Category Archives: retirement

Don’t risk your entire retirement on a hunch.

Here is a cautionary tale of why you should be careful when trying to out fox the stock market. Last week, many people risked their life savings betting everything that Rite-Aid’s stock would shoot up from $3.50 all the way up to the $6.50 / share that Walgreens was offering. If the merger were to happen Walgreens would pay the $6.50 for every share of Rite-Aid stock–nearly a 100% gain. People were betting that the Republican-led FTC would approve the merger, and allow the 2 companies to create the nation’s largest drugstore chain.    Don’t let your greed blind you though. There was a reason that Rite-Aid’s stock was so far below the offer price–the deal was unlikely to pass the regulators.

Turns out Walgreens decided to pull out of the deal last Thursday, and Rite-Aid stock has since dropped to $2.50.   Here are 2 Wall street better’s who went all in.

“The Insider”

This gentleman is a part-time pharmacist at Rite Aid. The internal emails that he received gave him confidence to make a bet on the merger going thru. This probably was not a great decision, since any information disclosed to the front-line workers on the merger were probably also released to the general public via the FTC, SEC or their investor relations website. The stock market reacted to all that information by valuing Rite-Aid far far below the offer price.

He made a nearly $200,000 bet on this. From his original purchase price of $3.20 he has lost nearly 22% in the past week.

Thankfully, he’s a pharmacist so he’ll probably survive despite this bad move.

The $125k YOLO

He bet $125,000 on a hunch at $3.83 / share. With the current share price of $2.50, he has lost over one third of his investment. That equals $42,000, more than the annual incomes of many Americans.

Both of these investors made posts regretting their decisions. I think that it’s important to remember that if something seems too good to be true, it’s probably going to screw you over so be careful. These 2 investors purchased shares with no options to buffer their potential losses. If you’re going to make a life changing decision like betting hundreds of thousands of dollars on a single stock trade, you should probably try to cover your self with some kind of downside protection like a professional investor would.

How little could I work and still retire?

So I started thinking, I already have a lot of money saved up.  I’d like to keep working until I’m in my 60s to at least have something to do. But how much do I actually have to earn?  Right now, I’m right around the cusp of breaking six figures (depending on the bonus), but I only spend a relatively small fraction of that.

how much do I need to earn?

At work I have a lot of visibility to senior management, and the worst part of my job is being stuck in between the arguments of leadership of different divisions. On Monday we had a 15 minute meeting first thing, my Director announced that she was leaving the company. I relied a lot on my Director to deflect some of the politics and without her, I felt naked. After reflecting a little bit more on my work, I don’t think that I want to keep advancing up this path, because at this point that higher I’d advance the deeper I’d dive into the wonderful world of corporate politics.

I made another calculator

I whipped up the minimum work calculator to help me figure this out. Here are the settings that I plugged into it:

The settings I put into the calculator
I reduced the wage growth a little bit just for a little security.

After a handful of CPU cycles, it spit out  $22,400 per year post-tax or something like $24,640 to $26,880 pre-tax. Whoa, it’s lower than my spending, how does that make sense?

Well, the model is making the assumption that my $200,000 in starting investments will grow the first year by $14,501 (principle * e ^(rate * time)) with no withdrawals. The calculator looks at this and says, I could use part of that growth to live off of and still have enough left over to fund my retirement. This is what it ended up doing for year 1 (hover over the result graph to see the numbers).

At the end of year 1 (Age 29):
Spending: $28,700
Post-Tax Income: $22,967
Starting Investments: $200,000
Ending Investments: $207,659
By living off of my investments, I would have needed $5,733 to cover the gap between my income and spending. So in order to fund that income gap, my investment growth was reduced $6,842 to cover the $5,733, plus taxes, and plus loss of investment growth. Now, I would actually never want my spending to exceed my income before retirement, but at least it’s nice to know that I’d have a little leeway.

Here’s the chart that it spit out:
The chart from the calculator

With the results, I feel at least a little better that I would probably be okay if I left my job for whatever reason and found a less stressful one with lower compensation. This minimum amount would be my low bar, so anything over it would mean that I would be able to preserve my standard of living and still retire with more leeway.

Right now, my plan A is to hang on to my current role for as long as possible. If anything happens, Plan B doesn’t look so bad.