Author Topic: Retired early with a successful business but what now?  (Read 2216 times)

RootForce

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Retired early with a successful business but what now?
« on: July 02, 2013, 08:00:27 PM »
Hi all!

I'm in a bit of an unusual situation and could use some guidance. I was (thank Zod) able to leave my corporate job as an actuary a few years ago and my husband left his as well when he received a moderately-sized trust fund that allowed us to expand our online personal training business to include a local studio. So far it's been very successful. (I know trust funds aren't exactly Mustachian, but I can't regret it - I don't miss those 12 hour days AT ALL and we love what we do).

We've continued to draw money from my husband's trust, which will run out in about 10 years at the current rate of withdrawal, in order for us to limit our working hours so we can be home with our toddler. We want to continue to be able to work less after the trust is gone. As small business owners, we're already privileged to work long hours doing what we love and want to continue to do so...but within reason.

I have no idea how to allocate our disposable income among various retirement account/investment options and pay off debts such that we can begin withdrawals from investment/retirement accounts in 10 years and also save some "old man/woman money" as Mr. Mustache put it in a post. We don't need a LOT of late retirement money because, again, I'm almost ashamed to admit this, there's another family trust that will kick in some time in the next 30 years that should be enough to live on. But, I'm not comfortable depending on something that I have no control over and prefer to save anyway.

Details:

-We have about $1600 of business income after operating costs/withdrawals for living expenses. After deductions we ended up owing virtually no federal or state tax each of the last two years, so  rather than setting aside most of it for taxes I'd like to stash some in retirement accounts
-We have about $400 of trust money monthly to save/invest
-I also have about $35,000 in student loan debt at 4-6% interest and we have a 5.25% mortgage with 27 years left on it. I've toyed with the idea of paying it down faster but doubt that we'll stay here for more than 5 years.

I've been researching Solo 401ks and SEP-IRA's but am not sure if the laddering approach (with a Roth IRA) suggested here is possible given the fact that we don't already have a big company-sponsored 401k to roll over and would be starting now from scratch...I'm also not sure if, given the relatively small funds available each month, I should put the majority into the retirement accounts or also invest.

Any guidance is much appreciated - thanks!

Denverstachian

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Re: Retired early with a successful business but what now?
« Reply #1 on: July 02, 2013, 09:40:58 PM »
to simplify:

Income:

1,600 (business income)
400 (trust fun income that will last the next 10 years)
Trust (enough to live on that will deliver in 30 years)

Debt:

35,000 (student Loans @ 4-6% interest)
House (unidentified amount @ 5.25% interest)

The question you are asking is what to do with the 400 each month of extra income...

the choices are:

Invest into a 401k (such as Vanguard for small business owners)
Pay down Mortgage
pay down student loan

I think that what you want is an investment that you can draw from in ten years that will subsidize your living for the next 20 years thereby holding you over until the 30 year mark where the next trust kicks in.

So in my opinion that rules out a 401K.  I would focus on paying off your student loans (the payment I'm guessing is at least a couple hundred a month, right?  So, if you didn't have that it would be almost like having an additional couple hundred that could take the place of your trust when it runs out.    After that I would focus on paying down your mortgage.  Even if you move you are bringing yourself closer to owning your house which will significantly lower your monthly expenses which is the same (or better) than increasing your income.

Well, that is the best I could do with the info provided and without asking you to make any other lifestyle changes.

Another Reader

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Re: Retired early with a successful business but what now?
« Reply #2 on: July 02, 2013, 09:46:25 PM »
In your shoes, I would pay off those student loans pronto.  At $2,000 a month, it will take you about 18 months.  If you don't have a decent emergency fund, I would bulk that up, even with a trust fund covering most or all of your expenses.  Your business is more subject to economic fluctuations than most.  The service you provide is an optional luxury.  Your business income could drop dramatically in another serious recession.

As far as the second trust fund goes, well, it's not yours yet.  Lots of things could happen that would make that money go away or at least be a lot less than you anticipate.  Once I got out of student loan jail, I would save that $2,000 a month in a combination of tax-deferred and after tax retirement accounts and in taxable accounts.  Roth IRA's have the most flexibility on the retirement side.

You don't say anything about the trust income or your expenses.  Perhaps you could squeeze a little more out of your budget, get the loans paid off faster, and start on your investing plan sooner.

SnackDog

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Re: Retired early with a successful business but what now?
« Reply #3 on: July 03, 2013, 12:31:26 AM »
Find out what the status of the other trust fund is and how it is managed. See if you can influence.
The habit of saving is itself an education; it fosters every virtue, teaches self-denial, cultivates the sense of order, trains to forethought, and so broadens the mind. –Thomas T. Munger

totoro

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Re: Retired early with a successful business but what now?
« Reply #4 on: July 03, 2013, 08:58:47 AM »
Your post title doesn't match the content!  You haven't retired, you've switched careers. 

I would pay off your high rate debt as fast as you can.  This means your student loans.  Put the $2000 on that until it is gone.  This will free up business income to invest other ways. 

Can you get a lower rate mortgage?  5.25 seems kind of high for the US.

You may be able to sell this business for a lump sum in a few years.  This could be researched to see what the market is like and what the valuation could be.