Tricky situation

[ready2enjoy]

Hello everybody,


Was reading the forum for some time and finally decided to join today

I am in my early 50s and married, no kids. Lost motivation at work and things aren’t getting any better. Income has been going down a lot over the years but is still pretty decent, except with inflation doesn’t feel like it.

We are currently spending more than my work income, rest covered from investments.

Now comes the tricky part: while I don’t hate my job, I am burnt out and feel like I am wasting my life. Becoming stressed about “time”, ie feel like the remaining good years are ticking away while doing something I no longer enjoy and it keeps me from doing things I would want to do such as traveling and living in other countries for some time.

This is the financial situation:

401k: 1M
Roth IRA: 350k
after tax investments: 1.4M
Private illiquid investments: 3M (incl. significant unrealized gains)
Real Estate: 2M with 1.35M mortgage

Expenses: approx 260k pa, need min 320k pre-tax; Job income approx 200k


So there is a good amount of assets but majority is illiquid and high risk, can’t easily cash out of those.

Clearly I could not afford to walk away from my job and continue current lifestyle but just waiting and hoping for a home run could result in frustration if one day I “wake up, am 60 and nothing changed”.

One thought we discussed was this: setting a deadline (for example 55) and by then, baring financial disaster, decide to walk away no matter what. This could mean potentially significant lifestyle change as the non illiquid assets barely support spending half of what we currently spend. But not planning to do a major lifestyle change right now because there is a chance that the private investments become liquid and even more valuable within the next few years and we would not want to downgrade significantly unless necessary.

Having said all of this, what is everyone’s assessment of our situation? Does setting an age deadline make sense or better ideas on how to deal with it? Biggest uncertainty is that half of the assets might be worth much more than what they are now or it could be zero (rather unlikely).

 

[OldShooter]

First thing I would go to work on is the $260K spend rate. Another thing, since you are concerned, would be to work on selling some of the illiquid investments. You will probably have to discount a bit, but if it gets you down to the "sleep well" level that may be worth it.

... not planning to do a major lifestyle change right now because there is a chance that the private investments become liquid and even more valuable within the next few years and we would not want to downgrade significantly unless necessary. ...

Just remember: "Hope" is not a strategy.

 

[Happyras]

The big factor for me would be cash flow enough to pull the trigger. You did not mention sources of other income. That known, it would be easier to assess. Does your DW work? Does she want to quit too? Do you have future pensions, rental income, or basic investment income to offset the needed 320K?

With the many folks we know dying in their 60's and early 70's, we are certainly glad we retired early to enjoy life while we had health. My wife was an avid horse person and had to stop in her mid 60's due to health/ability to stay on.....She retired at your age.

 

[MarieIG]

Pick your poison. There is a saying, which is (partially true) - but hopefully you understand the message. You can have "anything" but you can't have "everything."

I would work on getting your spend rate down.

 

[Aerides]

Perhaps it's a typo, but your current expenses already exceed your income?

 

[ready2enjoy]

Thanks OldShooter.

Agreed, hope is not a strategy, however, not that simple to sell as my largest investment is a private company that would have to approve any resale of their shares and they do not allow that currently. It’s a very promising business and valuation has already increased significantly but until they do an IPO or get sold, it is illiquid.

 

[ready2enjoy]

Sorry, forgot to respond about the expense side: some expenses could only be cut with consequences, such as health-related as well as supporting family in poor situation.

The biggest expense item to cut would be selling real estate and downgrading but that’s always tough to do especially with a very cheap mortgage locked in. Mortgage rate on a cheaper place would be more than twice as high.

 

[ready2enjoy]

In response to other answers: my wife can’t work due to health issues, which is also part of the reason why expenses are high. Unlikely she will be able to start working again.

The expenses are unfortunately not a typo and mostly are property and service-related (house cleaning, food delivery, gardener etc). Difference from income to expenses is covered from investments.


The “cut the cord at 55” would result in either having to significantly downgrade our living situation or it can work if the private investment works out as hoped for. And yes, hope is not a strategy; which is why I am trying to figure out at what point to make changes.

Selling the house and moving someplace cheaper in expectation that investments go bad seems a bit extreme at the moment but planning for the “what if”. Also again, giving up on a very low interest rate mortgage isn’t what I would want to do unless necessary.

 

[MarieIG]

Thanks OldShooter.

Agreed, hope is not a strategy, however, not that simple to sell as my largest investment is a private company that would have to approve any resale of their shares and they do not allow that currently. It’s a very promising business and valuation has already increased significantly but until they do an IPO or get sold, it is illiquid.

Do you have to stay at your current place of employment to take advantage of these "illiquid" assets?

Otherwise, why don't you look for employment (for more $) that would afford you greater satisfaction for the time being?

 

[ready2enjoy]

MarieIG: Pay would not be better at a different employer as it is a commission based job and business has been getting worse over the years. It’s part of the frustration of the job to be stuck in a “melting ice cube” situation. I do not see much of a chance of this changing unfortunately.

 

[OldShooter]

... my largest investment is a private company that would have to approve any resale of their shares and they do not allow that currently. ...

Have you seen and carefully read the governing documents? Maybe with the help of a securities lawyer? What happens on the death or resignation of a stockholder, for example? Is the company forced to buy back the shares? Minority shareholder rights law in your state probably will say that they have to pay a fair price. Other statutory rights may pertain as well.

... It’s a very promising business and valuation has already increased significantly but until they do an IPO or get sold, it is illiquid.

Subject to the governing document, a private sale of your unlisted stock may be a third, more immediate, option. I have done it. It took some lawyering expense and a discounted price, but I needed the cash for another better opportunity so I pulled the trigger on the sale.

... The “cut the cord at 55” would result in either having to significantly downgrade our living situation or it can work if the private investment works out as hoped for. And yes, hope is not a strategy; which is why I am trying to figure out at what point to make changes.

Selling the house and moving someplace cheaper in expectation that investments go bad seems a bit extreme at the moment but planning for the “what if”. Also again, giving up on a very low interest rate mortgage isn’t what I would want to do unless necessary.

One of the things I have noticed about us humans is that when we are presented with a problem that involves only undesirable solutions, we almost always freeze and do nothing. If doing nothing is your best choice, that's fine, but your OP implies that you don't think so. So choosing another option is actually necessary. Now.

 

[ready2enjoy]

Many thanks again OldShooter.

I probably didn’t make it clear that I am very positive on my private investment. It has already done 3x from my initial investment and the future is promising. I do expect there to be another 2-3x before they’d go public, so do not want to sell at the moment (and believe I can’t anyway).


So the biggest issue is to figure out how to deal with a situation where ER at current spending level is dependent on a successful investment outcome but if that outcome does not happen ER is still possible but with a clearly reduced lifestyle.

In my mind these are the options I have:

- keep working until either the positive investment outcome happens or until I “can’t” anymore and then adjust to whatever is possible at that point.

Downside: it gives no clear timeline I can mentally work with


- cut expenses drastically now to the point where I could walk away from my job.

Downside: we’d have to move away from our HCOL area or move to a less desirable neighborhood in this HCOL


- set an age limit at which changes will be implemented as required.

Downside: you call it the “do nothing” option [emoji23]


I guess at the end it all comes down to how much longer I am willing to stick it out at work.

 

[pb4uski]

Just wondering out loud if you can transfer your illiquid stock to an LLC... and then later, after a little time, sell your shares in the LLC as a backwards way of selling the illiquid shares.

Or transfer your illiquid shares to a trust and then make a buyer the trustee and beneficiary of the trust in exchange for cash.

Perhaps change jobs even at similar $$$ for potentially better job satisfaction? Good salespeople are usually in high demand.

 

[steady saver]

I don't have an answer for you but just some sobering reflections. I just had an email that a friend's cancer has metastasized to her liver. My SIL's 4 year old granddaughter has been hospitalized for the past few days trying to find out why she is in so much pain...Juvenile arthritis? Leukemia?

I say this not to be a Debbie Downer but it is just a reminder that we just never know what the future holds. What if life is just about today?

I understand planning. My name says it...I've been a steady saver and planner most of my life. But if you don't change anything right now, at least make that be an intentional decision. I'd personally have a set date for retiring b/c, believe me, "something" will always come up. If you have a clear plan with a worst case and most likely case scenario then following through is easier.

What if you and your wife decided to prioritize time and travel experiences over everything else and see where the chips fell? What would you have to exchange for that lifestyle and those experiences? MarieIG is right - you can have about anything but you can't have everything. Diving into new dreams is tough, I get it. I'm right there with you. But what if it's only tough to make the decision? What if the result is something you could've never imagined?

What does your wife want?

 

[OldShooter]

... In my mind these are the options I have:

1- keep working until either the positive investment outcome happens or until I “can’t” anymore and then adjust to whatever is possible at that point.
Downside: it gives no clear timeline I can mentally work with

2- cut expenses drastically now to the point where I could walk away from my job.
Downside: we’d have to move away from our HCOL area or move to a less desirable neighborhood in this HCOL

3- set an age limit at which changes will be implemented as required.
Downside: you call it the “do nothing” option [emoji23]

I guess at the end it all comes down to how much longer I am willing to stick it out at work.

Well, how abut option 1.5 ? : Begin on a course of reducing expenses to cushion the impact if the stock deal bubbles. Maybe the initial path does not lead to moving to another house but instead has a mental target date for living within your salary-level means and leaving the investment income to compound.

NB, I am a bit puzzled when you say " ... business has been getting worse over the years ..." and then say " ... I am very positive on my private investment. It has already done 3x from my initial investment and the future is promising. ... " As a shareholder you should be able to see the company books. It might be worthwhile to look at them with a CPA with particular attention to this idea that the stock value has tripled. Value is difficult to be sure of with private equity -- the stock is worth whatever management says it is. (IMO there is a coming debacle in the investment business as the "true value" of hedge funds' large private equity holdings begins to be revealed.)

 

[ready2enjoy]

@steady saver: due to my wife’s health she can’t do regular travel. She could join if we moved someplace for a while and have a home base (lots of medication and doctor visits) but shorter international trips would be only me as it’s not enjoyable for her with the health issues.

So therefore, what does my wife want? She says whatever works for me. At the same time I am sure she’d be happy if I could get over my work frustration and keep going so that we wouldn’t have to make any changes. Changes aren’t as easy for her.

 

[ready2enjoy]

@OldShooter: just to clarify, the private investment has nothing to do with where I work. Private investment is in a different industry altogether. Valuation increase comes from at what price levels they have been raising funds. I took valuation based on where they have recently raised funds at. Of course at the end this only matters if business continues to develop in a positive way. Which is why I am not counting on this for retirement purposes. It is still high risk, even if it does look positive.

 

[ut2sua]

Private illiquid investments: 3M (incl. significant unrealized gains)
Biggest uncertainty is that half of the assets might be worth much more than what they are now or it could be zero (rather unlikely).

OP, as you have identified, your weakest link is the illiquid asset which could be zero in a worst case scenario. Without understanding your particular situation, if you can convert this asset to something more reliable (let's say that will come out at 50%->60% of current value to around 1.5M->1.8M) that is more liquid, then your number will be more defined. Knowing that you will have a 3.5M or 4.5M (just throwing out some uncalculated numbers here), it will be easier for you to plan if you should decide to RE. This could be a "loss" in your mind, but if you want peace of mind to be able to RE (and knowing how much you can spend), it could be a path to a happier ending for you. Good luck

 

[OldShooter]

@OldShooter: just to clarify, the private investment has nothing to do with where I work. Private investment is in a different industry altogether. Valuation increase comes from at what price levels they have been raising funds. I took valuation based on where they have recently raised funds at. Of course at the end this only matters if business continues to develop in a positive way. Which is why I am not counting on this for retirement purposes. It is still high risk, even if it does look positive.

Good to know that your employment and your investment are not in the same place. There were lots of sad stories coming out of the Enron collapse.

But I still suggest you explore the idea of selling part of that private placement stock. The offeror may even have potential buyers who missed the last round and/or would be interested in stock at a discount. That's exactly what I did when I sold my private placement stock taking IIRC a 20% haircut. Reducing your concentration in that asset is fiscally prudent in a general sense and especially prudent given your situation and desires.

 

[steady saver]

@steady saver: due to my wife’s health she can’t do regular travel. She could join if we moved someplace for a while and have a home base (lots of medication and doctor visits) but shorter international trips would be only me as it’s not enjoyable for her with the health issues.

So therefore, what does my wife want? She says whatever works for me. At the same time I am sure she’d be happy if I could get over my work frustration and keep going so that we wouldn’t have to make any changes. Changes aren’t as easy for her.

I'm sorry to hear that. That is hard. Especially since you'd said "Becoming stressed about “time”, ie feel like the remaining good years are ticking away while doing something I no longer enjoy and it keeps me from doing things I would want to do such as traveling and living in other countries for some time."

I understand how that changes the options/trajectory. Exploring what you want to do and what is possible to do if you did retire seems worthy of some soul searching and joint planning. Throwing out questions here is a good place to start. I'm glad you posted.

 

[sparky08]

Thanks OldShooter.

Agreed, hope is not a strategy, however, not that simple to sell as my largest investment is a private company that would have to approve any resale of their shares and they do not allow that currently. It’s a very promising business and valuation has already increased significantly but until they do an IPO or get sold, it is illiquid.

MarieIG: Pay would not be better at a different employer as it is a commission based job and business has been getting worse over the years.

Many thanks again OldShooter.

I probably didn’t make it clear that I am very positive on my private investment. It has already done 3x from my initial investment and the future is promising. I do expect there to be another 2-3x before they’d go public, so do not want to sell at the moment (and believe I can’t anyway).

I went through this same thing. I held a decent amount of stock in a company that I helped build.

Being a private company, I wasn't able to 'cash out' until the company was sold. And after debt was retired and the 'A' shares were paid out, it wasn't what I was expecting/promised.

Business getting worse is a problem, because an IPO/new owner will be paying for future performance.

If you leave before the commpany is sold, what happens to your shares?

 

[aaronc879]

If your wife can't work can she get on SS disability? Not sure it would allow you to retire but it's better than her making nothing. If you don't want to sell your $2M home then I don't see a good option for you quitting your job. Seems you need to stay at your job until the private investment money is liquid. Then you have options.

 

[Exchme]

You are spending like your job is secure, but said your income is way down, which is a strong indication that it isn't so secure. You are spending like the illiquid investment were real money, but it might never be, most new companies don't work out. Just because you feel strongly about it right now doesn't mean anything about the future - competition, lack of funding, management exit or failure, product obsolescence, dilution of early investors, etc. happen all the time.

Since you have no timeline of when you can sell the illiquid investment and it might be never, I would live like it doesn't exist, starting with a cut in spending. If all works out like you hope, then you will have learned to spend only what you value and will have a lot of money. If that investment fails, you won't be facing disaster.

I recommend going to FireCalc and entering your numbers to see what spending your liquid portfolio + eventual SS could support if you stopped working now. Then think about what you can do to get your income back up so you can save more, whether your wife could get a job, etc.

 

[RetiredHappy]

Your biggest expense is the mortgage, about $65K a year. I don't see how you can stop working and continue to pay the huge mortgage. You should hang on to your job, find another job which you may enjoy more, and get rid of the expensive home and mortgage.

Like others have said, you cannot count on your illiquid investment as real money and live like you have that $3M. Pay cash on a cheaper and smaller home.

 

[Markola]

You’re in Florida with a $2M house. Any chance of renting it out and living yourselves in a rented apartment or condo worth, say, $1M nearby? That way, you could keep the house, it’s appreciation and its low rate mortgage while maybe neutralizing the large payment and cleaning services. And you’d still get to live in a nice but less expensive and demanding place.