Retirement Planning For Corporate Executives
Corporate executives and upper management have important challenges when it comes to planning for their retirement. It is critically important for these executives to make the most informed decisions to maximize their savings for retirement. Corporate executives have complicated compensation packages.
In the 2017 report “Age And Tenure In The C-Suite,” Korn Ferry shows that corporate executives tend to be different since their compensation is most directly tied to their performance.1 When asked to cite all forms of substantial compensation, executives most frequently cited salary (81%), followed by stock options (58%), stock grants (33%), incentive bonuses (26%) and deferred compensation (17%). The most frequently cited significant income source outside of core compensation was an executive’s personal investment portfolio (64%), followed by the salary of a working spouse (18%), an inheritance (13%) and a family business (8%).
The five most important retirement planning decisions for corporate executives and upper management are discussed below.2
Maximize Your 401k Savings: If you have additional income it is always wise to put more towards your 401k plan. In 2020 you can defer up to $19,500, and if you are 50 years of age and older an extra $6,500. One of the biggest mistakes corporate executives make is believing they are contributing the maximum amount allowed by law if they are putting in the minimum amount needed to get the company’s matching amount.3
Use Deferred Compensation Plans: These plans are typically called supplemental executive retirement plans. With these plans, you set a specific payout date. It is wise to select a date when you expect to be in a lower tax bracket or you can stagger out the payout dates so you don't have to pay as much in taxes at one time. There are several great websites such as MyStockOptions.com where you can do an in-depth analysis.
Reduce Company Stock: Many corporate executives have a lot of their wealth tied to their employer’s stock.4 Not only do they depend on a paycheck from their employer, but they receive stock options, restricted stock grants, 401(k) match and other compensation that depends on the company’s economic well-being. It is wise to not have an excessive amount of company stock. You don't want your retirement to be tied to the success of the company. You could end up retiring when the stock has taken a significant nosedive. You should work with a financial planner and accountant to decide when to sell company stock to minimize your taxes. To avoid such a scenario, especially for those nearing retirement, a good rule of thumb is to keep no more than 10% to 15% of all assets in company stock.
Update Your Estate Plan: If you don't have a will and estate plan you should get one! It is recommended that you should review your will and estate plan every five years. Along with the will, you should have adequate life insurance to protect your assets. You should also have a living will and health care power of attorney documents.
Talk To A Financial Planner: It is always good to talk to someone like a fee-only financial planner to give you solid advice. There are important financial decisions to make that can deeply impact your retirement success. You definitely want someone in your corner to help you through them.
*This content is developed from sources believed to be providing accurate information. The information provided is not written or intended as tax or legal advice and may not be relied on for purposes of avoiding any federal tax penalties. Individuals are encouraged to seek advice from their own tax or legal counsel. Individuals involved in the estate planning process should work with an estate planning team, including their own personal legal or tax counsel. Neither the information presented nor any opinion expressed constitutes a representation by us of a specific investment or the purchase or sale of any securities. Asset allocation and diversification do not ensure a profit or protect against loss in declining markets.