Had enough of being the boss, but...

[bigcmagor]

Daily lurker here and looking for some advice for my complex situation. Always hoped to retire by age 55 and that time has arrived (I'll be 56 this fall and DW is 56 now). The financial crisis took quite a bite out of my plans - in part because I've been jumping in and out of the market ever since after losing 50% of my 401k balance and a third of my net worth during those years. I'm not in the market today, I know I will need to be and seek the perseverance to stay in when it goes south.

My job is managing a family business (and I'm not family) that I have been instrumental in growing from nothing 35 years ago to a $100+ million annual sales company. Managing the company through the financial crisis sucked out my life energy. I have recently given up daily control of the company. At the moment, I am still CEO but only in the office 10-15 hours per week and the company president is my only report, although I am always available and expected to oversee the company's financial performance. With approval from the family, I am able to spend my winters in Florida where we own a home. Because of my stepping back, I am out of the bonus pool but still enjoy a $150,000 salary.

We have accumulated $1 million in company stock that has a $1.25 million basis (sub chapter S benefit, plus significant formula undervaluation). We also have $825k in the retirement plan of which $125k in in Roth funds. At year end, we also have $150k in cash on hand, so a nice round $2 million to invest with a $250k capital loss to consume.

The homes are worth $350k (Florida) and $300k (Indiana) and are both owned outright. We also have a yacht we keep on lake Michigan worth $80k including the slip.

Total expenses are currently running $100K per year and I anticipate this jumping up to $120k with retiree health insurance added in. Interestingly, each home and the yacht are running $12k per year to own, aside from recent large outlays connected to each that were intended to get the big hits out of the way prior to retirement.

I have maxed social security out for 32 of 35 years while the DW has stayed home to raise three great kids who are now all college educated and independent. I expect $32k combined social security if we both claim at 62 and about $55k annually if we both defer to 70.

One more tidbit is my parents. They are currently 78 and soon to be 81. Their pictures come up when googling "frugal". As a result of their choices, they have amassed a $7.5 million net worth, comprised of $2mm in laddered cd's, a $500K house and $5mm in highly appreciated stock and mutual funds. My brother and I are sole heirs to their trusts. I know they are close to needing much more help with day to day activities to maintain their independence. My brother already dedicates one day per week at their home helping out.

The dilemma;

I know I have a great gig at work, however, after building something from nothing I don't want my legacy to be the guy who retired on the job and milked the cow until it keeled over or was finally just asked to leave.

If I retire at year end, I will have to draw 6% from the initial portfolio at least until I reach 62 and can start social security, so 6 years. The health insurance load will also drop significantly at 65, but that is 9 years off.

I can make the numbers work by unloading the yacht and the Florida house, although northern Indiana winters are likely to drive me to therapy if I don't have the snowbird option. I can't unload the Indiana house until my folks no longer need me. We eventually plan to domicile in Florida.

I can also walk away today without much concern for the financial ramifications if I consider what I am likely to inherit, but that seems morbid. Fact is, however unlikely, I would prefer to leave this world before my folks so I am spared that grief.

The bottom line is that I am dog-assed tired, vocationally spent and ready to not be where the buck stops at work. I've been advised never to count on an inheritance, but it seems I have to in order to bag it at this point without reducing expenses (by selling assets) to a level that can be maintained with my current net worth.

I'm feeling as though it's time to turn the page but realize I'm sticking my neck out if I don't downshift the lifestyle and there is no eventual inheritance. What would others do in my shoes?

Also, thanks for reading my book!

 

[Walt34]

Although I suppose it is very unlikely that your parents would spend down $7.5 million, things can and often do change. There may be a "falling out" in their later years or they may decide to leave it all to a charity or something. So yes, counting on an inheritance is not a good idea.

If you haven't already seen it, here are some questions that you'll want to have solid answers to: http://www.early-retirement.org/for...re-asking-can-i-retire-69999.html#post1399715

 

[Whisper66]

I'm your shoes, I'd retire. Down shift life style in whatever way needed to get by without inheritance. If I got inheritance, I'd up shift then.

 

[Aerides]

Welcome, good book!

Some initial thoughts:

Most here will tell you not to factor any inheritance into your plans, no matter how obvious it seems. What if they both need long term care and live in homes for a decade? That 7.5 could burn up quite quickly, or they could live to be 100. You just never know. Don't retire unless you can do it if they leave you nothing.

In the meantime were I you, I'd look to get to an asset allocation you are comfortable with. Where is your 401k invested? And the 1.2M in company stock - that's 60% of your assets in one place so I'd look at that right now to diversify.

You might want to look for a Fin Adv for an in depth consult to get you started at least. Look also at the Lazy Bogle portfolios for ideas on how most get started with low fee index funds. 2M in cash and CD's and the like will not work for anyone.

Our plan allows us to ride out market downturns by keeping 3 years of expenses in cash equiv - and a HELOC on tap if needed (get that before you retire). That way we ride out any (reasonable) storm without drawing down on assets that are collapsing.

Selling the FL house for now might make good sense, adds more than 15% to your egg, and reduces property taxes and maintenance. Budget for a couple of vacations for the short term. Maybe 5 years from now find another property, maybe a condo for winters instead?

 

[Luck_Club]

I think you have it in the bag. At 10 to 15 hours a week, you have a hobby not a job, and it pays $150K!

In all seriousness. You probably could swing it with a very minor reduction in spending, if you had to officially call it quits.

I'm very close in age and I'm floating trial balloons with friends and realize I will have to disguise the early departure to allow them to save face. So maybe revel in the hobby, with more extended absences.

 

[LiveBelowMeans]

Was in a similar situation steering a company thru the recession. It took a lot out of me also and I retired 2 years ago at 53. Not sure what your relationship is with the company family, but I would try to negotiate a payout over the next 10 years. You get X dollars per year and in exchange you would provide guidance/advice, etc. Seems like they owe you something, having grown the company from nothing to $100+million/year. They must be happy. If you could get $20 or $30k per year, it would go along way to improve the financials. I would keep Florida but unload the boat and save $12K/year also. JMHO

 

[socca]

What's the market like for your company stock? My S-corp stock can only be sold to other family members.

 

[bigcmagor]

What's the market like for your company stock? My S-corp stock can only be sold to other family members.

The stock can be bought or sold by a discounted book valuation annually. The company is also required to purchase the stock back upon termination based on the most recent year end valuation.

 

[FlaGator]

Since you asked.....
1. Sell the boat up north
2. Transfer your residence to FL (6months +1 day in-state, as I understand it). resign yourself to going back and forth as needed and eat the cost.
3. Hold on to the IN house until the situation with the parents becomes more clear
4. Buy another boat in FL when you have the time and clarity of mind to enjoy it

 

[evilanne]

Since you asked.....
1. Sell the boat up north
2. Transfer your residence to FL (6months +1 day in-state, as I understand it). resign yourself to going back and forth as needed and eat the cost.
3. Hold on to the IN house until the situation with the parents becomes more clear
4. Buy another boat in FL when you have the time and clarity of mind to enjoy it

+1 You could also consider selling IN home or downsizing to smaller home in the area if you really need a separate place to stay. But if you are going to assist your parents, seems like staying with them or your brother would make more sense.

 

[donheff]

Since you asked.....
1. Sell the boat up north
2. Transfer your residence to FL (6months +1 day in-state, as I understand it). resign yourself to going back and forth as needed and eat the cost.
3. Hold on to the IN house until the situation with the parents becomes more clear
4. Buy another boat in FL when you have the time and clarity of mind to enjoy it

Enjoyed the "book," but I would be torn too if I were in your shoes. I would never be comfortable counting on an inheritance unless I had at least a marginal plan B to sustain myself. I would probably go with something like the above and if things got a little dicey I would dump the FL house.

The most important thing is to get your assets into a well diversified AA that you can live with and then HTFU so you don't panic and pull out of the market at the wrong time. Good luck.

 

[Luck_Club]

Total expenses are currently running $100K per year and I anticipate this jumping up to $120k with retiree health insurance added in. Interestingly, each home and the yacht are running $12k per year to own, aside from recent large outlays connected to each that were intended to get the big hits out of the way prior to retirement.

The stuff owns you, not the other way around.

You are dropping $36K a year on 3 residences. Eating up 36% of your $100K. If you lived aboard the yacht for the 3 months, or stayed with relatives during boating season up North, you are 1/2 way to the increase spending.

Again I go back to your "hobby" that consumes less time than most people dedicate to a hobby. And you get $150K a year to pad the account. It also sounds like the owners are willing to accommodate a slowdown schedule with winters in Florida. You don't mention wanting to travel overseas 3 months at a time, or travel more than you can get away with, which would change things.

For me my desire is to spend 3 months at a wack in different locations around the world, which will make it hard to work my "hobby" even though I own my own business and work from home with little supervision. If it was just winters in Florida I could do it till I died. Darn bucket list.

 

[bigcmagor]

The stuff owns you, not the other way around.

Afraid I have to concede that point.

 

[socca]

The stock can be bought or sold by a discounted book valuation annually. The company is also required to purchase the stock back upon termination based on the most recent year end valuation.

So the company CFO is standing by ready to write you a check for $1M when you head out the door? Not bad! I'm glad that my family's S-Corp doesn't have an easy cash-out option for shareholders - managing cash flow would be trickier, especially since some of them aren't financially responsible and would likely make large annual demands on the company.

 

[pb4uski]

I would give the CEO role a bit more time before mak a decision.

If you still want out could you downshift further to serve on the board at, say, $30k year? That would reduce your WR to a more palatable 4.5% and it will go down even more when you factor in SS.

And if the inheritance happens, you've got it made in the shade.

 

[MBAustin]

I would give the CEO role a bit more time before mak a decision.

If you still want out could you downshift further to serve on the board at, say, $30k year? That would reduce your WR to a more palatable 4.5% and it will go down even more when you factor in SS.

+1. I don't think you are "milking" the company if you stay on in the CEO role for another year or two to support/oversee current management, and then transitioning to an even-more-PT advisory role such as a board member would make a lot of sense for everyone.

I also agree that spending some of your newly available time and energy on seriously evaluating your "stuff" (in conjunction with your DW, of course) would be very helpful on several levels.

 

[Texas Proud]

I know you said you were in and out of the market lately, but it does seem like you were not saving enough when you were making what I would think would be much more money...


I would ask what your S corp shares earn? IOW, you do not have to take a salary if the S Corp is throwing off some big divis... If they are good, then why sell your shares? (except for it being a huge part of your NW)....

Also, who does the valuation? The S corp I own a small piece of had a buy out clause, but the formula was pretty bad... in good years it way undervalued the shares and in bad it was way over... they changed it so you did not have to sell back.... this was also because they had no 'net worth' to do so ....


Like others have said, I would sell the boat... it is the least utilized 'residence' and would save $12K off the bat...

I would determine what I wanted to live permanently... if FL, then I would look at getting a condo or some other small place that did not require much upkeep up north and sell the house... would probably cut that cost in half for another $6K in savings....


Now, if this is a family S corp, why can they not keep you on the 'payroll' enough for you to get insurance? If you do not want to milk it, just enough salary to pay for the insurance....

 

[OddGuy]

Wow, I knew this was a financially conservative group, but this takes the cake.

You're a millionaire, you have 2 paid for houses and a yacht. You have an inheritance of several million more coming your way.

What advice to do you get? "Sell the boat!"

Everyone says to utterly disregard inheritance. True, that could disappear. By the same token, the Dow and NASDAQ could crash as well, and it could be worse than we've ever seen in history. "FireCALC shows 99.4% chance of success." Well, what about that .6%? Better not retire!

Life has a degree of risk, and it also has certain rewards. I say you are in a great position to enjoy the rewards you have amassed. You may choose to worry, or you may choose to recalculate your position with each passing year (or month! Only takes a short time to run numbers) and go with the flow.

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[bigcmagor]

I know you said you were in and out of the market lately, but it does seem like you were not saving enough when you were making what I would think would be much more money...

Guilty as charged. Putting three kids through private schools and state universities knocked a half mil off the top. No regrets here though. Our lifestyle has always been better than it should have I suppose. Always tried to find the balance between over accumulating and having regrets with postponing life experiences to do so.

I would ask what your S corp shares earn? IOW, you do not have to take a salary if the S Corp is throwing off some big divis... If they are good, then why sell your shares? (except for it being a huge part of your NW)....

The shares have been paying a 5% dividend and gaining about 8% per year above that. Because of the below book value formula, the gains and dividends end up being tax free - unless the company is sold. It would sell for 2 to 3 times book value, but this is not my call. I would have a very significant capital gain and all financial concerns would be satisfied in that event.

Also, who does the valuation? The S corp I own a small piece of had a buy out clause, but the formula was pretty bad... in good years it way undervalued the shares and in bad it was way over... they changed it so you did not have to sell back.... this was also because they had no 'net worth' to do so ....


Like others have said, I would sell the boat... it is the least utilized 'residence' and would save $12K off the bat...

This is something I know I should do.

I would determine what I wanted to live permanently... if FL, then I would look at getting a condo or some other small place that did not require much upkeep up north and sell the house... would probably cut that cost in half for another $6K in savings....

Property taxes on the Indiana home are a very reasonable $2,100 per year. I've been paying a landscape contractor nearly $3,000 per year to maintain the property (25% of the annual cost of owning this home). I think I can take that on and preserve the house we raised the family in. This will definitely keep the better half happier.


Now, if this is a family S corp, why can they not keep you on the 'payroll' enough for you to get insurance? If you do not want to milk it, just enough salary to pay for the insurance....

I think I will raise this subject with the family. I'm afraid they will sell the company when I've finally had enough and while that would solve my numbers problem, I don't think it would be a good thing for our employees and would not want to be responsible for triggering the event.

Thanks for the thought put into my situation.

 

[bigcmagor]

Wow, I knew this was a financially conservative group, but this takes the cake.

You're a millionaire, you have 2 paid for houses and a yacht. You have an inheritance of several million more coming your way.

What advice to do you get? "Sell the boat!"

Everyone says to utterly disregard inheritance. True, that could disappear. By the same token, the Dow and NASDAQ could crash as well, and it could be worse than we've ever seen in history. "FireCALC shows 99.4% chance of success." Well, what about that .6%? Better not retire!

Life has a degree of risk, and it also has certain rewards. I say you are in a great position to enjoy the rewards you have amassed. You may choose to worry, or you may choose to recalculate your position with each passing year (or month! Only takes a short time to run numbers) and go with the flow.

- This message has been sponsored by The Devil's Advocate, Inc -

You're definitely swimming against the current here Oddguy. I know that I can retire now if I commit to ditching some expenses and just figuring it out as the world throws me pitches. There's just a lot of moving parts to this story at the moment. Thanks for the vote of confidence!

 

[Luck_Club]

- This message has been sponsored by The Devil's Advocate, Inc -

I agree to a certain extent he should take the leap if he wants to. The inheritance and SS will cover the short term shortfalls.

However, as many have pointed out he does have a spending problem though not obviously apparent from his big hat..

Assumptions:
1) The $1.25 million in company stock was a result of grants and options not saved money.
2) He had been making much more than the $150k per year prior to OP entering the hobby income phase.
3) He only managed to save $825K in retirement in 30+ years of work at a pretty high level of earnings. (Maxed out SS for 32 of the 35 working years)

To keep it in perspective I have a NW all in of just under $1.5 million, and a total life time SS income of $1,761,844. Only maxing it out 11 times in total and most of those times just barely.

P.S. Also 6-7 years younger.

 

[bigcmagor]

I agree to a certain extent he should take the leap if he wants to. The inheritance and SS will cover the short term shortfalls.

However, as many have pointed out he does have a spending problem though not obviously apparent from his big hat..

Assumptions:
1) The $1.25 million in company stock was a result of grants and options not saved money.
2) He had been making much more than the $150k per year prior to OP entering the hobby income phase.
3) He only managed to save $825K in retirement in 30+ years of work at a pretty high level of earnings. (Maxed out SS for 32 of the 35 working years)

To keep it in perspective I have a NW all in of just under $1.5 million, and a total life time SS income of $1,761,844. Only maxing it out 11 times in total and most of those times just barely.

P.S. Also 6-7 years younger.

Not really sure what to think of the big hat comment, but I'll address your assumptions.

The stock is worth $1 million. The basis on this stock is $1.25 million, so I will have a capital loss when I redeem it that can be used to harvest capital gains in retirement. I have not lost money on this investment as the difference between redemption value is a subchapter S benefit of pass through profits to individual shareholders. Only ten percent of my shares were grants. I purchased the rest.

Yes, one would think I should have more net worth. Ten years ago, at 46 years of age, my net worth was $2.4 million. Then the financial crisis hit. This was not a good time to own real estate or stock in publicly traded stock mutual funds, or have two kids in college. I bottomed out at $1.6 million in 2012. Of this loss was my retirement plan which dropped from $560,000 to $280,000. While I have admitted to the cardinal sin of jumping in and out of the market, this has grown by $545,000 in five years, so my gut has served me well but I know it's a losing proposition in the long run. The company started firing on all cylinders in 2013 and I started earning bonuses again. Somehow, I've managed to add over $1 million in net worth in the last five years.

I have learned that I can't do anything about the past but learn from it. Spending time on websites like this has helped me get my priorities straight and why I asked the question about how others may proceed.

I think people will be more inclined to post their personal finances for comment if responders focus on the future rather than scolding for past sins. I have gotten some good advice from the thread and appreciate all of the responses!

By the way, nice job of accumulating!

 

[kcowan]

I would ask a few questions:
1. Do you have the yacht for status or because of true friendships resulting from it?
2. Do you want to be in Florida (friendships/relationships or just because)?
3. Is your main reason to remain in Illinois to protect your potential inheritance?

I see someone who is trapped by your own presumptions. Since I do not know the true answers to the above questions, I cannot help. But I would encourage you to get real with your needs and stop worrying about others. Start with an honest discussion with your immediate family.

As another poster has claimed: Stuff owns you!

Break free and start making decisions that will help you and your immediate family.

(Example: How about inviting your parents to Florida for a month? I have no idea but start thinking outside the box! If they decline, what does that say?)

 

[bigcmagor]

I would ask a few questions:
1. Do you have the yacht for status or because of true friendships resulting from it?

Hi Keith. Nice of you to chime in. Hope you are at your warm abode. The boat is 22 years old and probably worth 40 grand, so no status symbol. Being around water is very relaxing and we have developed friendships over 20 years that will last a lifetime. Many of our boating friends stay with us during our time in Florida every year.

2. Do you want to be in Florida (friendships/relationships or just because)?

I absolutely hate being cold. Right now, I'm running the heat in the man cave to a balmy 78 degrees. The sun is a rare participant here on the east side of Lake Michigan. That's another problem with where I live.

3. Is your main reason to remain in Illinois to protect your potential inheritance?

My wife's remaining family all lives in our town. My parents are frail for their ages and will need looking out for. Isn't that what their children are supposed to do? I'm not worried about looking out for my interest but theirs. It seems that there is a weekly if not daily attempt to scam them through email, telephone calls or even people showing up at their doorstep.

I see someone who is trapped by your own presumptions. Since I do not know the true answers to the above questions, I cannot help. But I would encourage you to get real with your needs and stop worrying about others. Start with an honest discussion with your immediate family.

If I had no regard for anything stated above, I would be retired and living in Florida today with no other property. It's just not about me though. I think the snowbird option while negotiating a continuing glide path with work is the most compromising solution I can muster at the moment.

As another poster has claimed: Stuff owns you!

Break free and start making decisions that will help you and your immediate family.

(Example: How about inviting your parents to Florida for a month? I have no idea but start thinking outside the box! If they decline, what does that say?)

I've tried to get them to buy a place in Florida so they don't lose their independence by slipping on the ice on the way to the mailbox in the winter, or going to the doctor's office or grocery store. A broken hip or worse is increasingly likely. They love their home and won't leave it.

 

[evilanne]

With your assets, you should have no problem in retiring, however, It sounds like you need to discuss your alternatives with your better half to determine your priorities in order to develop a plan that you both can agree upon.

Reading your posts, it sounds like there is a lot of conflicting information e.g. long term plan is to live in Florida but you can't move due to aging parents who may need assistance plus an attachment to your IN home where you raised your family.

Another alternative to selling the IN home would be to rent it out and turn it into an income stream rather than an expense which would reduce your required WR. I'm sure with your business background, you can figure out a ways to make retirement work if that is what your really want.