Retirement Risks Keeping Corporate Executives Up at Night (And How to Overcome Them)

Key Risks Facing Executives in Retirement

As a high-level corporate executive, you've worked hard to build a successful career and accumulate substantial wealth. Now, as you approach retirement, you may be grappling with a new set of challenges that could jeopardize the comfortable lifestyle you've envisioned for your retirement years.

While you can't control all the unpredictable events that may arise, there are proactive steps you can take to manage the most common retirement threats facing executives like yourself. By addressing these key risks head-on, you can help ensure your hard-earned savings last throughout your retirement and that you can enjoy the lifestyle you deserve.

Market Volatility Derailing Your Plans

As a seasoned executive, you understand the importance of diversification and prudent risk management. However, even the most carefully constructed investment portfolios are vulnerable to periodic market downturns. If a significant drop occurs shortly before or early in your retirement, it could have lasting consequences on the value of your nest egg.

Work closely with your financial advisor to review your asset allocation as you near retirement. Shifting to a more conservative investment approach can help safeguard your wealth against market swings while maintaining some exposure to growth assets to offset inflation. Additionally, develop a thoughtful withdrawal strategy that adjusts the percentage of assets you draw down each year and takes into account tax consequences.

Maximizing Executive Compensation Strategies

Are you maxing out your 401(k) contributions but still have funds left over? As a high-income earner, an executive deferred compensation plan may be worth considering. This unique type of arrangement allows your employer to defer part of your income, so you only pay taxes on it later in retirement when you begin withdrawing the funds. This can help you retain more wealth over time and remain in a lower tax bracket.

Additionally, if you've received Incentive Stock Options (ISOs) as part of your executive compensation, be mindful of the specialized tax implications when exercising and selling these. Working with a financial advisor can help you determine the optimal timing to avoid triggering the alternative minimum tax.

Another form of equity compensation to consider is Restricted Stock Units (RSUs). RSUs are a promise from your employer to give you shares of company stock after you meet certain conditions, usually staying at the company for a specific period or meeting performance targets.

Unlike ISOs, RSUs don't require you to pay a strike price - the value is tied directly to the market price of the stock when the RSUs vest.

When your RSUs become available for you to use, they're seen as taxable income. But you can take advantage of this by selling them and putting the money towards your retirement savings, like putting the maximum amount allowed into your 401(k) or an IRA. Using RSUs wisely can help you grow your retirement fund faster and might even let you retire sooner.

Just like with ISOs, it's important to work closely with a financial advisor who understands the nuances of equity compensation to ensure you're making the most of your RSUs from a tax and retirement planning perspective.

Optimizing Your 401(k) and Retirement Accounts

As you approach retirement age, it's important to review your 401(k) and other retirement accounts to ensure you're maximizing their potential. If you're retiring at 59 1/2 or older, you can begin taking withdrawals from your 401(k) without the early withdrawal penalty.

However, if you leave your company at age 55, there may be exceptions to this rule. And if you've rolled over your 401(k) funds into an IRA, you'll need to wait until 59 1/2 to avoid the 10% penalty. Work with your advisor to manage the costs and investment options within your retirement accounts, and decide the best strategy for handling your 401(k) as you transition into this next phase.

Inflation Eroding Your Purchasing Power

Even modest inflation can significantly reduce the buying power of your retirement savings over time. As an executive, you've likely accumulated a sizable nest egg, but a 2% annual inflation rate can still erode the value of a $1 million portfolio to just $603,000 over 25 years.?

To combat this threat, consider allocating a portion of your assets to investments that have the potential to keep pace with or exceed the rate of inflation. This could include real estate, stocks, or Treasury Inflation-Protected Securities (TIPS). By diversifying into these types of growth-oriented investments, you can help ensure your savings maintain their purchasing power throughout your retirement.

Conclusion

No matter which path your retirement leads you down, there's one major question you'll need to answer before leaving the boardroom for the last time: Do you have enough savings to retire comfortably? Assessing this requires considering your assets, income streams, and any benefits your company offers, so finding the answer to this question may be more complex.?

Daner Wealth Management will help you navigate this process and ensure your post-retirement experience is just as fulfilling as your career before. By addressing the unique retirement risks facing corporate executives like yourself, you can help safeguard your wealth and lifestyle in the years to come.

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