Just turned 49...Looking to Retire at 59 1/2

[Cusingeorge]

Hello forum from Oklahoma!

I just turned 49 and am hoping to retire at 59 1/2. I currently have about $1.4 million in my ESOP and 401(k) plus I receive about $6000.00 a month in mineral royalties. I have been with the same company since I was 20 and earn about $60,000 a year in salary and quarterly compensation. My company is employee-owned and we are all very involved in the financials of our company (there are about 155 of us) and business is good.

I just finished building the last house I will ever live in outside of Oklahoma City, my daughter is one her own (23) and my son (17) will be moving on to college soon so it will eventually be just me and Mrs. George (she doesn't work outside the home). We do not live extravagantly by any stretch, both our families grew up here and were mostly farmers. Our plans for retirement are to travel occasionally, collect firearms, and do a bit of farming and landscape the 20 acres we live on. Our only real liability is our house payment which we are doing our best to pay off in 15 years.

Neither of us having significant health issues though we help our daughter with her Crohn's Disease medical bills and we expect to pay for our son's college expenses (he will probably get into one of the construction trades if I had to guess).

I've been using several "retirement calculators" including the one from our ESOP managing firm (The Principal), and everything indicates we are more than on track for my retirement goals, but I am thinking more and more about what lies ahead and need to make absolutely sure we are prepared financially, thus my posting here.

Feel free to ask me questions to "fill in the blanks" that I'm sure I've left, thank you for anything you might suggest.

 

[broadway]

ESOP
Are you holding $1.4M in company stock ? ? ? ?

WOW!

 

[Cusingeorge]

Yes, I am.

No one holds more than 5%.

 

[Dtail]

Diversification possible?
Enron from the past?

 

[broadway]

How much of that $1.4M is in ESOP and how much in the 401(k)?

And what is in that 401(k)?

mineral royalties?!?!?

yikes

all of it is way more risky than I would be holding

 

[kgtest]

I would leave quietly. Owning 5% of the company and calling it quits will surely cause some distraction.


And then I would immediately rollover my ESOP and diversify into an appropriate asset allocation.



Getting rid of that mortgage would help me sleep at night. Maybe take the $72k you get in minerals next year and then another 72k (36k from ESOP and 36k from 401k) and paydown $145k on that mortgage to lower the payment...then I would take the savings and plow it back into equities.


My .02

 

[Cusingeorge]

Dtail,

I can't diversify till I'm 55.

My company is solid.

Broadway,

I have about $150k in the 401(k), the rest is company stock. This is how it is set up.

I don't understand your comments about it being "risky"

kgtest,

We are a small company, and leaving quietly simply would not happen, and what difference would it make about me leaving that would hurt anything? I can diversify up to 50% when I turn 55, and can't take retirement without a significant IRS penalty until I am 59 1/2.

 

[Cusingeorge]

Also, when it comes to mineral royalties, we hold back 50% for taxes so my $72,000 becomes more like $36,000

 

[Dtail]

Dtail,

I can't diversify till I'm 55.

My company is solid.

Broadway,

I have about $150k in the 401(k), the rest is company stock. This is how it is set up.

I don't understand your comments about it being "risky"

kgtest,

We are a small company, and leaving quietly simply would not happen, and what difference would it make about me leaving that would hurt anything? I can diversify up to 50% when I turn 55, and can't take retirement without a significant IRS penalty until I am 59 1/2.

Bolded - Some companies' 401k's are set up whereby if you are separated from service or leave on your own at 55 or later, you can withdraw from the 401k before 59.5 without penalty.

 

[travelover]

Bolded - Some companies' 401k's are set up whereby if you are separated from service or leave on your own at 55 or later, you can withdraw from the 401k before 59.5 without penalty.

And there is also the option of taking a 72T earlier.

 

[NgineER]

I think that what most people are concerned about is the $1.4M in your ESOP - which I take to mean is your share of the company. I understand if you can't sell that before parting with the company. Though it seems solid, you don't have much outside investments other than what is in your 410(k). If your company was to tank somehow, you don't have much left over to live on. And to top it off, you might also lose your job at the same time.

You need to diversify and invest outside of the industry where you are employed in order to safely retire in 10 years. If your company keeps churning out profits you'll be in great shape, if not you could be in trouble by not having much to show outside of your ESOP.

 

[Cusingeorge]

I know it appears risky, and I agree to an extent, but this is how it is set up and there is no way to change it. In case I haven't been completely clear, ESOP is "Employee Stock Ownership Plan". Each of us as employee owners are responsible for making good decisions that impact the bottom line, and we hold each other accountable (including the Prez, CEO and Board) for anything that can affect our profitability. Our CFO just retired (he started the year after I did) and I can tell you with absolute certainty that he set the company up for financial success, I've never met anyone so frugal, or picky about financial health in my life.

So let's set my ESOP aside guys and assume that when I reach 59 1/2 and I have ~$2.7 mil or so in my retirement account. My main concerns are paying off the house and health care, If I can swing these and have money for basic living expenses, a little for making a road trip 1-2 times a year, plus those dozen or so other expenses that go along with home ownership, am I even in the ballpark?

 

[broadway]

So let's set my ESOP aside guys and assume that when I reach 59 1/2

The point is that you can't set it aside.

You've got 89% of your retirement assets tied up in one entity.
Some retirees are highly dependent on a company pension but at least some pension are guaranteed.
If anything happens to your company, you are toast except for Social Security.

I don't know of anyone here who is as un-diversified as you are except for business owners.



.

 

[Cusingeorge]

What I meant is let’s set everyone on this board’s concerns about my ESOP aside, not that I want to try to retire without it.

 

[Cusingeorge]

And I never said that my ESOP wasn’t mine to keep, if I leave for any reason I can roll it into an IRA.

 

[travelover]

..........when I reach 59 1/2 and I have ~$2.7 mil or so in my retirement account. My main concerns are paying off the house and health care, If I can swing these and have money for basic living expenses, a little for making a road trip 1-2 times a year, plus those dozen or so other expenses that go along with home ownership, am I even in the ballpark?

Have you done a good analysis to see what your minimum and desired spending will be per year? Once you know that, including health care and taxes, just turn the crank on FIRECalc or similar planners to get your answer.

 

[SmallCityDave]

Sounds like you’ve done a great job with your finances the biggest liability as you said is the mortgage, make it a priority and pay it off in the next 5 years and be completely debt free we’ll before retirement. How much is the mortgage and your payment.

 

[Golden sunsets]

If this is a small privately owned company, how do you know what the value of your shares is? And is the company set up to liquidate your shares when you have the ability to sell 50% at age 55? Is the company set up to buy back the shares of the other 154 people as they retire?


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[MRG]

I was in a similar situation with an ESOP account, however it was a public company. Had 75 % of our assets in company stock. Around the recession they started allowing people to roll out to an IRA. It was heartbreaking to watch those shares drop from $80 -> $20. However it did come back.

I took the opportunity to start cashing out of Megacorp, into funds. Made me sleep much better.

A guy I worked for in the 80s was in a similar situation to yours. However the company wasn't run well, and went under. That said it was obvious that idiots were in control, partly the reason I left.

I think you're ok financially if things work the way you expect them to..

 

[broadway]

If this is a small privately owned company, how do you know what the value of your shares is? And is the company set up to liquidate your shares when you have the ability to sell 50% at age 55? Is the company set up to buy back the shares of the other 154 people as they retire?

+1
You articulated it better than I ever could.
I don't doubt that the OP owns a share of the company and that the present value of that share is $1.3M (taking out the 401k).



Are there others who could also retire?
What about people who leave the company? Are they allowed to cash out their shares?
What does the company do to pay out those who retire or leave the company? Can that be strain on company resources $ ?

 

[Cusingeorge]

You must be employed by the company to own stock. When someone leaves, the company must buy back those shares. The value of the shares is determined by an independent firm and we are well prepared to buy employees’ shares, if and when this occurs. Is important to know that you must be employed for 6 years to 100% vested in the ESOP.

I hope I’m answering your questions well, finance is not my strong point.

 

[HI Bill]

You must be employed by the company to own stock. When someone leaves, the company must buy back those shares. The value of the shares is determined by an independent firm and we are well prepared to buy employees’ shares, if and when this occurs. Is important to know that you must be employed for 6 years to 100% vested in the ESOP.

I hope I’m answering your questions well, finance is not my strong point.

George - ~20% of my retirment assets are in an ESOP, so I understand them well. Most on this forum probably do not. Even with the 20%, I feel a significant risk...my company's ESOP share valuation has varied from $17 (1998) to $69 per share (2010), and in 2018 is $68. Since you have no way of diversifying other than resigning, I'd say just stick it out until you turn 55, then diversify to the maximum allowed (being sure to maintain the tax-deferred status of the funds from the sale by investing in a traditional rollover IRA), assuming the share price is high.

The largest risk, as I'm sure you know, is the unkown share valuation in the year you take the buyout. I left my ESOP company, so the year I turn 62, will set the share price for my payout...which will be over a three year period. Fingers crossed.

You don't indicate whether you have an emergency fund or any investments outside the ESOP. If not, I'd try to focus for the next 10 years on building some to add to your safety cushion and diversify your risk.

 

[broadway]

Even if the ESOP went to $0, the OP can live on the $72K in mineral royalties.
I certainly could.

 

[Cusingeorge]

That’s $72K before taxes, the IRS will take ~39%, and mineral royalties are fickle, and shouldn’t be depended upon for anything but “free money”. We are nearly finished with the emergency fund, three months expenses outside of any royalty income. I have been thinking about diversification at 55, and rolling that over into the 401(k). From what I’m learning here, it may be in my best interest to do so.

 

[Golden sunsets]

And when you retire at 59.5 the rest would automatically be liquidated? If so fingers double crossed until then. Do you have any anecdotal information from others who have retired before you who have successfully divested?


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