I think i am ready...

[dunwerkin]

Hello there,


After 30 years working in a small engineering firm as both and employee and owner, I think I am ready to move on to the next chapter of my life. I am 53 and my DW is 50. She recently retired from her job to help care for our aging parents. No children and no heirs to leave anything to after we are gone.

I have reached an agreement to sell the business to a few of the employees and have also agreed to stick around for a couple years to help with the transition. I probably will work full time, with several planned vacations, for the first year and part time the second year. I think we are financially able to FIRE, but would love some feedback from the board to help me feel more comfortable.

Here are my particulars:
Retirement accounts - $885K
Non-Qualified accounts - $900K
Cash - $145K
Crop farm in the upper Midwest is worth $745K. Rent returns $28K PY after RE taxes. No mortgage
Principle Residence is worth $600K. No mortgage
Lake Cottage is worth $200K. No mortgage

The business is selling for $2.25MM of which I will get 20% cash upfront and I will hold a note for the remaining $1.8MM. I am sure most of the 20% cash will get used to pay taxes on the sale. The note is for 10 years at 4% interest. I am pretty confident it will be paid back in less time.

My plan for health insurance is to stay on the company plan for 2 years while sticking around and then COBRA for 18 months. From there I guess I am going to have to go out of pocket unless the government comes up with a fix for the current HC woes. Hopefully ACA will be around in some form or another.

We have tracked expenses and can comfortably live on $80K per year. I am planning on jumping this up to $100K per year to cover more travel.

I have run FIRECALC a multitude of ways, done dozens of scenarios on ESPlanner and tried about every online calculator I can find. Each seems to point to us being good to FIRE.

I am looking for feedback and opinions from members to help me think of anything I have overlooked and if you think we are good to go.

Thanks in advance!

DUNWERKIN

 

[VanWinkle]

Hello there,


After 30 years working in a small engineering firm as both and employee and owner, I think I am ready to move on to the next chapter of my life. I am 53 and my DW is 50. She recently retired from her job to help care for our aging parents. No children and no heirs to leave anything to after we are gone.

I have reached an agreement to sell the business to a few of the employees and have also agreed to stick around for a couple years to help with the transition. I probably will work full time, with several planned vacations, for the first year and part time the second year. I think we are financially able to FIRE, but would love some feedback from the board to help me feel more comfortable.

Here are my particulars:
Retirement accounts - $885K
Non-Qualified accounts - $900K
Cash - $145K
Crop farm in the upper Midwest is worth $745K. Rent returns $28K PY after RE taxes. No mortgage
Principle Residence is worth $600K. No mortgage
Lake Cottage is worth $200K. No mortgage

The business is selling for $2.25MM of which I will get 20% cash upfront and I will hold a note for the remaining $1.8MM. I am sure most of the 20% cash will get used to pay taxes on the sale. The note is for 10 years at 4% interest. I am pretty confident it will be paid back in less time.

My plan for health insurance is to stay on the company plan for 2 years while sticking around and then COBRA for 18 months. From there I guess I am going to have to go out of pocket unless the government comes up with a fix for the current HC woes. Hopefully ACA will be around in some form or another.

We have tracked expenses and can comfortably live on $80K per year. I am planning on jumping this up to $100K per year to cover more travel.

I have run FIRECALC a multitude of ways, done dozens of scenarios on ESPlanner and tried about every online calculator I can find. Each seems to point to us being good to FIRE.

I am looking for feedback and opinions from members to help me think of anything I have overlooked and if you think we are good to go.

Thanks in advance!

DUNWERKIN

Hello dunwerkin,

Let's see:

1.8 million after the business sale and taxes
1.9 million investments and cash
3.7 million X 3% = 111,000 per year before taxes
28K farm income should more than pay the taxes

No Debt

I say you are set!!

Congrats

 

[flintnational]

Hello dunwerkin,

Let's see:

1.8 million after the business sale and taxes
1.9 million investments and cash
3.7 million X 3% = 111,000 per year before taxes
28K farm income should more than pay the taxes

No Debt

I say you are set!!

Congrats

+1 looks like you are dunwerkin! Welcome to the forum.

 

[Dtail]

Welcome to the forum. Looks good to me.

 

[BeachOrCity]

Your biggest risk is the loan terms on sale of your business. 4% is low. Really low. If someone was gettng credit to buy a business they would pay double or triple that for a small business potentially. If its not locked in you should consider the rate.
You should also think about what happens if they drive business into ground and default.

I would think a loan agreement that gives you a degree of control until it is paid off might be best. Or the agreement could stipulate a portion of revenue or profit goes to loan.

 

[dunwerkin]

Beachorcity

I control shares until notes are paid. Also require all distributions, after a tax allowance, go to serve note payment. I had a really good attorney set all of the sale details up to hopefully avoid pitfalls.

Dunwerkin

 

[Bamaman]

I would assume that as an engineering firm, much of the selling price are intangibles and not asset backed. In that case, are you getting continuing guarantees of the buyers and their wives? You know, personal guarantees?

And you might consider getting a set salary and insurance in the buy and sale for X months--even if your services are not required. Often the new owners will have a change of mind with their previous owner hanging around and ask them to go ahead and leave prematurely.

And are you going to have any prepayment penalty for early repayment of your loan? Being paid off at once could hurt you tax wise.

Good luck to you in your retirement.

 

[dunwerkin]

Bamaman

Personal guarantees plus 2 year work contract at fixed salary. I also retained a small percentage of stock until first sale is completely paid off. Hoping I can leverage that for continued health care coverage.

 

[pb4uski]

.... I am sure most of the 20% cash will get used to pay taxes on the sale. ...

Can you elect an installment sale to spread out the taxes?

https://www.irs.gov/publications/p537#en_US_2017_publink1000221692

See example of sale of business in the link

 

[BeachOrCity]

Beachorcity

I control shares until notes are paid. Also require all distributions, after a tax allowance, go to serve note payment. I had a really good attorney set all of the sale details up to hopefully avoid pitfalls.

Dunwerkin

Thrilled to hear you have bases covered !!!

 

[street]

You are in good shape I wish you the best in retirement.

 

[tdv2]

Looks like you are all set. Go enjoy!!

 

[joeea]

I am 53 and my DW is 50.
No children and no heirs to leave anything to after we are gone.

Retirement accounts - $885K
Non-Qualified accounts - $900K
Cash - $145K
Crop farm in the upper Midwest is worth $745K. Rent returns $28K PY after RE taxes. No mortgage
Principle Residence is worth $600K. No mortgage
Lake Cottage is worth $200K. No mortgage

The business is selling for $2.25MM of which I will get 20% cash upfront and I will hold a note for the remaining $1.8MM. I am sure most of the 20% cash will get used to pay taxes on the sale. The note is for 10 years at 4% interest. I am pretty confident it will be paid back in less time.

My plan for health insurance is to stay on the company plan for 2 years while sticking around and then COBRA for 18 months. From there I guess I am going to have to go out of pocket unless the government comes up with a fix for the current HC woes. Hopefully ACA will be around in some form or another.

We have tracked expenses and can comfortably live on $80K per year. I am planning on jumping this up to $100K per year to cover more travel.

I am looking for feedback and opinions from members to help me think of anything I have overlooked and if you think we are good to go.

Looks to me like you are good to go. Congratulations!

Things you may have overlooked
- Social Security benefits?
- Long Term Care insurance?
- Selling the crop farm?
- living on both residences? Or selling one or both?
- other than some travel, do you have an idea of what you wish to do in retirement?

 

[dunwerkin]

Pb4uski
I checked into the installment sale, but not certain it will work for me as I am not doing an asset sale. I am selling company stock. Pretty sure this requires taxes to be paid at time of sale. I will ask the accountant to flush out an answer.

Joeea
I never counted on SS being there, so if it is that is more fun money.

LTC for DW but none for me. The crop farm is our LTC bucket of money.

I'm sure we will sell our main residence at some point and either downsize in the area or move to lake. I am guessing we will end up with only one place later in life. We would like to winter down south Once our aging parents situation resolves.

I don't have any definite plans for retirement but feel certain I will not have a problem staying busy. If I hate retirement, I can go back to work part time at the business as I have included a work continuation clause in the sale agreement.

Thanks to everyone for the advice and comments!

 

[GalaxyBoy]

Looks like you are indeed "dun." I'm sure your estimates of expenses include taxes, amortization of big-ticket items that only come up every few years (such as new cars, replacement roofs, emergencies, etc.), but I thought I'd mention it just to be sure.

I was also an engineer and I worked for a couple Megacorp-sized firms as well as small and medium-sized firms. I was once an employee and a partner of a 50-person consulting firm, but that one went south and I lost the entire investment. Luckily, I was a very minor stakeholder so I didn't lose much, but it taught me that these companies can be risky over the long term, even when it doesn't look like it now. As you probably know, if their clients don't pay in a timely fashion, you won't get paid in a timely fashion (I've seen that happen with partners who left).

Again, congratulations! The lifting of the stress has benefited me in so many ways in the last year that I've been retired.

 

[joeea]

I never counted on SS being there, so if it is that is more fun money.

Sure.

But don't you think it makes sense to determine how much it will be, and come up with a claiming plan?

LTC for DW but none for me. The crop farm is our LTC bucket of money.

I don't understand why you would have insurance for one but not the other.

 

[dunwerkin]

I have run the SSI estimates and do have a plan of claiming benefits at 62.

No LTC insurance for me as I as could not qualify for a reasonable premium.

 

[pb4uski]

Pb4uski
I checked into the installment sale, but not certain it will work for me as I am not doing an asset sale. I am selling company stock. Pretty sure this requires taxes to be paid at time of sale. I will ask the accountant to flush out an answer.....

Definitely ask. Check with your tax specialist, but it looks to me like the sale of a business (stock sale) does qualify... the allocation of the purchase price and selling expenses to assets sold relates more the calculation of the installment gain rather than whether the transaction qualifies for installment sale treatment.

An installment sale is a sale of property where you receive at least one payment after the tax year of the sale.

You can’t use the installment method to report gain from the sale of stock or securities traded on an established securities market.

Inferring that it can be used if one sells stock that is not traded on an established securities market.

If a sale qualifies as an installment sale, the gain must be reported under the installment method unless you elect out of using the installment method.

Sale of a Business
The installment sale of an entire business for one overall price under a single contract isn’t the sale of a single asset.

On June 4, 2017, you sold the machine shop you’d operated since 2009. You received a $100,000 down payment and the buyer's note for $120,000. The note payments are $15,000 each, plus 10% interest, due every July 1 and January 1, beginning in 2018. The total selling price is $220,000. Your selling expenses are $11,000.

 

[joeea]

I have run the SSI estimates and do have a plan of claiming benefits at 62.

For both of you?
That's seldom optimal.

Hopefully you included the projected benefits as income in your retirement calculator runs.

Good luck.

 

[dunwerkin]

UPDATE
I have closed the sale of the business and am now starting life chapter 2 as an employee (with a very small ownership interest) for the next 2 years with a flexible employment contract.

I did have the accountants and attorneys check into the installment sale and they said it is a go! That will save a lot of up front tax money to Uncle Sam.

I have to say I feel a little bit sad as the business has pretty much been my sole focus for so many years and it feels strange for it to no longer be mine.

Thanks for the advice from this thread and the hundreds of other threads I have read for the past few years. I will check in with updates as the new chapter starts getting read.

 

[MBAustin]

Congratulations, dunwerkin! I hope you are taking some downtime as part of the transition - I think even a short vacation will help you start getting oriented to your "new normal". Keep us posted!