension and SS.  

We're sort of in the same situation - we have two pensions and live comfortably on about two-thirds of that amount - so two years after retirement we still save money while feeling our way into the future.  The first year was scary but the planning we did has actually come true!  We haven't touched our retirement accounts yet except to add to them - it's hard to break the 'live beneath your means' habit.  

I wish we had your exposure to oil stocks!  We are broadly diversified and have done well but not compared to oil!  I'd say that you should not need to move quickly to diversify but should move in that direction as is convenient;  oil stocks, especially producers, have had a good runup and I can't see them down much compared with today's highs.  

It might be easiest in terms of taxes to diversify first from the oil stocks in your 401k (once you have control of it) to alternatives, since there would be no immediate taxable events associated with the transaction.  

I'd sure think hard about sticking around to get the health care benefit - health care can be a major chunk of anyone's income.  Is it either '4 more years and then you get the HC bene' or is it 'if you go now you get 50% but 70% in 4 yrs' - would make a difference.

Best regards

JohnP

 

[template]

Looks like we need to take care of some business huh? We are waiting for a little while, we have had a whisper in our ear that the stock is going to split . We'll hang in for that and let it climb up again and then pull out.

Don't wait long. Personally, I would start diversifying now. Right now. As others have said, you've placed almost all your financial eggs in a single basket -- oil.

Move a bunch into money market funds or CDs while you explore your options.

 

[earlybird]

I can't thank all of you enough.  I am getting more comfortable with hubby's retiring in a few.

Hubby immediately looked at vanguard target.  He says they've got a history of only returning 2% or so... but it would be safe, so that's the point right?

So, paying off the house is a good idea?  And the sooner the better?  We would have to use some of our stock options to do it.  Sound ok?

We have just so many questions.  Questions we even need to ask the company.  Like... the company lets you retire at 56 but we dont' know if we get the pension starting then or at 65.   

John,  the company will put ZERO into our health insurance premiums if we leave early.  At 56 they will pay 90% of hubby's premium and 50 % of mine.... So I worked it out to 70% of the premium.  We are quite lucky in that the oil industry as a whole does NOT usually pay health insurance at all for retirees!  Disgraceful!  Also... We CAN move our 401k money into other options.  Stock in the company is only one option they give us.  We just chose it because it does so well.  We will find out what the options are and make a decision there. 

I am reading you all LOUD and CLEAR    Stay away from advisors!  I would love to do that.  Call me stingy.  I want my money!    but, I need to know a lot more, so does hubby, before we can make decisions on our own.  I will start reading.  And do it now.  We have no idea how to move the money into tax shelters, how to avoid paying huge amounts of tax, should we purchase a second home - will that help with the tax problem? Just so many questions ... but we can ask for help here.

I still want to keep the money in oil just for a little while.  We have taken a hit in the last couple of weeks, but we are waiting for a split.  I just won't move the money til it's grown a little there.  I don't think it's too risky.  We know the company well.  We know what they are doing, we know their reputation, we know their goals.  We will though, get out quick once this happens.  Someone asked what would happen if or when crude went to 30 a barrel... it just will never happen.  never again will it be 30 a barrel. 

I hope I don't end up wearing out my welcome here... I have so many questions, so much to learn.  I feel like I should have done this years ago, but ..... now is better than not at all.  We have been pretty stupid and lucky.  We put our money into the hands of the employers and let them invest for us. 

Wildcat, Cramer is very entertaining, isn't he?  Honestly, I don't understand 1/3 of what comes out of the man's mouth but he makes me smile with his ... intensity?? 

 

[AltaRed]

I still want to keep the money in oil just for a little while.  We have taken a hit in the last couple of weeks, but we are waiting for a split.  I just won't move the money til it's grown a little there.  I don't think it's too risky.  We know the company well.  We know what they are doing, we know their reputation, we know their goals.  We will though, get out quick once this happens.  Someone asked what would happen if or when crude went to 30 a barrel... it just will never happen.  never again will it be 30 a barrel. 

That is the most stunning, scary comment I've about ever heard anywhere at anytime. Same as the old "its different this time". earlybird doesn't have a clue how bad oil stocks could get hammered with a $20 drop in oil price and it is entirely possible at any time without warning. Most of the runup in oil price is trader speculation. The FUNDAMENTALS don't warrant more than $30 oil at this time as most major worldwide projects will do just fine at $30.

I am in a senior position in the oil business myself and I would never say what was just said. I've been taking profits off the top for the past 12 months.

 

[ERD50]

earlybird said: ... We are waiting for a little while, we have had a whisper in our ear that the stock is going to split . We'll hang in for that and let it climb up again and then pull out.

earlybird, you are getting some good advice here. I would just like to add a note on stock splits. Please, do not attach any significance to a split. People get excited about splits, but they mean very little. It is exactly like getting two $5 bills for a $10 bill. You still have $10.

Some people believe it indicates the stock is going to continue to rise, but the Board of Directors (who authorize the split) do not have a crystal ball either. If you doubt this (and you should question all financial advice), look at yahoo stock charts. They show splits. See if you can detect a pattern after a split. Your stock may or may not do well, but I would not count on a potential split to affect that.

Warren Buffet has not split his Berkshire fund, and it has been one of the best performers.

Good luck - keep asking questions, we can all learn from them!


-ERD50

 

[Craig]

We are quite lucky in that the oil industry as a whole does NOT usually pay health insurance at all for retirees! Disgraceful!

Throughout my entire career, I have never worked for a company that would pay health insurance for us after I retire. That's the way it is in most companies now.

I agree with our friends above ... at least sell 1/3 or 1/2 of the oil exposure, and diversify now. If you learn a hard lesson, it won't be a killer.