Angling for an Early Retirement

Scott Glassen loves fishing so much that his wife, Charlotte, jokes that his true calling is to own a bait shop. But the couple are serious about leaving Somerset, N.J., for someplace where the fish bite more and taxes bite less when Scott retires in 14 years from his job at the local electric utility.

Scott, 41, saves much of his overtime pay, but those hours are unpredictable. He and Charlotte, 40, will pay off their mortgage in 2021, when their daughters are 21 and 18. By then, assuming regular contributions and 8% returns, the Glassens' retirement accounts should total about $1 million. Plus, Scott has a decent pension.

Swipe to scroll horizontally

Row 0 - Cell 0	New Jobs, New Life, Clean Slate
Row 1 - Cell 0	See More Financial Makeovers

That's not too shabby, but is it enough to quit at 55? That depends on inflation, health-insurance costs, college plans and other factors that can't be known with certainty. If, say, you withdrew $5,000 a month, assuming 3% inflation, 8% returns and a 25% tax rate, you'd exhaust $1 million in 25 years. So a 2021 retirement seems like a stretch.

From just $107.88 $24.99 for Kiplinger Personal Finance

Become a smarter, better informed investor. Subscribe from just ~~$107.88~~ $24.99, plus get up to 4 Special Issues

CLICK FOR FREE ISSUE

https://cdn.mos.cms.futurecdn.net/flexiimages/y99mlvgqmn1763972420.png

Sign up for Kiplinger’s Free Newsletters

Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.

Profit and prosper with the best of expert advice - straight to your e-mail.

But the couple have an ace in the hole. Since 2000, Charlotte's relatives have given the family a bunch of shares in steel maker Nucor. The stock's been quite a catch, as it has climbed tenfold since late 2000. The Glassens' 7,300 shares are worth $500,000.

Even now, Nucor isn't overpriced. At $67, it trades at 12 times estimated 2007 earnings. But Nucor's prospects are beside the point: Charlotte needs to diversify and trade potential future gains for safety.

Financial planner Ray Padrón, of Brightworth, in Norcross, Ga., says that anyone with a concentrated portfolio must answer two questions. First, what's the real-life impact if its value plunges? Second, how much time would you have to recover? Moreover, if you sell, what about taxes? And what would you do with the proceeds?

Prudent selling

Scott and Charlotte can forget about early retirement if Nucor stumbles. As Karen Keatley, of Keatley Wealth Management, in Charlotte, N.C., notes, "With a single stock, you could lose 15% just like that on any bad news." In addition, the 15% tax rate on long-term capital gains may be higher in the future. So, Padrón says, it's better to sell sooner than later.

It's okay to keep up to 10% of your investments in one stock. The Glassens will have to calculate the taxable gain on the stock they sell based on the price at which their relatives bought it. If they sell in stages, they should unload shares with the highest basis first to minimize taxes.

With the proceeds, Scott and Charlotte should invest in low-cost mutual funds, with about 75% in stocks, says Keatley. If the portfolio generates 8% returns without the stress of relying on one stock, Scott and Charlotte will hook a leisurely waterside retirement.

Stumped by your investments? Write to us at portfoliodoc@kiplinger.com.

Kosnett is the editor of Kiplinger Investing for Income and writes the "Cash in Hand" column for Kiplinger Personal Finance. He is an income-investing expert who covers bonds, real estate investment trusts, oil and gas income deals, dividend stocks and anything else that pays interest and dividends. He joined Kiplinger in 1981 after six years in newspapers, including the Baltimore Sun. He is a 1976 journalism graduate from the Medill School at Northwestern University and completed an executive program at the Carnegie-Mellon University business school in 1978.