New York Estate Planning & Elder Law Blog
For many corporate executives who are considering retiring, substantial financial planning must be done. Given the executives are often some of the best-compensated workers, this advice might seem unnecessary. Additionally, increasing stock prices over the last few years, as well as a healthy economy, means that many executives are better situated than ever before.
Diversification of Assets Is King
One issue executives should consider is the degree of their assets that share a relationship with the worker’s employer. Many executives receive various stock options, stock grants, and also enroll in retirement accounts; each of these plans can contribute towards a focus on the executive’s assets on the company stock of the executive’s employer.
Executives usually accumulate wealth over a period of years. Many executives end up discovering that their list of assets is divided similarly:
- stock from the executive’s employer
- insurance
- physical property
- deferred compensation
- A retirement account
As an executive’s retirement approaches, most find that they should diversify their asset ownership because this helps to further protect assets and can make sure that assets meet with estate planning goals to increase the amount that beneficiaries receive.
To consider the risks involved with owning too large a share of one company’s stock, think about what happened in January 2022. With inflation rising and federal agencies predicting increases in interest rates, many companies witnessed stock values tumble substantially. An individual who started retirement at 2021’s end with most of their assets invested in the company stock would have incurred a substantial devaluation in their net assets during a short period.
As retirement continues, stock options will still compensate dividends and life insurance might end. The approach at this time often changes from gathering assets to spending down wealth in retirement. To protect your assets and increase the amount you can pass on to your loved ones, consider several approaches to asset management as you near retirement.
Ways to Approach Asset Management
Consider the following techniques involved with asset management as you near the time when you retire:
- Finding a new location for your retirement accounts. On retirement, you should consider placing assets from your 401(k) plan into an individual retirement account. IRAs provide more investment opportunities and let an executive better diversify their assets.
- Consider taxes on your non-qualified retirement plans. Many executives elect to delay the receipt of incomes from non-qualified retirement plans. Contributions made before taxes are made to plans and grow without being subject to taxes until a future date, which is usually retirement.
Appreciate your stock options. Many executives appreciate that they pay income or capital gains tax after they utilize stock options. With estate planning, however, many people do not appreciate how stock options are handled when they pass away. Each company utilized a unique stock policy. It’s common, though, for executive beneficiaries up to 12 months following the executive’s death to exercise stock options.