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The Executive’s Guide to Financial Planning

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Despite their higher earnings, most executives still have trouble managing their finances.

While many people might think financial planning takes a one-size-fits-all approach, the reality is that the variables are different for executives than they might be, for say, a doctor or a lawyer.  

As an executive, you need a specialized approach to financial planning that addresses your specific goals and needs, especially since you’re likely living a busy life with a hectic day-to-day schedule that might prevent you from giving your finances the proper attention they require. 

Finding the right financial planning advisor is essential if you want to be able to successfully navigate the complexities associated with building wealth as a corporate executive. 

What Makes Corporate Executives Different

What makes your situation different than other highnetworth individuals? Well, several factors make you stand out from the traditional financial planning client, including the special opportunities and advantages available to you that might not be available to other high-earning professionals. 

Executives like you need a wealth management strategy that incorporates your executive compensation and incentive plans.  

Senior-level executives like you also have to be mindful of certain SEC rules when it comes to financial planning, which means making sure you’re aware of and closely adhering to Rule 144 — a rule that governs the sale of control or restricted stock.  

Similar rules require that you disclose any changes in beneficial ownership to the SEC and prevent you from selling stock during corporate blackout periods to avoid insider-trading alerts.  

Because you’re paid using a certain compensation structure (usually tied to performance goals) and you most likely have stock ownership in the company you work for, you might be exposed to distinctive legal risks related to your position (in addition to the above-mentioned risks).  

That’s why you must find the right financial planning assistance to help you address the basic elements of planning as well as the more complex aspects associated with your profession.  

A Blueprint for Financial Planning Success

Your blueprint for financial planning success involves four areas: tax planning, attaining financial independence, risk management, and reducing your exposure to fluctuations in value of your company stock.  

Tax Planning 

Tax planning has different implications for high-level executives. Because you’re usually in one of the highest tax brackets, you’ll be taxed at much higher rates than people earning much less than you.  

Deferring tax consequences (and compensation) and minimizing overall downside risk is the objective, especially when it comes to retirement planning. 

One of the best things you can do when it comes to deferred compensation plans is to stagger your payout dates.  

Many people make the mistake of randomly choosing their payout dates without thinking about the tax consequences and how those dates might fit into their retirement plans.  

You’ll also want to make sure you’re planning for estimated, withholding, and employment taxes and maximizing certain credits and deductions.  

Attaining Financial Independence  

Financial independence means achieving your financial goals and having peace of mind, knowing your bills and other expenses are covered once you’re ready to retire.  

That means building up your cash reserves as much as you can while you’re still making money so you can maintain the lifestyle you’re currently living well into your retirement years.  

Seventy-five percent of Baby Boomers think they will have enough money to live comfortably in retirement, but this is true for only 35% of Gen X, according to a 2019 report from Retirement Living. This means you should focus on establishing an investment strategy focused on conservation and capital growth.  

Make sure the financial advisor you choose can help you address your unique situation appropriately, taking into account your potential deferred compensation, equity-based holdings, and incentives.  

Risk Management

If your financial planning and wealth management strategy don’t take risk management into account, you’re leaving yourself open to all kinds of potential problems 

Understanding your risk profile can help you avoid potential obstacles when it comes to building wealth and keeping it (especially since you’re probably holding onto illiquid assets). 

This can be quite challenging and a little overwhelming.  

But a financial advisor can help you create a sensible plan to minimize your investment risks.  

Your advisor should do a general insurance assessment and come up with a plan that would outline what you could do if you happen to lose your job and come up with a plan to address how you would approach legal responsibilities and securities laws.  

Limiting Exposure to Company Stock  

Limiting your exposure to company stock means avoiding the risk of binding all of your success to one company — the one you’re currently working for. That’s why diversification is important.  

Don’t put all of your eggs in one basket.  

Although it might seem easier to do that, since you probably have an employee stock ownership plan built into your retirement plan, it’s better to diversify if you want to be on the safe side.  

Otherwise, a huge chunk of your net worth is reliant upon one company, which might not necessarily be the best move for you. 

Instead, find a tax expert who can guide you toward the right exit strategy plan to minimize your taxes after you sell so you can keep as much of your hard-earned money as possible.  

Your financial advisor might suggest stock exit strategies like using covered call strategies to create income from stocks while you determine the price points at which you plan to sell them, or selling exercise options to pay the least amount of tax possible.  

Finding Financial Planning Services 

The best approach you can take is to get a financial advisor or financial planning services professional to help you figure out the right strategy for you, based on your needs and goals.  

The right financial advisor would be one who offers a client-focused process that incorporates your corporate holdings and benefits with the other facets of your financial plan.  

You’ll also need ongoing planning services as your life situation changes throughout your working years and into retirement to ensure you’re still on track to meet your financial goals as they change and grow with you.  

Think about the expenses such as the rising cost of healthcare, which could end up costing you and your spouse about $280,000 after taxes, according to Fidelity’s Retiree Health Care Cost Estimate. 

Find out if your company offers financial planning services as part of your employee benefits package. If not, do your due diligence to find a financial advisor who can help you with risk management, tax and retirement planning, attaining financial independence, and limiting your exposure to company stock. 

Do you need help creating your own financial plan? Contact our team today 


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