The Money Mustache Community
Learning, Sharing, and Teaching => Ask a Mustachian => Topic started by: SquashingDebt on December 04, 2018, 04:55:25 PM
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Anyone else an employee of an ESOP (employee stock ownership plan) company? How do you account for your ESOP shares in your FIRE planning? I'm realizing that if the company continues to do well, a lot of my net worth will be in those ESOP shares (projected to be $1 million by age 55, with conservative parameters). The tricky part is that there's no way to get any of that money out or diversified before age 50 without leaving the company, and even that is a slow process (5 year waiting period, then 5 year buy-back period).
Do I just pretend that money doesn't even exist in my FIRE planning? It seems dangerous to rely so much on the success of a single company, but is that too conservative?
For reference, I'm still probably at least 15 years out from FIRE (age 32 now) and ideally would like to stay at this company until then (very specialized job with perks I can't find anywhere else). My savings rate totally separate from the ESOP shares is around 55% of take-home.
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I had an ESOP compensation component at my old company as well, although we were able to rebalance into any of the other investment options annually, which I did because it absolutely is dangerous to have a bunch of money in an individual company’s stock. It’s even more dangerous to have that same company also be the one that you rely on for your salary. Personally, I think it’s irresponsible of companies to restrict reallocation like yours is doing, but I digress...
Since you can’t get it out until you quit and after a 5 year waiting period, and over a 5 year buy-back period, I think you’re spot on with not considering its entire value in your FIRE planning. But completely ignoring it is too conservative.
What I would do is consider its value at the lowest price per share over the last rolling 7.5 years. I chose 7.5 years because that is the average time from when you quit that you can sell any given share (buyback starts at 5 years and finishes at 10 years). And I would absolutely be converting it into total stock market index funds the moment that I could.
I think this should still end up being quite a conservative estimate. If you wanted to be less conservative, you could value it at the average price per share over the last rolling 7.5 years, but I personally prefer being conservative on these calculations.
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Thanks for your reply! And yes, I do think it's pretty irresponsible to keep so much of our money locked up for so long. Especially the lower-wage warehouse workers who keep being told it's their ticket to an easy retirement.
This recent distribution of shares was kind of a shock to me to make a plan because I now have $49k in company stock now and only $45k in my retirement funds + emergency fund put together (only been working for 3 years, after getting my PhD).
I like your idea of being conservative with the share valuation. What's a little tricky is the company value has been increasing drastically for the last few years, but based on where we are with our growth and the market we're in, I think that's bound to stop eventually. It'll be interesting to see how things play out in the future.