Author Topic: Lockup Ended, Now What?  (Read 3071 times)

Kayano_55

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Lockup Ended, Now What?
« on: April 16, 2013, 10:56:26 PM »
Jr. Mustachians here. . .peach fuzz on our upper lips, really - as I recently just found this blog/forum - but certainly subscribe to the Mustachian philosophy.

Quick background - Company IPO'd. Lockup period expired.  Like a good Mustachian, I am starting to liquidate my company's stock to diversify (~50% up front and 10% each quarter).  My goal is to be semi-retired in 3-4 years.   

Background
38 years old  (thinking of 22 years before digging into 401k/IRA)
I've been lucky enough to maximize my retirement funds since I graduated from college,  and after running through MMM's analysis, I think I can cease 401K/Roth Contributions

Here are my initial thoughts:
Stop contributing to my 401K/IRA after this year
Start selling Company Stock
Vanguard it up - specifically, VTI ETF  - start building up VTI as my main fund
What other recommendations to diversify (thinking all Vanguard all the time initially, but curious if you all were in my shoes, what would you consider if you had 10% of your total stock position to diversify every quarter).

Goal is to have enough in 3-4 years to get to a point where I can cover expenses + decent amt extra per month at 7% (inflation adjusted) per MMM, and have enough to live/reinvest minus the hassle of a corporate gig (Married, no kids).  Curious what you all think. 

Wesmon

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Re: Lockup Ended, Now What?
« Reply #1 on: April 17, 2013, 04:59:29 AM »
Sounds awesome.
Set aside enough for the capital gains you'll have to pay on the stock.
Instead of VTI, use the vanguard balanced /target date funds. They'll keep your asset allocation on autopilot.

Also, make sure you sell. I was in your position years ago but decided to wait for more stock appreciation. It appreciated right down to zero. (punch)

GreenGuava

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Re: Lockup Ended, Now What?
« Reply #2 on: April 17, 2013, 08:07:06 AM »
Stop contributing to my 401K/IRA after this year

I'd continue enough into the 401(k) to get the company match (assuming a reasonable vesting schedule).  You might not even notice it, especially with all the company stock sales.  Yes, you probably have enough in the 401(k), but for the little bit each year, I think it's best to take the semi-free money.

Have you already consolidated old 401(k)s, if any?

Start selling Company Stock
Vanguard it up - specifically, VTI ETF  - start building up VTI as my main fund

I'd suggest using VTSAX - their Admiral shares of the same fund - instead of the ETF.  Frankly, I find ETFs to be a pain in the ass, and when you have more than $10,000 in a Vanguard index fund, there's no advantage to the ETF over the mutual fund itself.

I'd also suggest VTIAX - their international index - for some added diversity;  maybe make this 20% of your stock holdings.

You might want to consider some bonds, but it's a mixed question whether or not to get tax-favored bonds (whether federal or state, depending on where you live).  You'll have a high income for a few years, especially with the company stock sales' capital gains.  What bracket do you expect to be in during semi-retirement? 

But beyond that, I'd say you're fine.

I'd avoid wrap funds in taxable - such as target date funds.  A combination of their re-balancing and non-tax-favored bonds are problematic for your taxes.

Important decision for you:  are you going to treat your taxable, which has to last you 42 until at least 59.5, as a separate account from your tax-advantaged accounts (401(k) and IRAs) for purposes of asset allocation?

Zee

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Re: Lockup Ended, Now What?
« Reply #3 on: April 17, 2013, 08:13:44 AM »
Congrats to you! 

Question - Why the decision to cease 401k/IRA contributions?  If you will continue working for 3-4 more years, would not those contributions reduce current tax burden?  At time of withdrawl at age ~60, you likely will be in a lower tax bracket when required to pay tax on the withdrawls.  Perhaps I am missing something.... 

Continuing to transfer IPO funds to Vanguard (VTI / VTSAX) appears to be a sound diversification strategy.  Also, any high-interest debt you can knock out with some of those IPO funds? 

Kayano_55

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Re: Lockup Ended, Now What?
« Reply #4 on: April 17, 2013, 08:19:48 AM »
Hi Zee,
The only reason for ceasing the 401K/IRA next year would be to be more aggressive in getting to Financial Independence Sooner.  I get <zero> matching on my 401K, but I do agree with you on getting the pre-tax deduction.  I have ~$400K in my retirement funds today with no debt.  The only thing that scares me is did I do the MMM retirement calc correctly regarding not needing to put any more into that bucket?

GreenGuava

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Re: Lockup Ended, Now What?
« Reply #5 on: April 17, 2013, 08:28:10 AM »
Hi Zee,
The only reason for ceasing the 401K/IRA next year would be to be more aggressive in getting to Financial Independence Sooner.  I get <zero> matching on my 401K, but I do agree with you on getting the pre-tax deduction.  I have ~$400K in my retirement funds today with no debt.  The only thing that scares me is did I do the MMM retirement calc correctly regarding not needing to put any more into that bucket?

There are two factors here:

First factor:  how much will your traditional retirement fund account have when you go to withdraw at 60?  Let's assume 4% past inflation, average, over the next 22 years.  That fund will have ~$950,000 in it.  Is that enough?  Probably.  If it grows at 5% average (the usual number), it's over $1.1 million.

So... I'd say your tax-advantaged account likely has enough.

The second factor is whether or not your non-tax advantaged account have enough to get you to 60.  I don't know the specifics of your financial situation, so I don't know. (technically, I don't know about the first point either, but I can make a reasonable prediction)

If both accounts have enough, and you have a reasonable safety margin in the taxable account, I'd say to put more into the tax-advantaged account.  Once you know you're likely to make it to 60 safely, why not take advantage of the tax preference given to 401(k) and IRA accounts for extra money?

Kayano_55

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Re: Lockup Ended, Now What?
« Reply #6 on: April 17, 2013, 03:11:31 PM »
I definitely like the approach (once you know you have enough in your taxable), then put more back into your tax deferred scenario.  So, yes, what is the number for taxable? That is the magic question isn't it? ;-)  My goal is $1-1.2M after taxes - I always go conservative in these scenarios so lets say $1M as a use case (could be significantly more or less depending on how the stock does over time).   I don't have it yet, but could see that being the range once fully diversified/liquid from company stock.  Current expenses are about $49K annually (I live in a high cost of living area, but admittedly could do more to cut out expenses).  I would take into account an expected additional income of $15-20K from my spouse per year once we are semi-retired.  And an additional $1K/month after expenses from a rental property.