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Selling out, need advice
Old 12-02-2020, 08:37 PM   #1
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Selling out, need advice

Looking for ideas need advise.

Iím selling my business soon it should finalize in three weeks, around 12/18/20. How would you handle this portfolio.
My total net worth is about 2,100,000.00
Home 700,000
401k 200,000
Business sale
Loan on building 250,000 5% 20 years
Loan on business 200,000 5% interest only 5 years, then 5
year payoff interest and principle.
Cash payout 950,000.
Tax bill in April will be about 120k
I owe 70k on a home equity loan
No other debt.

I am 61 wife 62 she will retire next year with 1500.00 pension.

The two loans above will generate income for 20 years

We both are thinking to wait on SS until 67

Of course the big issue for me is the 950,000 minus 120k taxes and 70k home equity or 750,000.. no idea what to do with this money. Itís not a lot, not interested in too lmuch risk.
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Old 12-02-2020, 08:40 PM   #2
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S&P low cost index fund.
Go back to sleep.
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Old 12-02-2020, 11:55 PM   #3
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Given the issues with the economy, I'm being pretty conservative right now for the first time in my life. I was lucky enough to grab some good CDs in 2019 and early 2020 that pay 1.35% to 3.50%, but the pickings in fixed income are pretty slim right now.

The key question is what is your spending? Unless you plan to sell your house and downsize I would exclude the house, so the financial assets to support your retirement are more like $1.4 million. Plus, what are your plans for SS?
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Old 12-03-2020, 05:40 AM   #4
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The fact that you're asking makes me assume that you are not that familiar with personal finance. And, at your age one doesn't want to make a mistake. If I were you I'd find a fee-only advisor (for example https://tinyurl.com/yxd9ljbf) rather than asking SGOTI (some guy on the internet).
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Old 12-03-2020, 07:44 AM   #5
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Your totally correct. I have one, but Iíd like to see what real people think. You folks are dealing with your own money not someone elseís.
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Old 12-03-2020, 08:06 AM   #6
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Ok so 1.4 m, if I use the 250k 20 year loan as my personal annuity I’m then left with 1.150,000

Using that, income is 4000 per month while not collecting SS. So for the next 5 years I’ll need an additional 3000 per month. Then SS kicks in at 67 wife an I will be about 4k per month.

We are thinking somewhere around 75, 80 to sell the house and move to retirement living spending about 1/2 the value of the house. If we are still healthy.

So back to the 750k I’m thinking set 200k in a very safe and accessible place for the 5 year draw down until SS kicks in. The market is so high right now. What would you guys do?
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Old 12-03-2020, 08:35 AM   #7
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I like the idea of squirreling $200k away to replace SS from now until you are each 67...or possibly even 70... check out opensocialsecurity.com to evaluate your optimal SS claiming strategy and be sure click the additional input box at the top of the page. I prefer to use the applicable CSO mortality tables rather than the default SS mortality tables as I think they are more realistic and I prefer to use a real portfolio discount rate (conservatively ~2-3%) rather than the TIPS rate for discounting. Be sure to check out the table of alternative claiming strategies at the bottom of the page.

The other useful tool you can visit is FIRECalc. Fill in each of the tabs along the top of the page. I would exclude the building loan from your nestegg and use the $1.15m as your portfolio. Enter the annual payments received from the building loan as a pension starting in 2020 and then enter an offsetting off-chart spending item in 2040... in both cases not inflation adjusted... that will get the cash flows from the loan into your projection. Also, check out the Investigate tab where you can look at maximum safe spending, etc.

I share your concern that the market is high and am also concerned that it is so disconnected from the economy, which is why I have been in capital preservation mode over the last 9 months or so. What little stock market exposure I have right now is mostly in SWAN... an ETF that holds 90% US Treasuries and 10% S&P 500 call options and for both backtested and the 2+ years it has been available has provided returns similar to the S&P 500 but with much less volatility... so you might want to discuss SWAN with your FA.

I have about 20% of my portfolio parked off to the side in short-term federal funds right now until I'm comfortable with the market. YMMV... my conservative approach has definitely lagged a conventional AA in 2020 as the market has gone on a tear for no apparent reason so it might not be for you if you have FOMO.
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Old 12-03-2020, 08:59 AM   #8
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pb4uski This is awesome info, thanks for the ideas. I’m not worried about FOMO that much, I just want a solid plan that I can rely on. As my investment knowledge grows I’m sure I will adjust. What I’ve done my whole life in business. Not a 1% guy but not starving. Thanks again for your help.
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Old 12-03-2020, 09:08 AM   #9
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Quote:
Originally Posted by gshultz5 View Post
Ok so 1.4 m, if I use the 250k 20 year loan as my personal annuity Iím then left with 1.150,000

Using that, income is 4000 per month while not collecting SS. So for the next 5 years Iíll need an additional 3000 per month. Then SS kicks in at 67 wife an I will be about 4k per month.

We are thinking somewhere around 75, 80 to sell the house and move to retirement living spending about 1/2 the value of the house. If we are still healthy.

So back to the 750k Iím thinking set 200k in a very safe and accessible place for the 5 year draw down until SS kicks in. The market is so high right now. What would you guys do?
No mention of healthcare.
Living expenses can always be adjusted. Consider taxes, healthcare and possibility of long term care. Your portfolio and income look just fine. Firecalc.com and opensocialsecurity.com are great tools as P4uski said.
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Old 12-03-2020, 09:21 AM   #10
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For health insurance, my first stop would be to healthsherpa.com to browse plans and then healthcare.gov or your state's health insurance portal.
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Slow and steady wins the race.

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Old 12-03-2020, 09:42 AM   #11
Confused about dryer sheets
 
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The health care issue is covered inside the additional 3000k income required. Wife is a teacher so we are handed the golden goose and are able to continue our current BCBS plan until 65. That cost will be about 700 per month. State is paying the balance until they can’t afford it. Haha.
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Old 12-03-2020, 09:56 AM   #12
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Think of the money needed using the bucket strategy. You need a short term bucket (0 to 5 years in your case) to cover budget until additional SS money kicks in. This bucket is your conservative investments. I would say something like 20/80 or 30/70 asset mix works for this. The second bucket is your medium term (6 to 10 years) and this can be higher risk. Something like a 60/40 or 70/30 asset mix, that still has some fixed income to provide stability and less downside risk, but still enough equities to provide growth over inflation. A third bucket is your long term money (past 10 years and longer). This third bucket is all equities to boost the value. Let this ride the ups and downs of the market, but can evaluate the mix as time goes on and it is now getting to medium term.

Now the bigger question is how much to put in each bucket? You said you need approx $200K for the short term. That covers your needs and you always have the other two buckets in case of unexpected expense. Something invested that is conservative, I like diversified funds to spread risk; just pick some that is around 10/90 or 20/80 asset mix. You can also look into CDs or similar for 1-2 year money. Since once SS kicks in you have almost all of your money covered the medium bucket can be pretty small. Say $100K more as an emergency fund. A 60/40 blended fund is a good option here. The third bucket is the balance $550K and I would just do low cost index funds.

My fee only FA cost for above is only $.02
edit: congratulations on reaching your retirement and selling a successful business.
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Old 12-03-2020, 10:25 AM   #13
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Good job on the sale. Having been through one of those that included some bumps along the way: I suggest you view both the building mortgage payments and the owner financing income as being fairly risky. In our case, it took our buyers about two years to ruin and tank the business. We got the building back (we were leasing it to them) and we got most but not all of the seller financing paid. It was an excruciating period as their ability to pay withered and our only option was to go without paments or to put them out of business. At one point, too, they found some vulture financing that necessitated our agreeing to subordinate our seller financing notes. Again, if we refused they were out of business and any hope of getting paid on the seller financing was out the window. So we gritted our teeth and agreed. Short verision, they died not with a bang but with a whimper, with my partner and I whimpering right along with them.

My point is not to scare you, but with zero payment experience from your buyer I would not "use the 250k 20 year loan as [your] personal annuity." I would say that is the hope, and after a few years you will have an idea whether the hope is well-founded.

In the big picture the building mortgage is probably safe after suffering some missed payments, possible foreclosure expenses, and selling costs. The seller financing maybe less so, but every year your buyer is successful and consistently making payments is a year that your worry level can decline a little bit.

Switch gears: I strongly suggest that you buy and read "The Coffee House Investor" by Bill Schultheis https://www.coffeehouseinvestor.com/ and if you like it (which you will) buy his new book, published just last week: https://www.amazon.com/Coffeehouse-I.../dp/1119717086 Don't start with the second one; it assumes you have read the first, then peels a few more layers off the onion.

If Bill successfully launches you on managing your own investments, then there is a plethora of reading options. One I like is "The Bogleheads Guide to Investing" by Taylor Larimore et al https://www.amazon.com/Bogleheads-Gu.../dp/0470067365
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Old 12-03-2020, 10:49 AM   #14
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You guys are great, what a wealth of helpful information. I love the bucket idea, my brain works that way. As for the .0000002% I’m going to have to pass this by my controller, my wife.

Thanks again.
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Old 12-03-2020, 11:03 AM   #15
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OldShooter your concerns are also mine. The building we have a first on the deed. Lack of payments on this would make me a landlord. The loan on the business the borrower is also a member of the LLC that owns the building. So if he can’t pay one or both payments I gain equity in the building and or we get the building back. The rest of the deal is cash to me bank financed for him.

This man has a long ownership history in this business and he is already a heck of an operator. He is buying this with my current partner. The business is doing extremely well. I think he will succeed nicely.

If anything goes wrong in the short run as happened to you. That had to be hard to deal with. We will likely take SS sooner.
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Old 12-03-2020, 12:22 PM   #16
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Hi gschultz5. I can't add anything to the comments above, I come here for advice more than I do to offer any.


I do share something with you that many don't. I owned a small business for 31 years before selling it 5 years ago. I financed the entire sale at 4.5% on a 10 year contract for deed. One contract for the building and another contract for the business. I had the business appraised by an industry expert and that was the purchase price. He also told me that if you're going to finance part of the sale, finance all of it. An outside bank will get what is theirs first and leave you holding your debt on your own. Financing the sale will also let you spread the capital gains over several years, this was a pleasant surprise to me.


Some general comments.


Have you accounted for some increases in your personal expenses that the business used to cover ? I'm thinking of vehicles, cell phones, computers...….


Taxes. You'll no longer get to deduct any mileage, cell phones, computers.... but you won't be paying self employment taxes and you'll like the capital gains rate. Caution on the capital gains, some states tax it is ordinary income.


Insurance. Do you have a need to continue liability insurance for the previous acts of your business that may arise until the statute of limitations expires ? If you have disability insurance you can likely drop it, you can lower life insurance possibly. Make sure the buyers have life insurance and a contingency plan if something happens to them before you're paid off.


I'm glad you got to sell your business and I am glad the new owners are taking over and hope they succeed. There is no need to have a winner and a loser in a business deal, there's always plenty of room for both sides to win if its a good business.
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Old 12-03-2020, 01:14 PM   #17
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...Insurance. Do you have a need to continue liability insurance for the previous acts of your business that may arise until the statute of limitations expires ? If you have disability insurance you can likely drop it, you can lower life insurance possibly. Make sure the buyers have life insurance and a contingency plan if something happens to them before you're paid off. ...
Good points, but on the first one most business liability policies are occurrance based so you souldn't need to continue it once you no longer own the business.
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Old 12-03-2020, 06:49 PM   #18
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Good points, but on the first one most business liability policies are occurrance based so you souldn't need to continue it once you no longer own the business.
Many professional policies are "Claims Made". That requires purchasing "tail" coverage. Check with your agent and get it in writing.


The official insurance term for tail coverage is "extended reported period" coverage, or ERP. It is usually available in different years options. They should offer it to you if it is available. I took the maximum the year I sold the place. I sleep better.


Like mentioned above, many CGL policies are on an occurrence basis, but some situations aren't. Last thing you want is to get sued for something after you sell out and find out you're not covered.....
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Old 12-05-2020, 06:15 AM   #19
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If equipment or even accounts receivable are included in the assets of the sale by pay out, you should consider filing UCCs on these items. Otherwise the buyer can go to a bank and get a loan with these as collateral which would move you to a second position behind the bank. I am thinking you probably have an attorney involved in the purchase agreement.
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Old 12-05-2020, 06:21 PM   #20
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Congrats on biz sale. Iíd come up with a diversified portfolio concept (maybe 25% US stocks, 25% international stocks, 25% precious metals and 25% cash) or something like that an dollar cost average into it over the next three years.
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