work 3 years for 20x payout or retire and wait 10 years

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gips
Posts: 1760
Joined: Mon May 13, 2013 5:42 pm

work 3 years for 20x payout or retire and wait 10 years

Post by gips »

Hi,

I've been mulling this over for the past couple of months:

- work 3 years, decent salary and receive lump sum payment of about 20x current expenses or

- retire tomorrow and wait 10 years for lump sum payment.

- I currently have 20 times current expenses saved. We're in one of the highest cost of living counties in the country and I don't want to move for 3-7 years. After that, I should be able to move and cut expenses in half.
- The number above does not include equity in house which is about 5x expenses.
- Also our kids college education is fully funded.
- the payout is variable, it's based on the performance of a single stock.

here's some other data:
- I'm mid 50s
- my dad died at 72 of liver cancer. His dad died at 72 of a heart attack. His mom died at 74.
- my mom died at 67 of lung cancer (she was a lifetime smoker). Her mom died at 72 of cancer. her dad died of mouth cancer at 76 (he was a smoker).

so I'm thinking my life expectancy is around 72. I realize this is a highly personal decision but would be interested to hear people's thoughts and reasoning.
tj
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Joined: Wed Dec 23, 2009 11:10 pm

Re: work 3 years for 20x payout or retire and wait 10 years

Post by tj »

What would you be doing for the next three years if you were not working? Does whatever that is sound more enjoyable than your job? If so, that sounds like an easy decision to me, assuming you are not relying on that payout to survive.

20x annual expenses with what you consider to be less than 20 years of life expectancy, this does not seem to be a financial decision. Especially since you say you could cut expenses in half shortly into retirement.
Last edited by tj on Sat Apr 26, 2014 11:57 am, edited 2 times in total.
Grt2bOutdoors
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Joined: Thu Apr 05, 2007 8:20 pm
Location: New York

Re: work 3 years for 20x payout or retire and wait 10 years

Post by Grt2bOutdoors »

gips wrote:Hi,

I've been mulling this over for the past couple of months:

- work 3 years, decent salary and receive lump sum payment of about 20x current expenses or

- retire tomorrow and wait 10 years for lump sum payment.

- I currently have 20 times current expenses saved. We're in one of the highest cost of living counties in the country and I don't want to move for 3-7 years. After that, I should be able to move and cut expenses in half.
- The number above does not include equity in house which is about 5x expenses.
- Also our kids college education is fully funded.
- the payout is variable, it's based on the performance of a single stock.

here's some other data:
- I'm mid 50s
- my dad died at 72 of liver cancer. His dad died at 72 of a heart attack. His mom died at 74.
- my mom died at 67 of lung cancer (she was a lifetime smoker). Her mom died at 72 of cancer. her dad died of mouth cancer at 76 (he was a smoker).

so I'm thinking my life expectancy is around 72. I realize this is a highly personal decision but would be interested to hear people's thoughts and reasoning.
Do you smoke? Does your wife smoke? Do you exercise? Are you overweight?
If yes to any of those questions, you can still quit, you can lose weight and you can begin exercising at almost any point in time going forward.
You should think of your life expectancy to be as long as the IRS says it is - look at the RMD tables - they have actuarial proof of how long the majority of the population lives.

I would work the 3 years, get your lump sum payment upfront - no one knows what tomorrow brings. A bird in hand is worth two in the bush.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
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tractorguy
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Location: Chicago Suburb

Re: work 3 years for 20x payout or retire and wait 10 years

Post by tractorguy »

You don't give enough information to have a meaningful opinion on your options. What is the source of this lump some payment and what is the risk that it may be significantly devalued (as go to zero) in 3-10 years? If it is a stock option, many on this board would give it zero value in all of their retirement calculations until it has been exercised. The reason for this is the high risk of being underwater when you want the money.
Lorne
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jimb_fromATL
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Location: Atlanta area & Piedmont Triad NC and Interstate 85 in between.

Re: work 3 years for 20x payout or retire and wait 10 years

Post by jimb_fromATL »

gips wrote: - the payout is variable, it's based on the performance of a single stock.
As already mentioned, you don't give enough information. You say "single" stock, which suggests some kind of employee stock ownership plan. What kind of fund is it? In my opinion having that much depending on a single stock is a bad idea. Lots can happen in 3 years, and much worse can happen if you give it 10 years. If it's a pension fund in good standing, it might be a little safer bet than a single stock.

If you are going to retire soon, I'd suggest thinking long and hard about working 3 more years then taking the money as soon as it became available and moving it into a balance of mutual funds rather than having the rest of your life dependent on a single stock.

Do a little research on Enron ... and GM; Worldcom; Lucent; K-Mart and other major long-time retailers; Lehman Brothers; WAMU, just to name a few. Think about how it would work for you if your single stock took a dive like lots of companies have done.

jimb
freddie
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Re: work 3 years for 20x payout or retire and wait 10 years

Post by freddie »

Things that come to mind
a) do you want to move? Moving for money reasons is no way to live.
b) what happens if you work 1 more year? Do you get access to anything or is it 3 years or nothing
c) You can't draw any conclusions about your life expectancy from relatives even if you ignore things like self inflicted cancer. The sample size is too small. I would plan on living to 78-82 with a decent chance of 90.

All that being said, you have plenty of cash if you expect to downsize in 7 years. If you want to stay in your current hood, you will be cutting it very close in that 10 year payout doesn't come through.
555
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Joined: Thu Dec 24, 2009 6:21 am

Re: work 3 years for 20x payout or retire and wait 10 years

Post by 555 »

If it's not there in 3 years, it won't be there in 10 years.

Are all the other employees on the same deadline?
MathWizard
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Joined: Tue Jul 26, 2011 1:35 pm

Re: work 3 years for 20x payout or retire and wait 10 years

Post by MathWizard »

Myself I'd go with the 3 yrs.

I'm already older than when my dad
2 grandparents and a brother were
when they died. Nobody in my family
has made it past 80.

But somebody has to be the first.

If I'm wrong my wife and/or kids
will benefit.
investor1
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Joined: Thu Mar 15, 2012 8:15 pm

Re: work 3 years for 20x payout or retire and wait 10 years

Post by investor1 »

Working for three years for a 20x payout sounds like a good deal. Given your current savings and life expectancy as you have laid out, you would have enough to life well add leave some to your wife and kids. Also, given the payout is dependent on a single stock makes it more of a risk. You didn't mention which stock it was, so you'll have to make the decision on whether or not that risk is appropriate for an extra seven years.

You didn't really mention anything about what you would otherwise be doing for those three years that might be much better than working for the earlier payout.
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Ged
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Re: work 3 years for 20x payout or retire and wait 10 years

Post by Ged »

I would want to cash out of this stock ASAP. So it sounds to me like working 3 years is the way to go.

Also I'm suspicious about your life expectancy estimate. Dying relatively young from an acute disease, especially smoking related isn't that relevant unless you are a smoker.
Topic Author
gips
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Joined: Mon May 13, 2013 5:42 pm

Re: work 3 years for 20x payout or retire and wait 10 years

Post by gips »

thanks for all your thoughtful replies. Here are some answers to your questions:
- I've never smoked, I'm not overweight, I'm in decent shape
- I don't know what I'd be doing, perhaps take college courses, travel and get in better shape
- I own restricted stock in a publicly traded company. The company is well-run but anything can happen in 3 years, more in 10 years.
- I have no way to hedge or diversify out of this stock.
- working one year does not help
- we have roots in the community, we'll downsize at some point into the same or nearby community and then purchase a retirement home somewhere or other

As expected, your replies have been thought provoking, thinking I should stick it out.
Rodc
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Re: work 3 years for 20x payout or retire and wait 10 years

Post by Rodc »

Sounds like you get the 20x regardless, just a matter of when. If you get it you'd be at 40x, which is way more than enough regardless of getting it in three or ten years. If that is mostly correct, work if want, otherwise retire.

I presume though there is some risk if you wait that in fact it could go down. If it goes to half over the ten years you still have 30x, way more than enough. If drops 75% you are at 25x, which is ok, but you would have needed to be careful in spending. So, if it could drop a lot you better not spend now like you'll get all of it in ten years. If it could go to zero I'd definitely keep working.

Frankly, unless I really disliked the job, at your age, I'd probably play it safe and work the three years.

PS: just read your reply :happy

Yeah, I'd put in the three years.
We live a world with knowledge of the future markets has less than one significant figure. And people will still and always demand answers to three significant digits.
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