Big Decisions

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Big Decisions

Post by EasyEEE » Sat Aug 12, 2017 2:36 am

Hi everyone - long time lurker, first time poster. I'm not sure if these questions belong here, but I thought I'd give it a go. High class problems here, as I've always just saved and maxed my 401K, but the last couple years have tripled my salary and a public offering has brought lots of unexpected cash in.

Here's my situation:

Age: 50

Portfolio: $9.3M

Cash - $4.7M
401K and IRA $550K (80/20 Equities/FI)
Other Investments (VC fund, Startup, etc.) $75K

Vested Options and LTCG Shares in Employer Stock - $3.7M

(These options increase in value about $300K every 6.25% rise in the stock (volatile - life sciences startup -it has gone up 200% in the last year, down 20% in the last week, and up 100% in the last 3 months after being more or less flat for the prior 12 months). I'm subject to a 10b5-1 plan generally but can sometimes sell in open windows.

Income - Salary + Target Bonus- $440+ 220 = $660K Gross
RSU Vest Approx 25K/year (currently about $1M Gross=$500K net)
Options - Vest Approx 40K/year at average $15 gain at current price = $600K year if sell when vested assuming static price.

Tax Bracket - 39%

Spouse (42) Works - Currently $130K/year

Total Expenses about $140K including 1 kid in pre-school + #2 on the way in a couple months - should increase expenses by about $25K. Mostly rent and pre-school - hopefully kid 1 gets into decent public school. Quite frugal lifestyle but would like to increase, mostly in housing but also live generally nicer - maybe $200/250K/year.

No house. I rent - $4450/mo

HCOL Area - to live in our city (SFBay) expect to pay $2.0 - $2.5M for a house to house the 4 of us. Would put at least $1M down (max mortgage $1.1M)

Most of my money comes from savings over time and windfall from my company going public and sales over the last year or so. We are expected to hit big milestones in about a year which should increase stock price by about 60 - 100%.

The job is quite stressful sometimes; I work very hard at times; and we are coming to the end of a long road which may lead to a great payoff. Plan since going public has been to sell current RSUs and options as they vest, sell majority of vested options over time as stock rises, exercise low cost options up to the AMT/OI threshhold, and hold LTCG shares for the long term big bang.


1. Should I sell all (or most) company equity now to bring my current portfolio of cash to about $7 - $9/10M, and retire (wife wants to keep working) even with the house purchase? What is the minimum I would need to retire assuming upper end of house purchase?
2. Should I stay and wait for the big hit over the next 18 months (bring us to maybe $15M). At minimum, absent an unexpected total crash, we can save about $600K-$1M/year for the next 18 mos/2 years.
3. IF I do 1, how much house can I buy?
4. In all scenarios, how do I transition my portfolio over time from cash to other investments - generally terrified of a correction (not that market is "overvalued" but that there are cyclical downturns and our president is an erratic loon. I've read all of the posts about windfalls, but I'm generally very conservative and we don't need that much to live - we mostly like cooking, hiking, going to the beach, all cheap activities (other than the kids).
5. As to retirement - I function well in structured situations and am productive in them, but not so much in unstructured - I'm a bit lazy naturally and tend to sit around and read, work out, surf the internet etc. How to be productive in retirement (aside from raising 2 kids)? And for other early retirees, do you think not working sets a bad example for your children?

FWIW, both my mom and dads side have lived well into their 80s-90s.

What else should I be thinking about?

Thank you in advance!

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Re: Big Decisions

Post by market timer » Sat Aug 12, 2017 6:07 am

If I were in your situation, I'd probably sell or hedge most of the company equity now to diversify, continue working and renting for at least 18 months, then consider retiring outside of the SF Bay area. It seems a waste to buy a house in SF and retire shortly after that. You're paying a premium to be close to good jobs.

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Re: Big Decisions

Post by LadyGeek » Sat Aug 12, 2017 6:07 am

EasyEEE wrote:Hi everyone - long time lurker, first time poster. I'm not sure if these questions belong here, but I thought I'd give it a go.
Welcome! This thread is now in the Investing - Help with Personal Investments forum (portfolio help). You'll get better responses here.
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Re: Big Decisions

Post by Jack FFR1846 » Sat Aug 12, 2017 6:49 am

People at successful startups almost never see the events that make value tank to zero. If it were me, I'd sell every possible share at the open of the market on Monday at 9:00am. I work for a company that's 30 years old and with RSUs and ESPP, I do exactly this. The shares are in my account for only the time to vest and for eTrade's system to sell them.

Think of it this way. The question to ask is "How are you going to react if the share value goes to zero suddenly?".
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Re: Big Decisions

Post by ThrustVectoring » Sat Aug 12, 2017 1:29 pm

As a side note: just because you're financially independent doesn't mean that you have to stop working. It just means that you no longer have to care about salary when it comes to choosing a job. Have you wanted to volunteer for a soup kitchen? Coach a youth sports team? Join the clergy? Drive a school bus? The world is your oyster, here.

For the main meat of things: what do you want your money to do for you? Do you want to leave an inheritance or trust for your children? Do you want to retire and pursue other passions in life? Do you want to spend some on throwing ridiculous parties for your friends? Do you want to help eliminate Malaria? Money is a tool, and it's very difficult to figure out how to best use it without knowing what you want to use it for.

Given what you've mentioned so far, I'd figure out what your near term (~5-7 years or so) goals are (buying a house is one). Hold cash for that, and allocate the rest at 60/40 (it's what John Bogle uses for his 10-80 year goals). Vanguard's LifeStrategy has a good low-cost diversified fund for doing so easily. As far as timing and moving over the money, if you're emotionally capable of living with bad consequences of good decisions, the best decision is to allocate it immediately and entirely according to the long term plan you think is best. Most people aren't - poker in particular calls this being "results-oriented" rather than "process-oriented". There's nothing to fell bad about if you aren't, pick a timeframe to get fully invested (say, 1 year), and put in equal amounts every portion of it (say, a twelfth of the amount every month).

As far as your finances go, you're set even if the startup you work at fails. You can choose the risk level you're comfortable with here. You've won the game, so to speak, so your choices here are about what kind of mark you want to leave on the world. If you want to spend a couple years of hard work and risk to try to strike it rich, you definitely can.

Final note: you have significant amounts of long-term capital gains. If your goals include charitable giving, this is a valuable tax management tool. If you donate stock in kind that is worth $11k that you bought at $1k, then it lowers your taxable income by $11k, and you don't have to pay capital gains on the appreciation. This is a clear improvement over selling stock and donating the proceeds.

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Re: Big Decisions

Post by bertilak » Sat Aug 12, 2017 1:41 pm

market timer wrote:
Sat Aug 12, 2017 6:07 am
If I were in your situation, I'd probably sell or hedge most of the company equity now to diversify, continue working and renting for at least 18 months, then consider retiring outside of the SF Bay area. It seems a waste to buy a house in SF and retire shortly after that. You're paying a premium to be close to good jobs.
That may be true (good jobs) but I lived in the SF Bay Area many years ago (because of my job) and still go back for one reason or another about every 10 years. The biggest difference I see (as a visitor) is that the traffic is worse.

My point for posting is that whenever I go back I say to myself "So, THIS is why people pay so much extra (and put up with the traffic) to live here." It is simply a great place -- climate, geography, culture, so many "things to do and places to go." Do note that I HAVEN'T gone back, but l can see the attraction. If I had a ton of money I might reconsider. Jobs are not the only thing.

Ideal job? Park Ranger at Yosemite! (OK, not Bay Area, but within driving distance.)
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Re: Big Decisions

Post by CppCoder » Sat Aug 12, 2017 1:53 pm

You can sell everything, retire, buy a house for cash, invest 50/50 stocks/bonds, and never run out of money. While your wife is still working, you barely even need any income from your investments to cover your expenses. What's the problem here?

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