The Art of Balancing: Liquidity Events, Lifestyle Choices, and Financial Freedom

Transcript


Intro
Stephan Shipe:
Welcome back to the Scholar Advising Podcast. In today’s episode, we’re digging into a few complex choices that can have a lasting impact on your wealth and lifestyle. First, we’ll tackle a question from a listener with $20 million tied up in private company stock who’s preparing for a major liquidity event.

Next, we’ll shift to a lifestyle decision — whether joining an exclusive social club with significant initiation fees and annual dues can fit into the broader financial plan. And our third question comes from a couple in their forties who’ve reached Coast Financial Independence and are considering shifting to part-time work to spend more time traveling with their kids.

To wrap up, this week’s rotating segment is Money in the Headlines. We’ll take a look at a recent Wall Street Journal article on why so many people get financial advice that doesn’t actually fit them.

Let’s get started with Question 1.


Question 1: Private Company Stock
Listener:
We have about $20 million in private company stock that we expect to sell in the next three years. Our estate plan already includes several trusts, but we’re worried about having so much of our wealth tied up in one asset class before the sale. What strategies do you recommend for balancing diversification with preserving the legacy of our business for future generations?

Stephan Shipe:
So there are a lot of options to jump into here with the potential sale of a company.

The first is we have to really fall into what this value is, and it’s really easy to start tossing around values and what you think it could sell for, but you’re in this window — if you’re looking at three years for a sale, while that may seem like a long time, it still comes with the risk that you’re considering taking on here.

The issue we have is that this process — to get rid of something worth $20 million — is not going to be something where you snap your fingers and have a check for $20 million hit your account and then you have to worry about taxes. Everyone seems to jump to the tax concern, saying, “Well, I know I’m gonna sell my business, what can I do for taxes?” Really, you have to worry about selling the business first.

So how do we get to that point within those three years? Three years is still a long way away, right? We need to start worrying about how to structure the sale. A lot of times, if you’re a large part of this business — which it sounds like you are — you’re not going to have someone write you a check for $20 million and walk away the next day retired. What’s going to end up happening is they’ll keep you there for a couple of years. It’s going to be some sort of earn-out or buyout associated with it, which is to hedge their risk as well. They don’t want to hand you $20 million; they want to hand you a few million dollars with the rest contingent on business performance for the next few years.

So, because of that, if your goal is to get out of this in three years and you’re already worried about the risk of concentration right now, then we should be looking now at ways for you to start diversifying — not only from a cash flow perspective, but also just diversifying out of the holding in general.

In other words, can you start talking to bankers now? Do you start bringing on and interviewing lawyers? Do you start looking at who would be strategic buyers? You’re always going to get a higher multiple through strategic buyers in an acquisition. They have more to gain — you have the whole synergy idea of them adding you to their business model.

So we start there, and then three years is the perfect window to start that process. Maybe start getting some bids, get a better idea of what this valuation looks like, and then start looking at that divestiture. Now, that’s a little farther away from the question, which is huge concentration. What do we do? I think the easiest way to get rid of the concentration is to get rid of the business. That’s sometimes easier said than done, as we were just saying, but it doesn’t mean you can’t start some of that now — whether it’s a partial sale, whether it is allowing some internal purchasing to happen, depending on the type of business that you’re in.

You can also go — if liquidity’s the issue — and start taking out loans against equity. That’s going to be a lot harder to do with this type of structure, and assuming the $20 million is the lion’s share of the equity and holdings. When it comes to trusts and how you’re going to handle that portion of it, you can start moving some of that ownership into trusts now, depending on what you think valuations are now versus what you think valuations will be in the future.

If you looked at it and said, “Stephan, I think this business is going to skyrocket over the next few years and these shares are going to go from $20 million to $60 million,” then that may be a good opportunity to talk to an attorney about moving some of that ownership into a trust to lock in the current valuations. That way, when the business increases in value, all of that increase is now in the trust and not as part of your estate — especially since you’re close to that estate limit.

Once all that happens, then you start looking at post-liquidity. Once you have an idea of what you think the valuation is today, what you think it could be in the future, and what path you have to start divesting, then once you have the money — or at least a plan for it — you can start talking about post-liquidity event diversification.

That goes back to the basics. You’re going to end up with a bunch of cash. So what are the holdings you should buy? What’s the asset allocation look like? Likely you’ll be mostly in public stock holdings, so you’ll be in the public financial markets. You may want to keep some for private investment depending on your goals afterward, but it takes you back to a relatively easy position — having a lot of cash to look at everything now, rather than diversifying away from a concentrated position.

That’s where you start dealing with legacy goals and charitable giving. Out of this $20 million sale, maybe you actually realize $17 or $18 million, and for ease of numbers, say $10 million is actually sitting in your bank account. That year, you need to determine how much you need to live on. If $10 million is more than you need, then that’s when you can start thinking about charitable giving, foundations, and preserving some interest in the company.

You may be forced to hold a portion of the company — it’s common in private deals to receive some cash but also retain ownership through a private equity fund that bought you out.

Lots of different options and structures here. The key takeaway is there’s no one-size-fits-all. You can structure it however you want. That’s part of what makes these transactions exciting — there are so many creative ways to finance, to have liquidity, or to structure an earn-out. Great question, and definitely something to start thinking about now rather than waiting three years.


Question 2: Private Club Fees
Listener:
We were recently invited to apply for a private social club here in New York. My spouse is especially excited, but we’re trying to be thoughtful before saying yes. The initiation fee is $50,000, and the annual dues are $10,000 for an individual or $18,000 for a couple. The club promises strong networking and cultural opportunities, but I’m not convinced we should make this big of a commitment. How do you help families decide if something like this fits into their broader financial plan?

Stephan Shipe:
In situations like this, before we get into anything else, the first thing is: can you afford it? It’s a moot point if you can’t afford the $50,000 initiation or the ongoing costs. So first, take a look at the overall plan.

Do you have the discretionary cash flow to put in the $50,000 and pay the $10,000 or $18,000 you’ll be dealing with on an ongoing basis? If the answer is yes, then we can continue the conversation. If not, then it’s done.

Assuming you can afford it, your plan is on track, you’re meeting your savings goals, your spending goals look good, and you still have discretionary cash left over — then we get into the “should we” question.

Usually, the pitch for many of these clubs is that the networking opportunities are great. Some also offer access to private investments. These are framed as financial benefits, but really, they’re non-financial perks. It’s easy to fall into the trap of thinking this is an ROI decision — “I’ll make my $50,000 back through networking” — but you can’t hang your decision on that assumption.

Then, look at the types of clubs out there. They can have very different atmospheres. Whether it’s a social club in New York, a country club, or a golf club, you have to ask: is this a place you’ll genuinely enjoy? For you to get value from membership, it has to be somewhere you want to go regularly — where the environment, people, and activities fit what you’re looking for.

Test it out as much as possible before committing. Many clubs let members bring guests. Go multiple times, at different times of day, for different events, and see if it fits everything you want.

That evaluation shouldn’t stop once you join. After paying the initiation fee, set a review period — say, two years. If the club isn’t delivering the value or enjoyment you expected, be ready to leave. This is hard because of the sunk-cost fallacy — you’ll think, “We already spent $50,000 to join.” But that fee is a sunk cost; it’s gone. The real question is whether it’s worth paying the $18,000 (or whatever the annual dues are) each year going forward.

At the end of the day, this is not an investment decision; it’s a consumption decision. You’re spending money for enjoyment, networking, and environment. If that’s worth the cost to you and it fits your budget, great. If not, then pass.


Question 3: Coast FI (Financial Independence)
Listener:
We’ve reached Coast FI and are both in our early forties. We’re thinking about shifting to part-time work so we can spend more time traveling while our kids are still young. How do we evaluate whether that’s a smart move financially or if it’s too soon to slow down?

Stephan Shipe:
A big part of Coast Financial Independence is that you’ve saved aggressively in your twenties and thirties. Now, in your forties, you’ve hit the point where your investments can grow to your retirement target without much additional saving.

The challenge is making sure your plan still works over the long term. Because your horizon is so long, you should be extra conservative in your modeling. Even with back-of-the-envelope math, I’d lower your return assumptions by one or two percentage points to really stress test the plan.

People often reference the “4% rule,” which came out of 1990s research showing you could withdraw 4% of your portfolio annually with a high probability of success, based on a 65-year-old retiring with a 60/40 portfolio. But for a very long retirement — 40 to 50 years — I’d test at a lower withdrawal rate, closer to 3% or even 2.8–2.9%, combined with lower return assumptions.

Be careful interpreting Monte Carlo simulations. They’ll often look overly conservative for long retirements because they give weight to even very low-probability scenarios where your portfolio goes to zero.

Beyond the math, watch your expenses. Will your current lifestyle and budget stay the same five or ten years from now? Have you accounted for college expenses? What about post-college? Travel can be a big variable — and you might spend more early on when the kids are young.

There are also healthcare and tax considerations. Healthcare before Medicare is expensive unless you qualify for ACA credits through strategic income planning. And tax rates can change — a 10% increase over 50 years could make a big difference.

Finally, be cautious about leaving your career in your forties. It’s much harder to re-enter at 50 after a decade away. Your skills, network, and industry knowledge can erode. Keeping a foot in the door through part-time work or consulting helps maintain relevance and income flexibility.


Rotating Special Segment: Money in the Headlines
Stephan Shipe:
And now for our rotating segment, Money in the Headlines, where we look at recent articles shaping the conversation around wealth and planning. This week, we’re highlighting a piece by a behavioral economist in the Wall Street Journal titled, “Why So Many People Get Financial Advice That Is Wrong for Them.

This really resonates with me. We’ve found that as wealth increases, the choices people face vary significantly. General advice — like how much to put into a 401(k), when to retire, or when to take Social Security — is widely available. But once you add in estate concerns, discretionary wealth, and complex goals, the plan becomes far more personal.

Two clients with identical portfolios on paper can end up with completely different strategies based on risk tolerance, family considerations, values, and even the source of their wealth.

For example, inherited wealth often leads to more risk aversion because it’s seen as irreplaceable. Entrepreneurial wealth often brings higher risk tolerance — sometimes to the point of overconfidence. Both mindsets have pitfalls.

The key is that good advice isn’t just about the textbook portfolio. It’s about how that advice is applied to your specific situation, your relationship with money, and your family’s relationship with money. Those behavioral factors are just as important as the numbers.

Thanks for listening this week, and we’ll see you next time.


Closing
Stephan Shipe:
Hey, this is Stephan Shipe. Thanks for tuning in to the Scholar Advising Podcast. If you have a question you’d like us to tackle in a future episode, share it with us at scholarfinancialadvising.com/podcast. We’d love to hear from you. Until next time.


Disclosure
Scholar Advising is an independent, fee-only financial advisory firm focused on providing hourly financial advice. The information provided in this podcast is for general informational and educational purposes only, and is not intended to constitute financial, investment, or other professional advice.

The opinions expressed are those of the hosts and guests and do not necessarily reflect the views of any affiliated organizations. Investing in financial markets involves risk, including the potential loss of principal. Past performance is not indicative of future results. Before making any investment decisions, consult with a qualified financial advisor who can assess your situation, objectives, and risk tolerance. Thanks for listening!

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