Can I retire comfortably?

[travellight]

Wow, that firecalc link is fun! I put in spending of 130K to last me 40 years and I had 1% chance of failure..... reassuring!

[Bustoff]

I only have about $1.5M currently. The other $2.5-$3M (after tax) would come from the sale of my business. I could sell it easily and get that amount right now. It has grown every year for 10 years and based on current conditions I don't see the growth stopping. It could be worth 50% more in 5 years or worth quite a bit less if business falls off- who the heck knows. I am making mid-high 6 figures (wages + dividends) each year in it, but taxes are killing me.

Even if the company shrunk to half its current size I would still make low 6 figures and I am not worried about it going away.

It is a matter of cash in now and take the money and run or wait it out a bit longer. I am only willing to cash out now if I can retire comfortably the rest of my life without having to work again. If I can't do that then I will wait another couple of years.

Like I said, this is the biggest financial decision on my life. I want to be very careful with it.

What is it that costing you $100,000 a year in living expenses ?

If you retire, what will you do all day . . . for the next 40+ years ?

Your 3MM enterprise provides you with at least 500K income/year ? That's a 17% return. Take half your salary and hire someone to run the biz. Then, you can retire and keep the biz and still pull 8%.

[soccerdad12]

The enterprise revenue is much larger than $3M / year. If I could hire someone for $250k to 100% confidently run and grow the business the way I do then I would hire them in a New York minute. Alas, that person is EXTREMELY hard to find. That still wouldn't address my issue of a $3M bird-in-the hand vs the risk of something unforeseen declining the value of the business. As mentioned, I am starting a 3 day work week in the next month and try that out for awhile.

$100k in living expenses? I plan on the wife and I traveling a good bit, many local sporting events, plays etc.....

My definition of retiring (at my age at least) is having the flexibility to do what I want without worry about money. I will start some other kind of venture and do some charity work.

[mindbogle]

I think you made the right decision to delay - retiring safely at your (young!) age, given your current situation and depending on your lifestyle goals may not be a slam dunk now. A couple of comments:

Be very wary of the Firecalc results!! I know people that heavily relied on the tool to decide to retire just prior to 2007 and are sorry for it now. Firecalk essentially assumes that future US stock market behavior will be similar to the past. Stock and bond market history for the US might be an historical exception and not necessarily a good harbinger for the future (see research by Dimson et al). Firecalc also implicitly assumes that mean reversion in stock market valuation doesn't exist (future returns are not dependent on today's stock market price levels). While its possible history may repeat itself, and that mean reversion may not be a strong factor, these represent significant uncertainties in my opinion, and I think you should consider simulation models that allow for a range of future market tendencies. When it comes to modeling the future, its not just the ergodic behavior that is important (the time-dependent fluctuations and return path), but its also parameter uncertainty (the future average return uncertainty and volatility, for example). Firecalc does not address the later, and this is a major flaw in my opinion.

If you are willing to expend a little effort, I recommend reading a book or two by Milevsky, well known economist, insurance expert, and professor at the York University of Toronto. He has developed a very simple analytical model for retirement that allows you to input forward-looking portfolio return average and volatility values, as well as your age and assumptions about mortality. So you can test a number of different possible future outcomes. While not as flexible as Monte Carlo simulation, the model's simplicity requires little effort and will force you to think hard about your retirement assumptions. You may be surprised! Here is a link to his spreadsheet model:

http://www.qwema.ca/wordpress/wp-content/uploads/2012/06/7Equations_June1.xlsm

Go to the sheet called "#7 Kolmogorov". You can read about the model in papers he has published and books. The spreadsheet link is associated with the book "The 7 Most Important Equations for your Retirement". Have fun!

[Bustoff]

That still wouldn't address my issue of a $3M bird-in-the hand vs the risk of something unforeseen declining the value of the business.

Assume you sell for $3M and eliminate the risk of your business declining value. How would you re-deploy the cash without adding some new type of risk to your money ?

[soccerdad12]

I wouldn't be eliminating risk, just spreading it out over thousands of companies over multiple continents in many different industries. Isn't that the Boglehead way?

[HomerJ]

I am 57 and would like to retire. I have about a $6.4 mill net worth and we spend $70,000 per year. That does not include health insurance costs in retirement. I am struggling with whether to work another 2 to 3 years just to make sure I have enough. Personally I would be hesitant to retire that young in such uncertain economic times. I would sell the business and take the cash. I have relatives who had multimillion dollar businesses that became worthless (one is in Venezuela).

And I have had seemingly healthy relatives who died suddenly of a heart attack at 59... You should retire now... Life is too short, and you have an immense amount of money... You could take $70,000 each year out of your portfolio for NINETY-ONE years even with ZERO growth. Yes, you have to account for inflation and medical costs, so maybe you'll only get SIXTY years out of that portfolion (still assuming zero growth), but son, you've won the game. Time to enjoy your winnings.

To the OP, I'd sell the company, and spend some quality time with your kid before he/she heads off the college. Figure out what your expenses are without the house payment, and do the math from there.

[HomerJ]

To complete the loop I thought I would post back what I have decided to do.

I am going to ride it out for 2-3 more years. I will be able to have very high income for a couple more years and very sure that I can increase my personal payout on the business by an additional $1M in that time as the revenue of the business grows even larger.

One other note... I know I am very lucky to have this flexibility and I have decided as an interim step to only work 3 days / week. I think that is pretty good option while not make any final decisions either way.

Thanks to everyone for their great advice.

PS. Firecalc is about the best tool I have ever seen!

Man, I'm doing it wrong... He can CUT BACK on his working hours, and still grow his business by another million in 2-3 years. What is your business soccerdad?

[soccerdad12]

I would rather not go into specifically what my business is, but what I can tell you is that it is decent size now (we have hundreds of clients in 30+ states) and I have managers that can handle all of the day-to-day to increase the business. I have invested most of my time over the years in leadership development and teaching the young managers how to approach and solve problems rather than just giving them the solution to the problem. My proudest moments at work are when I hear one of my managers helping teach others more junior the same way I taught them. I have not been involved in the everyday work for last 2+ years. I believe that is the way every business should be grown and run. 10 years of doing the above is what is allowing me to reduce hours and yet keep things growing....

[rocket]

Go see a Certified Financial Planner.

[kamo]

The enterprise revenue is much larger than $3M / year. If I could hire someone for $250k to 100% confidently run and grow the business the way I do then I would hire them in a New York minute. Alas, that person is EXTREMELY hard to find. That still wouldn't address my issue of a $3M bird-in-the hand vs the risk of something unforeseen declining the value of the business. As mentioned, I am starting a 3 day work week in the next month and try that out for awhile.

$100k in living expenses? I plan on the wife and I traveling a good bit, many local sporting events, plays etc.....

My definition of retiring (at my age at least) is having the flexibility to do what I want without worry about money. I will start some other kind of venture and do some charity work.

Hi,
As my dad would say, you've got good problem. Congratulations on building what sounds like a fine company.
I presume that if you did sell out that the buying company confidently thinks they can find someone for $250k to replace you? Usually companies dependent on founders are hard to sell. It sounds like you've done good work developing leadership so maybe that $250k wonder worker isn't so hard to find. Have you done an executive search?
If you enjoy your work, maybe sell a minority share. This will reduce your concern about having most of your eggs in one basket, and still keep you at the helm of a company you built and a job you enjoy.
Consider using 1 or 2 of those days off to work in a charity to get a feel for how much you would like it if you did it full(er) time.
You've obviously got a good head on your shoulders, so you'll do fine however you end up.

[dharrythomas]

I think you can retire whenever you want to. $4M will be enough under most circumstances where the country doesn't collaspe. You are well under a 4% withdrawal rate.

I would recommend two things:
1. Pay off the mortgage (lowers the fixed expenses and risk)
2. Reduce the stock bond ratio to no more than 60/40. 75/25 is right at the edge of what Ben Graham thought was reasonable. If you're not going to be adding to the nest egg, I'd cut down the risk some.

Good Luck

Harry