Selling my business

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Topic Author
Mike11
Posts: 11
Joined: Sat May 04, 2019 7:16 am

Selling my business

Post by Mike11 » Sat Jun 15, 2019 9:53 pm

My retirement situation is fairly lengthy so I thought I would pose a simplified scenario. I am 60 years old. Plan to begin SSA at 70 years age. 3700 monthly. I will be selling my business in a couple months and will be receiving an after tax lump sum of 1,800,000. Because I will have other income for the next 6 years those monies will be in an accumulation phase for 6 years. The vast majority will be in all taxable accounts. I plan to put 600,000 into a delayed income annuity which in 6 years will produce lifetime income of 3500 per month with a 2% COLA. In 6 years, I have budgeted to need/desire 3-3.5% return on the 1,200,000 investments. Hopefully, it will have grown in those 6 years but my AA is fairly conservative simply because I don’t NEED more than that but my lifestyle will have to be curtailed if I have less than that original principal. At age 70, between my SSA and the annuity I could likely survive with only that income which to me is the beauty of a SPIA/DIA for someone like myself who is a born worrier. Sleeping at night is goal 1. So here is my proposed AA to meet my desire of a 3-3.5% return and to be able to pass on at least the original principal to my children. All Vanguard funds. 40:60 mix.

VBTLX Total Bond 20%
VLGSX LT Treasury 20%
VFIUX Intermediate Treasury 20%
VTCLX Capital Appreciation 25%
VCSAX Consumer Staples 15%

One of my income goals is to have my income on the upper limit of the 24% tax rate (160,000). To get there I will need to invest into the purchasing corporations 401K. I do not see any benefit to having the bond funds in tax exempt munis at a 24% tax rate. From what I can see, the only funds negatively correlated to total stock market/capital appreciation are those long term treasuries. I included other bond funds simply out of a desire for “diversification”. I have run this through Portfolio Visualizer and through their Monte Carlo with what I think are good results though I realize past performance does not equal future performance. Because that long term treasury fund has an inception date of 2010 I used the investors fund VUSTX which began in 1986 to obtain a longer backtest evaluation. The consumers staple fund still limited my past eval to 2004.

Asset Allocation test

https://www.portfoliovisualizer.com/bac ... 0&total3=0

Monte Carlo

https://www.portfoliovisualizer.com/fin ... foccurs3=3

I have no idea if those portfolio visualizer links work for anyone other than the account holder? I know that is a conservative AA. If fits my personality profile. I’m looking for major holes in my plan and will appreciate knowledgeable input.

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Sandtrap
Posts: 8662
Joined: Sat Nov 26, 2016 6:32 pm
Location: Hawaii No Ka Oi , N. Arizona

Re: Selling my business

Post by Sandtrap » Sat Jun 15, 2019 10:55 pm

Congratulations on your successes and sound strategy.
Curious.
Why did you choose (VTCLX Capital Appreciation and VCSAX Consumer Staples) vs Total Stock Index which is already quite diversified?

Why not instead of the DIA (Deferred Income Annuity), hold off and purchase the SPIA later. This gives you options. In the meantime, invest it as part of your total portfolio?

j :happy
Wiki Bogleheads Wiki: Everything You Need to Know

Topic Author
Mike11
Posts: 11
Joined: Sat May 04, 2019 7:16 am

Re: Selling my business

Post by Mike11 » Sun Jun 16, 2019 3:54 pm

Thank you. I began my portfolio testing with TSM, it is likely more diversified and at the end of the day I may very well opt for all 40% of my equity AA there. Using the short term historical data available (since 2004) shows a 3% smaller max drawdown from 2008 with the consumer staples added. Other than that, and as the portfolio test shows, the other results are very similar. I very well may be overthinking that 3% drawdown difference and TSM is the way to go.

Capital appreciation was chosen because I thought it was similar to TSM but more tax efficient? Now that I check, I see the Russell 1000 upon which it is based is less diversified than TSM so one more reason to choose TSM. I suspect the tax difference is minimal.

https://www.portfoliovisualizer.com/bac ... 0&total3=0

The inclusion of the DIA is my limited attempt to avoid a sequence of return risk plus, I am very much hoping when I sell the business in 6 weeks I can have made most my investment choices so I can set the train in motion, get out of the way, and move on.

Thank you for the question. That is exactly what I needed. With all of the tilt testing I performed I simply had not performed a test with TSM.

What do you think about the bond "diversification" I chose?

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