Corporate executives often reach a point where earning more doesn’t necessarily make their financial lives simpler. Equity compensation, concentrated investments, tax exposure, and retirement decisions can create questions that aren’t always addressed by a traditional financial plan.
The financial challenges for corporate executives also tend to become more important as retirement approaches and decisions around stock, benefits, and income begin to overlap. At Wealth Advocate Group, we work with executives to understand how these pieces fit together and help them make informed decisions based on their goals.
Here are five common financial planning challenges corporate executives face and some considerations for addressing each one.
Unlike most salaried employees, executives need a wealth management plan that specifically addresses the complexities of their compensation and incentive plans—as well as any tax implications.
For example, many corporate executives have a substantial amount of their net worth wrapped up in their company’s stock. However, having a larger portion of your income tied to the company’s success (or failure) can create unnecessary risk. That is why it is incredibly important for corporate executives to diversify their investment portfolio and create a plan to strategically sell shares of stocks in the future.
As we noted above, corporate executives have specific needs when it comes to their compensation, especially in retirement. Many executives struggle to maintain their lifestyle into retirement because they have failed to save an adequate amount that will allow them to keep the lifestyle they became accustomed to. Luckily, there are strategies to help mitigate this deficiency.
Typically we advise our clients that the more they earn, the more they need to save to preserve their current lifestyle throughout retirement. This means, in peak earning years, corporate executives should focus on building up excess cash reserves and putting as much money as possible into their 401(k).
Corporate executives may also have access to deferred compensation plans, such as top hat plans or benefit equalization plans, which can be helpful tools in retirement. These plans typically allow an individual to choose a specific date in the future for when a portion of their compensation is paid to them by the company.
Many executives choose a lump sum when they retire without understanding the full tax implications related to the payout’s timing. This strategy results in a higher tax bill attached to the lump-sum payout. We often advise our clients to stagger the payments so that the tax implications can be absorbed over a few years, which also decreases the overall tax burden.
Many corporate executives financially support households in which they are either the primary income earner or the sole income earner. This leaves their family vulnerable to financial uncertainty if something were to happen to them.
Most couples choose to mitigate risk by investing in disability insurance or life insurance to replace income in the event of any unforeseen circumstances. If you are unsure which policy would specifically meet your needs, we can help you choose a policy tailored to your specific situation.
Often corporate executives tell us that they don’t have a lot of free time, and when they do have a moment to spare, the last thing they want to do is spend it working on a financial plan. We get it. Executives are smart and driven professionals who are very busy working and providing for the people they love.
Given the daily demand for your time, your discretionary time should be spent doing the activities you love with the people you love. Delegate the financial planning to professionals like us, who have the experience to understand your specific situation and can introduce financial strategies that will safeguard you and your family’s financial stability into the future.
This not only grants you independence but also allows you to spend your limited free time in a meaningful and less stressful way.
The financial challenges for corporate executives often become more complex as retirement gets closer. Executive compensation, concentrated stock positions, taxes, and retirement income can all affect the decisions you make, which is why having a plan that accounts for how these pieces work together can be valuable.
At Wealth Advocate Group, we help corporate executives like you evaluate these decisions within the context of their broader financial lives. Are you interested in a second perspective on your financial plan or help addressing the challenges ahead? We invite you to contact us at 440-505-5751 or email jcohen@Wadvocate.com to schedule an appointment.
Jason Cohen is Chief Operating Officer and wealth advisor at Wealth Advocate Group, LLC, an independent, fee-based wealth management company. Jason has 15 years of experience and spends his days managing firm operations, including portfolio trading and analysis, training of new advisors, financial plan production, and client relationship management. Jason specializes in serving real estate professionals and other independent contractor business owners, helping them navigate their unique financial challenges, such as unpredictable cash flow and tax issues, so they can pursue financial independence. Jason has a bachelor’s degree in public management from Indiana University and is a CERTIFIED FINANCIAL PLANNER® professional and believes that everyone should have access to comprehensive financial planning. He is passionate about doing his best for his clients and setting others up for success. Outside of the office, you can find Jason staying active in a variety of sports and spending time with friends and family. Learn more about Jason by connecting with him on LinkedIn.
Securities offered through LPL Financial, Member FINRA & SIPC. Investment advice offered through Stratos Wealth Partners, a registered Investment Advisor. Stratos Wealth Partners and Wealth Advocate Group LLC are separate entities from LPL Financial.
The opinions voiced in this material is for general information only and not intended to provide specific advice or recommendations for any individual. This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.
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