51 years old, think I am 3.5 years out from “ER” but have some questions

[3moreyears]

Been lurking here the past few weeks, figure it is time to post! I'm currently 51.5, married and DH is 55. 2 kids; 1 just finished his 2nd year of college, daughter will be a Sr in HS next year.

Been with the same company for 29 years and always thought I’d work forever, that is until my position was eliminated in February 2016. I ended up finding a role within the same company but 3 things changed 1)I had to quickly figure out all my retirement and stock benefits/holdings 2)I faced reality that the company has no loyalty to me and 3)I’m not really loving the role I landed in but am realizing I don’t have the desire to find one I would love. The best part of this all was #1. I consciously made the decision years ago to stick with the defined benefit plan that has the rule of 85 and since they froze the plan 2 years ago I now know exactly what my pension benefit will be.

I am very much a set it and forget it investor but I also have a bad habit of picking stock funds over bond funds so I need to balance now.

Currently we have the following assets:
401k: $1.1M (currently: $68% Index 500, 20% Ext Mkt Index, 12% Total bond index)
Vanguard: $212k (VIGAX:$182k, VBTLX:$30k)
Other mutual funds: $200k (6 different accts I probably should consolidate, mainly stock funds, ~$30 in IRA)
Savings acct*: $300k
Company stock value: $600k
Health Savings Plan: $35k (50% VIIX, 50% VIGIX)

Overall we are at ~ $2.5M, 80% stock, 7% bond and 13% cash

House currently valued around $800k (Zillow says $880), we owe $215k. I have not included house value in any calcs. We live outside of Seattle.

Currently saving annually:
401k: $18k
Roth 401k: $6k
Co match: ~$10k
HSP: $6k
Company stock purchase (discounted 15%):$13k

Income in retirement:
Pension (@55): $87k annual
SS (@ 67): $35k annual
DH SS (@67): $17k

Current plan for next few years: try to ratchet back discretionary spending some (eat out too much, consume too much stuff…), pay for some of the kids college ($150k remaining, over next 3-4 years), retire when I hit rule of 85 (1/1/21). Husband will most likely retire at same time or maybe continue to work part time for next few years. Financially I am assuming he will retire.

I have not been good at tracking our actual spending (starting that now) but I am assuming at high side we will spend $150k/year. I have put all this into the FIRE calc and show a 100% chance of success assuming we live to age 85+. First question is should I believe that ?

Next biggest question is related to what should I do with about $200k that is sitting in savings now? I started to think I should put it all in a bond fund, to get my asset allocation a little closer to “recommended” but then I read that you should keep your bond funds in tax advantaged accounts and use stock funds for taxable accounts; is that correct?

My husband is self employed and I have started looking into a solo 401k for him. Would it be better to do a traditional or Roth? I did some tax estimates this week and I am leaning towards traditional.

I realized this week that I could increase my ESPP up to $20k/yr (from $13k), should I?


Just forcing myself to put together the above has helped me! But I am still being a little too impulsive and leaning too much towards stocks! For example, until today I didn’t realize I could invest my Health Savings acct and I immediately put it into stock index funds when I probably should have waited a few days to post this and get some feedback!

Thanks for any feedback and sorry this got so long!

 

[Katiek]

Congrats, between the pension and your savings, you look in great shape!

The only thing that struck me was a high concentration in your employer stock. I you can live on the pension alone, then it may not be so bad, but as I got closer to retirement, I'd look to sell some of that and diversify the proceeds a bit more.

 

[pj.mask]

I would max out stock plan but sell what is already bought/vested. Bonds or cash are pretty close together these days.

Why not spend some time looking for a better position you like - 3.5 years is a long time. I would also plan out past 85 but realize your spending will be much less.

As a 30 year old: Not a big fan of paying a lot for kids college. I believe they need to earn some of it to value the cost/money.

Don't forget backdoor Roth. Read some books on portfolio ratios. You should likely be 60-70% stock and balance bonds/cash.

Also consider if you want to stay in your home or move closer to a/the kids when they start families. Downsizing to a 500k house can free up some money if you are interested in that.

 

[Blue Collar Guy]

Run firecalc with zero social security, whats the results? The truth will be somewhere between getting 100 % soc sec and getting ziltch. With your net worth you are the target group they are coming after for means testing.

 

[OldShooter]

Agree on the company stock concentration. Fiduciaries have concentration limits of 5-15% depending on the institution. It's called the "prudent man" rule. My wife was an SVP and business unit manager in Investment and Trust at a megabank and their limit was 15%. If they had an account with a concentration over 15% the computer would snitch to the compliance guy and they would get an inquiry. Sometimes a concentration was necessary for tax reasons in a taxable account, but they were required to have a good reason.

The other thing that the % arithmetic does not consider is that both your job and your $600K are betting on the same company, so your concentration is effectively much higher. I would continue buying at the 15% discount but would simultaneously be selling a greater number of shares as tax efficiently as possible. IIRC there used to be some mutual funds that helped with this; you could contribute your shares to the fund in exchange for shares in the fund and it was a tax-free transaction. You might want to look into this.

Edit: And your pension is to a large extent a bet on the company's ability to fully fund the plan. So you are even more concentrated. I'd be checking the plan funding to know how risky it might be. The PBGC doesn't pay very well.

 

[CoolChange]

Company Stock for Mutual Fund Exchange - Tax Free Event?

Agree on the company stock concentration. Fiduciaries have concentration limits of 5-15% depending on the institution. It's called the "prudent man" rule. My wife was an SVP and business unit manager in Investment and Trust at a megabank and their limit was 15%. If they had an account with a concentration over 15% the computer would snitch to the compliance guy and they would get an inquiry. Sometimes a concentration was necessary for tax reasons in a taxable account, but they were required to have a good reason.

The other thing that the % arithmetic does not consider is that both your job and your $600K are betting on the same company, so your concentration is effectively much higher. I would continue buying at the 15% discount but would simultaneously be selling a greater number of shares as tax efficiently as possible. IIRC there used to be some mutual funds that helped with this; you could contribute your shares to the fund in exchange for shares in the fund and it was a tax-free transaction. You might want to look into this.

Edit: And your pension is to a large extent a bet on the company's ability to fully fund the plan. So you are even more concentrated. I'd be checking the plan funding to know how risky it might be. The PBGC doesn't pay very well.

If anyone has information about exchanging company stock for funds tax-free, assuming it is still possible, I am sure many of us would appreciate pointers. I have never seen anything like this but would be very interested.

 

[3moreyears]

Thank you all! This is exactly the sort of feedback I need! To address some of the points:

I agree on the amount of company stock. It is truly embarrassing how much I ignored all of this over the years. Most of the stock came from stock and option grants and I would literally go years without checking it unless I had to make some mandatory tax election. With the impending layoff last year I did end up exercising any options that were in the money but still didn’t think to do anything about the accumulation. I only started the ESPP about 2 years ago even though it had been offered for years so kicking myself about that too. I will up that percent but also start selling.

Regarding finding a role I like better; I likely will in another year. My current boss really created this role for me and I want to give it another year. I obviously need to stay within the company till I hit that rule of 85 but I am often asked about other roles so am pretty sure I’ll end my years in something with a bit better fit. We also do plan on downsizing the house, moving to a bit more rural part of the Seattle suburbs; a little closer to the airport but also to the mountain recreational areas we spend a lot of time in.

And BCG I definitely have run Firecalc without SS and run to age 95 and still get 100%.

Thanks again!

 

[OldShooter]

If anyone has information about exchanging company stock for funds tax-free, assuming it is still possible, I am sure many of us would appreciate pointers. I have never seen anything like this but would be very interested.

Sorry to say I don't have any more info for you. They definitely existed, but it could easily have been 20-30 years ago and at the time I had no interest. I don't even remember what they were called so can't do a Google search. A really good CPA/FA might be able to help. Or maybe someone here has a more detailed memory than mine.

 

[Blue Collar Guy]

Thank you all! This is exactly the sort of feedback I need! To address some of the points:

I agree on the amount of company stock. It is truly embarrassing how much I ignored all of this over the years. Most of the stock came from stock and option grants and I would literally go years without checking it unless I had to make some mandatory tax election. With the impending layoff last year I did end up exercising any options that were in the money but still didn’t think to do anything about the accumulation. I only started the ESPP about 2 years ago even though it had been offered for years so kicking myself about that too. I will up that percent but also start selling.

Regarding finding a role I like better; I likely will in another year. My current boss really created this role for me and I want to give it another year. I obviously need to stay within the company till I hit that rule of 85 but I am often asked about other roles so am pretty sure I’ll end my years in something with a bit better fit. We also do plan on downsizing the house, moving to a bit more rural part of the Seattle suburbs; a little closer to the airport but also to the mountain recreational areas we spend a lot of time in.

And BCG I definitely have run Firecalc without SS and run to age 95 and still get 100%.

Thanks again!

Awesome, you are good to go , enjoy a well earned retirement.

 

[rpguy4]

Just a note : Be careful of the tax consequences before selling a lot of company stock.

 

[3moreyears]

I figured I'd put an annual update out here to help me track my progress. I had found it helpful last year to just write this all out and it was helpful to write this update!

Portfolio:
401k: $1.3M (53% Index 500, 14% Ext Mkt Index, 33% Total bond index)
Vanguard: $907k (VIGAX:$595k, VTIAX: $255k, VEMAX: $57k)
Other mutual funds: $260k (Mainly stock funds, ~$30 in IRA)
Savings acct: $200k
Company stock value: $128k
Health Savings Plan: $48k (50% VIIX, 50% VIGIX)

Overall we are at ~ $2.8M, 75% stock, 17% bond and 8% cash

House currently valued around $900k, paid off this past year. I have not included house value in any calcs. We live outside of Seattle.

Currently saving annually:
401k: $18k
Roth 401k: $6k
Co match: ~$15k
HSP: $6k
Vanguard taxable: $26k
Company stock purchase (discounted 15%):$20k

Income in retirement:
Pension (@55): $87k annual
SS (@ 67): $35k annual
DH SS (@67): $17k

What I’ve done in past year:
• Converted much of my company stock. Paying a huge tax bill on this but makes me feel much better about the allocation.
• Paid off house
• Increased non-retirement fund savings
• Increased amount of ESPP purchase, and converting to cash immediately after purchase
• Moved cash to a high interest account, still have too much on hand but at least it is earning a little something.
• Cut back on discretionary spending. Still spend too much but it is much more thoughtful.
• Daughter graduated HS and also earned her associates. She is taking a year off but should only have 2 years after that. Son took a [forced by mom] year off and only took a few classes, going back FT in August. Still have $150k earmarked for college.
• Took a new assignment at work that is much more engaging. Had the opportunity to relocate to Nashville for the next few years (co didn’t know it would only be that long) but so far have decided to stay put.

Current thoughts on retirement:
• Retire when I hit rule of 85 (1/1/21). Husband may continue to work part time for next few years. Financially I am assuming he will retire.
• Tentative plans are to downsize the house, staying in the area but more rural (while still close to airport).
• Plan to travel 3 mo, home 3 mo for a few years. This lets DH continue to work some and allows us to enjoy the PNW in winter (skiing/showshoeing) and summer (hike/kayak). Travel will be a mix slow travel to LCOL countries, shorter trips to more expensive areas and maybe a few months traveling cross country here and there.


I did not end up opening a solo 401k for DH but that is a potential still for this year. This was a good reminder for me on that!

FIREcalc still looks good. It actually looks good even if I retire at the end of this year and not draw my pension until I turn 65. I am hoping to stick around the less than 2.5 years left to not give up almost $900k of pension but it is good to know that is an option!

 

[njhowie]

Well, that looks significantly better taking the company stock lower and bulking up the Vanguard holdings.

 

[Osprey]

Looks like you are in great shape. I’m planning to retire soon and am currently holding a 55/45 portfolio in case there is a downturn in the market; I don’t want that to impact my retirement timing. When I got to within 2 years of retirement eligibility the amount of time left started to feel within reach and it gets better each day!

 

[3moreyears]

Last update!

I retired yesterday! When the market tanked back in March I thought I may put it off a year but those thoughts were pretty short lived! I did take a new job (at same co) last April; and had a great and very productive last year. When I took the job my Sr Dir knew I would be retiring and I had told her I'd stay through end of Q1 2021 but the 5 and 6 am meetings (and 12-14 hour days!) started to wear on me in November and I came back from a few days off and gave notice.


Overall we are at ~ $4.1M, 72% stock, 23% bond and 5% cash. Firecalc shows 100% at higher then expected spending and 40 years.

Income in retirement is same as above

Current plans:
• Retired 3 weeks after hitting rule of 85 (yesterday, 12/31/20).
• Husband is self-employed and may continue to work part time for next few years. Financially I am assuming he will retire.
• With Covid we don’t have many plans made yet. We bought a small travel trailer last summer. We plan to do a bunch of mid-week skiing for the next few months and have 2 RV reservations made for ski areas and may do more depending how much we like the first 2 times. We are doing a 4 week cross country RV trip to GSMNP in late April/May. Hopefully we will be going to Spain for a wedding in September and will spend a month or so traveling there.
• Still tentatively plan to downsize the house in the next 2 years, staying in the area but more rural (while still close to airport).

I haven't really planned out our withdrawl strategy yet so plan on spending more time here as I work on that and our roth conversion plans. Looking forward to it!

 

[rpguy4]

Congrats

Congrats. Those are some great gains and accomplishments in just 3 years.

Enjoy !

Great way to start the year.

 

[RVplusDog]

• We are doing a 4 week cross country RV trip to GSMNP in late April/May.

If it isn’t already on your radar, check out Transylvania county NC, just south of GSMNP. Fabulous scenery, hundreds of waterfalls, great hiking, mountains, lakes, etc.

Congrats on your retirement!

 

[fassmac]

Congratulations, what a nice road to success!

 

[finnski1]

congrats on the great gains in 3 years and meeting your goals. Enjoy the time going forward and have some fun with the family!