36yr old FIRE dreamer seeking help... Can a small business person pull it off?

[churchill]

I agree with clifp, since you own your own company, you could consider just taking the taxable account and paying down the business debt after you pay down your mortgage (or refinance it). You signed as a loan guarantor, so your business debt at this stage should also be understood as personal debt--and your business should be understood as a taxable investment that is hopefully generating a reasonable rate of return.

Don't touch your emergency fund, since someday you may have to make payroll come of your own pocket (or earn $0 some years) to keep good employees around during unforeseen cash flow issues.

Since you have employees, set up a 401k. Do yourself and them a favor. It's not expensive--unless you are too generous with the match, but at least it decreases payroll taxes. There are many options out there that just charge flat fees for record-keeping.

[Tork]

Quote:

Originally Posted by churchill I agree with clifp, since you own your own company, you could consider just taking the taxable account and paying down the business debt after you pay down your mortgage (or refinance it). You signed as a loan guarantor, so your business debt at this stage should also be understood as personal debt--and your business should be understood as a taxable investment that is hopefully generating a reasonable rate of return. Don't touch your emergency fund, since someday you may have to make payroll come of your own pocket (or earn $0 some years) to keep good employees around during unforeseen cash flow issues. Since you have employees, set up a 401k. Do yourself and them a favor. It's not expensive--unless you are too generous with the match, but at least it decreases payroll taxes. There are many options out there that just charge flat fees for record-keeping.

I would love to know of a company to set up my 401k that charges a true flat fee and not a percentage of assets managed. So far the least expensive I have found is 3800 a year plus 0.38% of assets managed.


Thanks to everyone that has helped!! It definitely adds to confidence/determination to have posted here....

[REattempt]

You can set it up so the participants pay the fee.


Sent from my iPhone using Early Retirement Forum

[daylatedollarshort]

Quote:

Originally Posted by Tork I would love to know of a company to set up my 401k that charges a true flat fee and not a percentage of assets managed. So far the least expensive I have found is 3800 a year plus 0.38% of assets managed. Thanks to everyone that has helped!! It definitely adds to confidence/determination to have posted here....

I have a local benefits company do our plan (safe harbor) for a flat fee and we have the money invested as a non-prototype plan with Fidelity. Technically there is no fee, but some investments like their broker CDs are not the best rates. But we can buy TIPS for our plan and there is no charge.

[churchill]

Tork, I was mistaken. Our Vanguard/Ascensus plan does have a asset management fee in the range you found. Fees go down as assets increase. I have it set so our company pays the fees rather than the employee, because as a business we can write off that expense--and because as a member of the plan such fees eat into my own 401k savings. I'd much rather that come out of the company bottom line for a few decades than my own.

Make sure you get a Fiduciary bond from your insurer, just in case there are any errors with administration. They're cheap.

[Tork]

An update

I am getting my mortgage refinanced to a lower rate which will help some and also getting the business refinanced to get my personal CD released!! Woohoo!

To those that have asked why I haven't paid the mortgage or more of the business debt off, I paid over 125K extra down on it last year and this year I have decided to add to my reserves. Part of it is the thought of how long it would take to build back up my reserves if I depleted them to pay of my debt, the other part has to do with how my wife views things and our/her spending habits. But believe me I have been paying it down a lot recently, just can't bring myself to strike a check for the entire amount an deplete my reserves to almost 0.

[samclem]

Quote:

Originally Posted by Tork But believe me I have been paying it down a lot recently, just can't bring myself to strike a check for the entire amount an deplete my reserves to almost 0.

FWIW, I think that's probably very smart. Liquidity is worth a lot. It's always easy to convert cash>>equity, but going the other way can be costly/cumbersome if conditions unexpectedly turn against you.

[Tork]

Quote:

Originally Posted by samclem FWIW, I think that's probably very smart. Liquidity is worth a lot. It's always easy to convert cash>>equity, but going the other way can be costly/cumbersome if conditions unexpectedly turn against you.

My thoughts exactly! And cash would allow me to take advantage of a business/personal opportunity should one come along... thats my thought anyway

[churchill]

Cash is king. I understand the desire to keep cash around, but continuing to pay down your business debt is probably the best business opportunity you have right now. Get the debt off the balance sheet in the next few years and any potential buyers in a decade who will be looking at a few years of financial statements will be all the more comforted that you appear to have a very healthy operation. Once the bulk of that debt is off the balance sheet you can then also have a line of credit instead of such a large emergency fund, as Del Q says he has done.

Since you said you're getting your business loan refinanced, check to see what the prepayment penalties are (as they will likely exist), because that might make you reconsider refinancing it.

Just get all those investment accounts out of money markets. And, as a few people suggested, get yourself a high deductible HSA compatible health plan so you can use the HSA account as an IRA. Clearly you could pay deductible costs out of pocket just fine.

[Tork]

Quote:

Originally Posted by churchill Cash is king. I understand the desire to keep cash around, but continuing to pay down your business debt is probably the best business opportunity you have right now. Get the debt off the balance sheet in the next few years and any potential buyers in a decade who will be looking at a few years of financial statements will be all the more comforted that you appear to have a very healthy operation. Once the bulk of that debt is off the balance sheet you can then also have a line of credit instead of such a large emergency fund, as Del Q says he has done. Since you said you're getting your business loan refinanced, check to see what the prepayment penalties are (as they will likely exist), because that might make you reconsider refinancing it. Just get all those investment accounts out of money markets. And, as a few people suggested, get yourself a high deductible HSA compatible health plan so you can use the HSA account as an IRA. Clearly you could pay deductible costs out of pocket just fine.

Right now we have classic medical insurance and it is eating us alive...more than 2K a month for the 3 of us (all healthy no preexisting conditions). How/where would I begin my search for a HSA?? How high of a deductible should I go with??

[churchill]

ehealthinsurance.com is a popular source, but you can also look into the health care exchanges set up in your state under the ACA. You won't quality for subsidies, but you can still get a plan through it, should you be interested. Just set the check boxes on any of the search sites to an HSA compatible plan, and set the deductible for as high as you're comfortable while also that has a break-even with what you'd co-pay in a year. Since you're healthy, you probably don't co-pay much. The biggest issue with policies is usually co-insurance and availability of in-network providers. If you're happy with your present carrier, and have had enough interaction with them upon which to base that satisfaction, find an HSA policy with them rather than increasing the number of surprises you'll encounter with another company.

[samclem]

Quote:

Originally Posted by Tork Right now we have classic medical insurance and it is eating us alive...more than 2K a month for the 3 of us (all healthy no preexisting conditions). How/where would I begin my search for a HSA?? How high of a deductible should I go with??

Another option to consider: Skip the company-provided health insurance altogether. If you have fewer than 50 full-time employees, you wouldn't pay a penalty for not providing it. More importantly, lower-paid workers might do >better< by getting all the juicy government subsidies (premium subsidies and cost-sharing for actual expenses) than if you'd provided a "meets the requirements" policy as their employer. Give them an explicit pay raise for the amount (or some portion of the amount) that insurance would have cost you and show them how this is to their benefit and you should have some happy employees and you'll save money as well.
Probably not a good answer for your 3-person outfit of well-compensated employees, but a definite consideration if you grow and for other small employers with low-wage workers.

[Tork]

Quote:

Originally Posted by samclem Another option to consider: Skip the company-provided health insurance altogether. If you have fewer than 50 full-time employees, you wouldn't pay a penalty for not providing it. More importantly, lower-paid workers might do >better< by getting all the juicy government subsidies (premium subsidies and cost-sharing for actual expenses) than if you'd provided a "meets the requirements" policy as their employer. Give them an explicit pay raise for the amount (or some portion of the amount) that insurance would have cost you and show them how this is to their benefit and you should have some happy employees and you'll save money as well. Probably not a good answer for your 3-person outfit of well-compensated employees, but a definite consideration if you grow and for other small employers with low-wage workers.

I am sorry I was not clear. When I said the 3 of us I meant my family (me, wife and child). I do not provide insurance for employees.

[pb4uski]

Quote:

Originally Posted by Tork Right now we have classic medical insurance and it is eating us alive...more than 2K a month for the 3 of us (all healthy no preexisting conditions). How/where would I begin my search for a HSA?? How high of a deductible should I go with??

Given your resources and all healthy, I would go with a bronze level policy. That will be the cheapest premium too. Since you're healthy, the purpose of health insurance is principally to get access to negotiated rates for medical services (which are typically 1/2 of the regular "rack" rate) and protect your finances from an expensive accident or illness.

If the worst happens, you can afford a $12k family deductible.

[churchill]

Kiplinger's September 2014 issue might have some worthwhile suggestions. You can probably get it through you public library for free if they have a partnership with Zinio.

The one benefit of offering insurance through your company is that it's a pre-tax benefit, so you could cut down on payroll. However, employees who are low wage or who have large families might benefit from a subsidy, as samclem said.

The monthly savings between a $4,000 deductible and a $10,000 might not be enough to justify. Self-insuring with high deductibles always reaches of a point of diminishing returns if you don't calculate your expenses properly. If you plan on having more children then you might not want to self-insure too much until later.

[churchill]

I haven't done a formal introduction yet, so just to say where I'm coming from: I'm 28 and I have a net worth significantlylower than yours (laughably so). In the last two years I took over running the operations of a century-old, thirty-person business, but have no ownership stake.

[Tork]

Any update now almost 18 months later... My wife and I are still dedicated to trying to live differently now so that we can live differently later. We have been saving a lot. The biggest change this year has been added savings but we also bought a piece of property so we added some debt. On the positive side I finally got the courage to put my money into the market in index funds and that has been good.

Below is the update:
38 With a 2 year old

Both Self Employed live in rural Southern US

Last year our income was around 300K but we lived on about 120K (should be less this year...Remodeled and purchased a used car last year) This years spending was about the same but income was up so savings went up too.

Considering a 401K but can't find a good low fee (yearly) option to get one set up. STILL NO 401K in weighing the costs my advisor (fee only, not asset based) says that the cost of setting up 401K is not worth it?

Personal Savings (Wife's Included)
45K Emergency Fund (sitting in bank not gaining any interest (ugh))... Advice?
930K in a Taxable Schwabb Account
75K in his/hers Roth Schwabb Accounts
12K in a Vanguard SIMPLE IRA from 2014 (Sitting in VG Money Market)

Personal Debt
93,000 Mortgage at %4.12
NEW 145K at %4.7

Business Debt
401K at 3.45% but business has significantly more value than 475K so I tend to think of this as a wash. Got it refinanced since last check in.

[Hermit]

Hi Tork,

Sounds like you are moving down the FIRE path at a speedy rate! In your area of the country you can probably live very comfortably on your current spending. Don't forget to spend lots of dedicated time with your family. The little ones don't stay little very long.

[Tork]

Quote:

Originally Posted by Hermit Hi Tork, Sounds like you are moving down the FIRE path at a speedy rate! In your area of the country you can probably live very comfortably on your current spending. Don't forget to spend lots of dedicated time with your family. The little ones don't stay little very long.

Thank you for the reminder! I cherish every minute with our little guy. You are right we do live very comfortably on our spending.We are certainly not penny pinching just been aware of what we spend. Our hope is that I will be able to hang it up about the same time that he leaves home for college. Of course who knows how it will all work out... . Thanks again for the word of encouragement and support.