How long do you have before you reach your ideal retirement age? Ten years? Two years? Many executives don’t allow themselves enough time to plan their retirement, giving themselves a year or two, when in fact a longer runaway can help develop a better plan for retirement.
It seems like it should be straightforward, but often, executives don’t think about the details of retiring. A key part of a financial advisor’s role is helping executives position their assets in a way that is most appropriate for their individual needs. As they aim to design plans tailored to your retirement goals including what age you’d like to retire, how much you’ll want to spend during retirement, and how much you would like to pass on to your children, they take into account the unique elements of executives’ compensation plans.
Start your retirement planning decades before you plan to retire
Setting out your retirement goals in advance, at least 10 years or more, gives you the time to develop a plan that maximizes your finances once you stop working. Many executives must consider how the elements of their compensation outside of cash, including stock options, deferred compensation, and even the timing of a retirement announcement will provide the right cash flow for their lifestyle.
- Equity stock options—this common form of compensation can come with a lot of strings. An advisor can consider your unique vesting schedules, account for blackout periods associated with your stock options, create a plan to divest and diversify these assets, and balance tax requirements. It’s worth remembering that you can get rich on a stock, but you probably can’t stay rich on one, which is why building a disciplined plan to diversify out of concentrated equity positions matters just as much as the tax and timing details.
- Deferred compensation—companies will often ask executives to select a payout date years in advance; therefore, forecasting deferred compensation in conjunction with retirement picture is essential to spread out tax obligations with the goal of trying to avoid large tax payments.
- Timing of retirement—retirement timing can make a tremendous difference in your ultimate compensation. An advisor can review your company’s policies to understand the best way to announce retirement. For example, sometimes that might mean giving a year’s notice of your impending retirement rather than six months to allow your stock options time to vest.
An advisor will also help you identify and navigate any timing gaps between retirement and any outside income sources such as social security or pensions that are available.
Needs, wants, and wishes: Building different retirement scenarios
Retirement scenarios can help executives understand a variety of potential life changes that could occur and prepare them for unknown situations ahead. An advisor will develop a few different possibilities for your future that change variables such as your monthly spending and saving levels ahead of retirement, your retirement age, and even what would happen in the event of an unplanned exit and compare those tradeoffs.
Many executives do not consider how much their monthly spending now impacts retirement later. Spending a few thousand more or less each month can greatly impact retirement finances. Knowing what that difference is can help you decide whether to cut back on spending or maintain a desired level.
Similarly, retirement scenario models examine how retiring at different ages, such as 60 versus 65, will affect what you can afford. Some executives decide they want to work a few years longer than they originally thought to earn extra flexibility in retirement spending. Others decide they want to retire at a given age and would rather cut back spending instead.
These models can also define something many executives don’t consider: how much is enough? For example, a model that shows a 99% probability of success can sound reassuring on paper, but it often means the real world outcome is leaving a significant amount of money to your children, maybe more than you intended, instead of spending it on your own retirement years. Understanding that tradeoff and deciding how much of your plan should be about your own spending versus what you leave behind is as much a personal decision as a financial one.
Retirement scenario models can also help you develop back up plans that explore opportunities for instances when things go better than expected, or solutions for instances when they don’t go as well as you anticipated. They can be especially helpful to prepare you for an unplanned exit that occurs before you anticipate leaving the firm. Back up plans give you the flexibility to navigate the unexpected situations in life and still look forward to a comfortable retirement.
No one can fully prevent being pushed out of a role before they’re ready, but this moment, while jarring, doesn’t have to derail retirement. Consider an executive who lost his job about a decade before he expected to retire. Once he ran the numbers, he saw a different path forward: a less demanding role in the very place he’d always planned to retire to. It meant trading title and income for time, flexibility, and a head start on the life he wanted next.
What happens when it all stops
Sometimes the financial picture is easier to navigate than the emotional side of the transition to retirement. Executives are often unprepared for what happens when work stops. The biggest surprises of retirement can often come from changing relationships with your family and your spouse. An advisor is there to have those hard conversations and help you think through what comes in this next chapter. What will you do with your time when it isn’t filled with 40+ hour work weeks and regular business travel? How will it feel when you’re not constantly needed? What new sense of purpose will you seek out?
Focus on running your team
No two retirements are the same. Every company and executive role is different. Knowing the intricacies of your retirement at your company is critical to ensuring the money lasts throughout retirement. An advisor fills in that role, developing the right plan, keeping it up to date, and getting you to a successful retirement, while you focus your energy on getting to retirement and running your team.
If you’re ready to build a retirement plan tailored to your executive compensation, fill out the form below to request advisor outreach. In the meantime, consider more aspects of your retirement by tuning into Wit, Wisdom, & What Matters Most, an original podcast from the Gast, Freeman, Troyer team at Moneta.
Executives should start planning at least 10 years before their target retirement date. Compensation elements like stock options, deferred compensation, and pension timing often take years to fully vest or mature, so a longer runway allows these pieces to align with your retirement goals rather than being rushed in the final year or two.
Unvested stock options are typically forfeited if an executive leaves before the vesting schedule completes, though some companies offer accelerated vesting with sufficient advance notice. Reviewing your company’s specific equity plan documents and notice-period policies before announcing retirement can prevent leaving significant compensation on the table.
Deferred compensation plans typically require executives to select a payout date years in advance, and that election is often difficult or impossible to change later. Because the payout can create a large tax event, it should be forecasted alongside other retirement income sources to help spread out tax obligations rather than triggering one significant tax bill.
A 99% probability of success generally means the retirement plan is significantly overfunded relative to actual spending needs. While it sounds reassuring, it often signals that the real outcome is leaving substantially more money to heirs than intended, rather than fully using those assets during retirement.
No plan can fully prevent an unplanned exit, but building financial flexibility in advance can reduce its impact. Executives with a well-modeled retirement plan and multiple income scenarios are better positioned to treat a forced exit as a transition rather than a financial setback.
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