Financial Information
Investments / Retirement Advice – What should we do?
Question : Investments / Retirement Advice – What should we do?
A relative is at retirement age. He works for a large bank and a majority of his retirement account is in company (bank) stock. We are trying to figure out if he should just retire now rather than losing all his investments if the bank goes under. Can anyone help us shed some light on what may happen to his stock if they go out of business? BTW – the company stock is not publicly traded.
Thank you all for your help and I promise it will be worth some points for the best answer.
TE – He can cash out now I believe if he retires.
It is in a 401k. Let me know what you think.
Thanks again for all the advice.
retirement investment advice
Best answer:
Answer by T E
If the bank qualifies for the bail out from the govt, it will not go bankrupt. If it does not, and it goes bankrupt or insolvent, as many banks have been, the bank will likely be taken over by another more financially strong bank. If that happens, the strong bank as a purchaser will likely pays nothing for the stocks of his bank, because the bank is bankrupt or insolvent. That means, the bank stocks of your relative will worth nothing, upon the take over.
As the bank stock is not publicity traded, your relative cannot sell it in the open market for what is worth now.
If he retires now, can he sell the stock back to the company now?
He should know if his bank will go under or not. If so, he may wish to retire now, if that allows him to sell his stock back to the company.
I am confused because you say it is a large bank with stock that isn’t publicly traded.
Basic personal financial advice is that no one should have a significant portion of their retirement assets in one company (more than 5%) especially not their current employer. So he should ask himself a few questions:
1) What are the odds of the bank getting a gov’t bailout, going under or being absorbed by another bank because his bank is about to go under? There are many smaller community banks that are very sound. The odds that he determines is also the odds that he will lose most of the current value of the bank stock.
2) If the odds of (1) are higher than 10% then he probably should retire from his current banking employer. But:
a) Is this retirement account represent a major portion of his retirement portfolio? Perhaps he has significant assets in other accounts brsides this one 401k.
b) What would he do if he retires from this bank? Get another job? Can he? Quit working for a pay check? Can he? Even if a bank goes under – it is usually taken other by another bank and some of the old employees get to keep their old jobs.
c) How significant is the current value of the bank stock in his 401k? Assuming he retired , sold the stock, reinvested it in a more balanced diversified portfolio and assuming he took 4% out to live on ….. what portion of his overall retirement cash flow does this 4% represent? Remember he may also have a pension, income from a spouse, social security, other investment income, etc. If this does not represent a major portion of his retirement income then he may not want to rashly quit his job without additional thought / planning. People that retire in a rush are many times less satisfied with retirement than those that retire “on their own time table”.