Executives, like many other working professionals, look forward to their retirement. However, retirement planning is often much more complex for executives due to their unique company benefits. Identifying which options are best to defer and choosing the right investment vehicles can be tricky. It is imperative to work with a wealth advisor who has in-depth experience with executives to help guide you through this process.
The Danger of Outliving Your Wealth
Before you can contemplate how to exercise your benefits, you need to make sure you've saved enough. Because we are all living longer and spending 20 plus years on average in retirement1, the chances of outliving our wealth is real. Often times we save and invest for the future; however, we don't take the time to realign our plans with changes to our lifestyle, changes in the economy, or rising medical expenses.
How will you be spending your time in retirement? Typically, most people need 70- 80% of pre-retirement income to maintain their current lifestyle. However, over 49% of households spend more2. More leisure time often results in more expenses.
Will you be able to maintain your lifestyle if you lose 35 percent of your portfolio? Longevity also means that you are likely to live through another recession or severe stock market correction.
Are you protected against the rising cost of long-term care? With 7 out of 10 people needing long term-care3, you are not adequately protecting your hard-earned savings if you don't plan for it. How will you pay for these expense should you, your spouse, or a parent need these services?
Maximizing Your Unique Employee Benefits
Many executives are compensated with additional benefits such as deferred compensation or stock options. After you've addressed some of the dangers above and find that you haven't saved enough, you could possibly use some of these benefits to bridge the gap once you retire. Or if you've done a great job of saving throughout your career, you can work with your advisor to understand the tax implications of how and when you exercise your options. Some options may require elections to be made a year prior to retirement; it is imperative that you understand the policies of your company. These will be crucial to align the timing and investment vehicles with your cash flow analysis.
Seek an Advisor with Experience in Planning for Executives
Bank of Hawaii has helped many executives transition into a successful retirement. We can review your situation and provide insights to help you maximize your benefits to help you feel secure about your retirement.
2 Banerjee, Sudipto. “Change in Household Spending After Retirement", EBRI Issue Brief, no. 420 (Employee Benefit Research Institute, November 2015).
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