Wanted to Rule the world--until I got there! :)

[jdunc31]

Hello everyone! 1st post here looking for some advice/validation or red flag advice from so many of you that have walked this path already. I will try to explain my situation and if more is needed please ask away--looking for some guidance here....

I am 41 my wife is 45 we both earn nice wages and have done reasonably well living below our means (or at least not over our means for sure!). Personally I have recently brought a company up and been able to rise thru the ranks to a current CEO role.

However.......

We sold our little company and I have stayed on and kicked a lot of the cash down the road to the next round of buyouts thru stock options and equity in the company. Since the sale I am realizing that this is not actually what I want... and am beginning to value my time and freedom far more than adding more $ to the ledger. What I want to reasonably solidify is that stepping back from current role will not leave our family in the poorhouse and begging for food!

Here are some details...

Me-Age 41 Salary $225k/year, side hustle hobby (true desire) currently making $100K as of this year which would continue going forward...

Wife-45 Salary $130K/year

We have: no debt other than $350K Mortgage, no student loans left, no c-card, no cars, no expensive hobbies other than we love to travel when possible

Expenses: including leisure would be around $90K/year

$ status:
$200K cash liquid in bank account
$800K in 401K accounts
$300K in Vanguard brokerage account
$200K in variable life policy of cash value with $750K death benefit on each

***my wife is supportive of my stepping back from traditional corp role in favor of side hustle role. She is more happy to continue with her corp job until age 60-65.

My question that I know only we can answer but would like views on--can I reasonably financially walk away at this point with what we have now?

Please fire away, I am new to this community so maybe not so up to date on the lingo or desired info often discussed it seems....

Thanks in advance!!

JD

 

[skipro33]

Any kids or possibility of kids?
Any chance your side hustle can net more than $100K?
What are your stock options and equity in the company worth?
Have you been paying into SS, if so, how many points have you earned?
Does the company offer medical insurance or your wife's employer?
Does your wife have a pension plan?

My opinion is that you are pretty light on retirement net worth to be turning a nose up at $225K, (assets minus debt) but I have no clue what your side hustle is or it's potential for future income growth either.

 

[jdunc31]

Any kids or possibility of kids?***we do have a 13 year old in middle school with College Fund fully funded to our satisfaction

Any chance your side hustle can net more than $100K? ***possibly which I would look at as a bonus not a guarantee...

What are your stock options and equity in the company worth? ***ties to performance of the company over the next 1 year and 3 years, at current valuation somewhere around $600K-$700K

Have you been paying into SS, if so, how many points have you earned? ***yes have both maxed out SS points for the last 10+ years, not sure on total points as of today, Financial Advisor estimates that we would each be maxed out come 67 if we continue on this track...

Does the company offer medical insurance or your wife's employer? ***Yes I have Medical now thru current and wife has thru her current, if mine would go away I could hop on her plan for relatively low $

Does your wife have a pension plan? ***no, no pension at her job, high pay and 401K match which we max but no pension

My opinion is that you are pretty light on retirement worth to be turning a nose up at $225K, but I have no clue what your side hustle is or it's potential for future income either.***I understand this as well and am struggling with it the most. I don't think this is some kind of midlife/career crisis--rather I think I just really do not enjoy the industry or culture of our "new" group anymore at all. I am the last to be saying money is not everything but it really feels like money is not everything (within reason!) at this point...

 

[FLSUnFIRE]

How confident are you with your estimated expenses? Assets seem a bit light given your income which implies a lot more than $90K has been going somewhere each year. Knowing/being able to forecast expenses with a high confidence will inform the question "can I" (for a given risk tolerance and asset level).

 

[Lewis Clark]

Does your $90,000 in annual expenses include all taxes? Does it include setting aside money for infrequent expenses such as car repairs, new cars, new roof, new appliances, other maintenance and repair items and so on? What budget line items will go up or go down if you give up the day job? Is $90,000 expenses a guestimate, or have you been acurately tracking expenses for a couple of years? Is this what you expect to spend going forward?

If $90,000 is really an all-in number, then it is more than covered by your wife's income, and more than covered again by your side hustle. Are both of these income streams considered reasonably secure in the COVID world?

Giving up the day job would leave you with $230,000 of income and $90,000 of expenses. Keep this up until your financial assets are at least 25 times your all-in expenses and I'd think you should be fine with a potentially big chunk of social security whenver you decide to take it.

If you can stick it out on the day job for another couple of years, your time to reach financial independance could be that much less.

 

[WyomingLife]

Welcome aboard and thanks for posting.

It sounds as if you are at a great point in your life, and you are asking all the right questions. Congrats on the debt situation, as well as having college paid for. Congrats as well for the career success; I am barely the CEO of my own meager existence, so I cannot fathom being the CEO of a company. You clearly are talented, skilled and a leader.

I share the observations above that there could be a disconnect between your current assets (NW) given salaries and ages. In calculating NW, I am uncertain how to value your future buy-out, as well as that insurance policy. It is subject to criticism for a variety of reasons, but the Stanley NW metrics always appealed to me: How Wealthy Should You Be?. At minimum, they could provide some insights as to where you roughly stand at this point in life.

As other commenters have noted, make sure you have a detailed handle on your expenses. Are you tracking them? You may find that you are spending more than $90K.

It would make me nervous to depend upon hobby income to cover a significant chunk of expenses going forward — and for maybe 20 years. I used to have a hobby that paid (but not nearly as much as yours) and we just tossed all that surplus dough into the stock market. We didn’t treat it as necessary income, in contrast. I always assumed it could go away tomorrow.

You might consider taking a closer look at SS impacts, again as noted above. Have you opened up your online account with the SSA?

You may be underestimating future expenses in a variety of categories. You could live for another half century. Lots of great threads here on that topic.

I would model a scenario that focuses on health care costs, too. What happens if your wife were to lose her job in the coming years and that benefit were to go away? And while I am bullish on the long-term future of the ACA, it is in fact under legal attack.

Seems that you are paying a FA. Many here would say you don’t need one.

In sum, my sense is that you would benefit from doing a tighter financial assessment of your current status and future before making any major decisions. And in that assessment, I would run “disaster scenarios” — e.g., the company ultimately succumbs to the pandemic such that your future buyout is impaired/goes to zero, DW loses her job, ACA is struck down, your hobby income ends in some future year, etc. — to get some handle on a potential worst case.

Good luck.

 

[pb4uski]

What does FIRECalc say? I suspect that it would say that you are good to go financially since between your wife's job and your side hustle you will still be earning more than you spend. Another good planner would be Quicken Lifetime Planner included in Quicken Deluxe and higher versions.

I would drill down on your spending if you haven't already done so... from what you wrote you are spending only 25% of what you earn... that is very rare so I'm somewhat skeptical that the $90k of spending is complete... plus if it was you would be saving or paying taxes of $265k a year. Also, your spending should include provision for periodic car replacements, periodic major home maintainance like replacing a roof or HVAC or repaving driveway, etc.

You can get an idea of what your taxes will be if you resign by using TurboTax What-If Worksheet or the DinkyTown tax calculator (https://www.dinkytown.net/java/1040-tax-calculator.html).

Also, what are you plans for health insurance?

 

[Aerides]

Welcome

I think what you do is wait (keep working) until those "kicked down the road" options materialize and become really yours - that $600k+ would put you into a comfortable asset range. And you spend those next couple of years also building savings aggressively to at least have the ability to knock off that mortgage. At $350k that must be a good chunk of your $90k expenses. Even with your wife's income, I'd increase that taxable chunk as you both have a long time before 59.5.

So spend the next 1-3 years planning for what's next, and focus more of your mental energy (and perhaps time, as allowed) on that side hustle. You're 41, so retiring at 43 would still be very early.

I'd also start mapping out the scenario that your wife either loses her job, at say, 50, or finds that she too would also like to retire with you once she sees how it looks. Either way, don't have a plan that depends on her being the sole income/insurance provider until 65.

 

[jdunc31]

Great Feedback so far--I appreciate it. It seems a lot focused on the expense side (which is a good point) we have been tracking this for some time here are some averages...

Mortgage 2200
Car 1 0
Car 2 350
Auto Ins 150
Auto Gas 500
Electric 300
Gas House 125
Internet 70
Cable 250
Groceries 500
Dining Out 800
Haircuts 125
Lawn Care 125
Pool Care 75
Ent. 500
Clothes 500
Land Pay 225
cell phone 200
Kid School 100
Animals 50
Health Ins 300

Monthly 7445

Annually 89340

 

[Katiek]

Maybe they're included somehow, but I don't see that your budget covers insurance (for house or umbrella liability), property or income taxes, travel, or allowances for one time expenses such as roof repair, car replacement, house maintenance (HVAC, heaters etc). Will you eventually help your 13 year old with a car? How does that impact insurance?



I'd suggest really tracking all your expenses for the year and making sure your budget numbers are solid. On the plus side, the largest item is the mortgage and that will go away eventually. Plus your dining out budget probably has some flex in it. Plus you've done a very good job saving so far and you may have a big payday coming with company equity.


I also think it's normal to be ambivalent once you've sold "your baby" and the company that has been your main focus for so long now involves other people and the atmosphere may have changed. You've been very successful at a young age. Have you considered other career options that may present a new challenge for you rather than just stepping back? Not sure how that would impact any non-competes or restrictive terms on your equity, but I suspect there are other work challenges that you might enjoy even if not at your current company. $100K is a nice "hobby job" and there may be options in that field.



The nice thing is you have a lot of options.

 

[38Chevy454]

Welcome

I think what you do is wait (keep working) until those "kicked down the road" options materialize and become really yours - that $600k+ would put you into a comfortable asset range. And you spend those next couple of years also building savings aggressively to at least have the ability to knock off that mortgage. At $350k that must be a good chunk of your $90k expenses. Even with your wife's income, I'd increase that taxable chunk as you both have a long time before 59.5.

So spend the next 1-3 years planning for what's next, and focus more of your mental energy (and perhaps time, as allowed) on that side hustle. You're 41, so retiring at 43 would still be very early.

I'd also start mapping out the scenario that your wife either loses her job, at say, 50, or finds that she too would also like to retire with you once she sees how it looks. Either way, don't have a plan that depends on her being the sole income/insurance provider until 65.

I agree, stay around for the 3 years until you get all those future payouts. Then leave that company and do your side business. Assuming you can work hard on paying down the mortgage, or increasing the after tax savings, you will be good shape in 3 years. Next work on wife to get her into retirement mode.


Based on your expense list, it is all expenses and no taxes. Either income or property (although that may be in the mortgage). So to get a new of $90K/yr, you will need more gross withdrawal to cover taxes. Your taxes can be quite low percentage, if you can use mostly after tax money to live on until 59.5 and start the pre-tax withdrawals. I also don't see where you have any mention of big house repair or auto replacement expenses. It's OK to just treat those as periodic lump sum withdrawal as needed, being aware they reduce the overall savings by that amount.
Have you thought about cashing in that life ins policy, invest it in better choices than it may have now, and go with term life policy? At some point you don't even need term life, but with the 13 year old kid I would probably keep the term for another 10 years or so. At your age and assuming good health, it would be cheap cost.


Overall I think you can probably go now, but it seems prudent to ensure the next 3 years payouts are enabled by staying on and helping to ensure success.

 

[jdunc31]

Thanks again so far!

Property taxes and insurance costs are built into the mortgage expense. and both of our vehicles are paid off we "allocate" $350/month into a separate fund that accrues every 5-6 years and than we replace one of the cars and continue along the way.

it does seem I need to get a better handle on the effect of taxes and the swing between post/pre tax accounts and withdrawals. The current thought is that with wife's salary and the side hustle gig that we not only would not need to draw any principal but still be able to contribute to it.

Also we have an emergency fund of $50K for "shock" expenses like car repair, roof, HVAc, etc..

Looking back at the answers and my responses I am not trying to debate my way into everyone telling me yes, I know that is our call. It is just counter-intuitive to think that we are most (if not all the way) to where we want to be and it seems that is "wrong". This seems somewhat common from reading other peoples stories on here---it is pretty eye opening how we have been trained to think we need to work all day every day and that has become the norm---this is a fun out of the box activity if nothing else.

It is also funny to me to think of not going into work every day when the last 20 years have been that all along....

 

[jdunc31]

Another question....

How does the board feel in general about paying off mortgage's early? We have about $350K left on a $500K original note. The biggest expense we have is that mortgage--paying it off with some of the stock/performance options over the next 1-3 years is appealing to me--??

Also, how do some of you account for future inheritance's? We currently do not account for that at all. We do know that there is future estates from both parents, they are currently mid 60's and early 80's. We have taken the road of not accounting for that at all and any inheritance we would like to leave to our son. That also means we do not have to plan as much for leaving anything in our account either it seems....curious to get others take on that piece??

Thanks so far!

JD

 

[Unpaintedhuffhines]

Another question....



Also, how do some of you account for future inheritance's? We currently do not account for that at all. We do know that there is future estates from both parents, they are currently mid 60's and early 80's. We have taken the road of not accounting for that at all and any inheritance we would like to leave to our son. That also means we do not have to plan as much for leaving anything in our account either it seems....curious to get others take on that piece??

Thanks so far!

JD

Regarding inheritance, we do not include it in our plan (meaning our plan works without it), but we most definitely are prepared to catch it and deal with it if it happens. We'd probably use it to have experiences with our kids, and ultimately leave most to them.

 

[pb4uski]

Another question....

How does the board feel in general about paying off mortgage's early? We have about $350K left on a $500K original note. The biggest expense we have is that mortgage--paying it off with some of the stock/performance options over the next 1-3 years is appealing to me--??

Also, how do some of you account for future inheritance's? We currently do not account for that at all. We do know that there is future estates from both parents, they are currently mid 60's and early 80's. We have taken the road of not accounting for that at all and any inheritance we would like to leave to our son. That also means we do not have to plan as much for leaving anything in our account either it seems....curious to get others take on that piece??

Thanks so far!

JD

On the first question, from a pure financial perspective it depends on what the cash that would be used to pay off the mortgage would have been invested in and the expected return on those investments vs the mortgage interest rate.

On the second part, I don't factor in inheritances... in part because I don't need to. If/when we get an inheritance, I suspect that we'll do some splurging and gifts to DD and DS and charities.

 

[Lewis Clark]

I would not count on inheritances or include them in my planning. We never know what might happen to change the anticipated amount or even wipe it out completely.

If I was reasonably certain to get a windfall, I would consider it to be bonus money and have a plan for it just in case it actually shows up.

 

[BoodaGazelle]

My "quick reply" from my personal experience: keep some assets in non-tax-advantaged accounts. Unless you have healthcare via some other means, you will find many people on this site who have taken advantage of "low income" between ER age and Medicare to get subsidies for ACA. If I had not had such, I would not have been able to ER...

 

[Dtail]

My "quick reply" from my personal experience: keep some assets in non-tax-advantaged accounts. Unless you have healthcare via some other means, you will find many people on this site who have taken advantage of "low income" between ER age and Medicare to get subsidies for ACA. If I had not had such, I would not have been able to ER...

Big +1, although this might be changing next year.

 

[jdunc31]

Healthcare seems a big topic (I am in Healthcare industry) have you guys ever looked into the cost-sharing plans that are available as an alternative to ACA plans--many of which are not nearly as robust as a more traditional plan?

Just a thought, I have done the research and am intrigued by these (election dependent)

JD

 

[Koolau]

Healthcare seems a big topic (I am in Healthcare industry) have you guys ever looked into the cost-sharing plans that are available as an alternative to ACA plans--many of which are not nearly as robust as a more traditional plan?

Just a thought, I have done the research and am intrigued by these (election dependent)

JD

I knew a guy who participated in one of the cost-sharing plans. As (bad) luck would have it, he got cancer a year after beginning. He was reasonably satisfied with the "coverage" but, almost by its nature, the payments didn't always come in a timely fashion as it might have with a more "formal" insurance policy. Unfortunately, he died a few years into his illness. I wouldn't even consider one of these unless it were toward the "last resort" set of options. As always, YMMV.

 

[cat4ever]

you will find many people on this site who have taken advantage of "low income" between ER age and Medicare to get subsidies for ACA.

Regarding this, I've been wondering if it would be worthwhile to go all in with Roth conversions in one year taking your income to the top of the 24% tax bracket in order to set you up for very low income the next 3 or 4 years? Especially for those who are on their own for health insurance.

 

[jdunc31]

My thoughts on the cost sharing type of plans are opposite. Under the current rules with ACA (which might be changing) you can go onto a marketplace plan with no pre-existing conditions exclusion. While you are "healthy" and only worried about a catastrophic claim you can be on one of the cost share/MEC type of plans---if something like cancer ever hits under current laws you can hop on the marketplace plan at open enrollment and they have to take you without underwriting....

Granted this could all change here shortly.....

 

[pb4uski]

I guess that the problem that I have with cost-sharing plans is that they are not insurance. On ACA if one gets an expensive health issue just after open enrollment closes, you'll need to cross you fingers and hope that cost-sharing ponys up until the next open enrollment period or gin up a qualifying live event to buy an ACA plan... all while simultaneously dealing with a health issue.

But your whole strategy to "hop on the marketplace plan at open enrollment and they have to take you without underwriting" is the problem with no underwriting... freeloaders.... people too cheap to be fiscally responsible and buy health insurance can game the system. I would prefer a system of no medical underwriting if you have had continuous coverage (no more than a 4 month gap in the last 18 months... or something like that)... if not then a huge deductible for each of the first two years for any pre-existing conditions.

If people had to put huge amounts of their net worth at risk by freeloading then perhaps there would be less freeloading.

 

[jdunc31]

I guess that the problem that I have with cost-sharing plans is that they are not insurance. On ACA if one gets an expensive health issue just after open enrollment closes, you'll need to cross you fingers and hope that cost-sharing ponys up until the next open enrollment period or gin up a qualifying live event to buy an ACA plan... all while simultaneously dealing with a health issue.

But your whole strategy to "hop on the marketplace plan at open enrollment and they have to take you without underwriting" is the problem with no underwriting... freeloaders.... people too cheap to be fiscally responsible and buy health insurance can game the system. I would prefer a system of no medical underwriting if you have had continuous coverage (no more than a 4 month gap in the last 18 months... or something like that)... if not then a huge deductible for each of the first two years for any pre-existing conditions.

If people had to put huge amounts of their net worth at risk by freeloading then perhaps there would be less freeloading.

Calling someone a "freeloader" is not very cool. There are many pros/cons of the ACA plans--the coverage and limits are actually not very favorable.

It is funny where so many people talk about moving pre-tax/post-tax monies around to show paper losses and we call that a "tax strategy" that this would raise your flag....

 

[pb4uski]

Oh, well... c'est la vie. To be clear, I wasn't referring to you or anyone specific... I was referring to a practice.

It's a common term used to describe people who don't buy health insurance until they get sick which sort of defeats the purpose of insuring to pool risk.