Healthy Enough to Work, Wealthy Enough to Retire?

Gregory, 62, is a corporate vice president whose recent health issues have caused him to consider accelerating his retirement date.  Will he need to work a few more years or, given the value of his assets including holdings in his company's Restricted Stock Units, has he reached the point of financial independence?

Deciding when to retire may be one of the biggest financial decisions you will ever make. Many executives hold their stock compensation apart from their other financial account statements and monthly valuations. They often underestimate the significance of their stock-based compensation or cannot quantify the tax implications of holding vs. divesting.  In many cases, including Greg's, equity-based compensation could be a means to realize one's long-term financial goals.

Gregory needed help assessing the structural and tax implications of his stock-based compensation. Typically, in evaluating one's stock holdings, we consider the underlying security, the level of risk the executive has in holding a significant amount of company stock, and then we sequence the tax liability of diversifying away from company stock, and repositioning for the future.

In Gregory's case, his Restricted Stock Units (RSUs) had vested, so he had already paid ordinary income tax when the stock was vested and released. Gregory maintains voting rights and receives dividends, while all future appreciation will be taxable at lower long-term capital gains rates if held longer than 12 months and one day from vesting.

Based on Gregory's unique circumstances including his other investments, the future prospects of his company's stock and attractive dividend yield, SFG recommended he continue to hold the stock beyond retirement date, including making at least a short-term ordinary income tax deferral upon RSU share release. Further, with a 4% dividend yield and potential for the stock to go higher, company stock was deemed to be a suitable retirement portfolio holding.

It may seem counter-intuitive to recommend not divesting company stock at retirement, but the fact is, it can be prudent to undertake a methodical process to determine the right course of action, one that takes in the financial, executive compensation and accounting implications of holding versus divesting. Be sure your financial professional is equipped to consider all of these considerations in making a recommendation. There may be value in continuing to hold company stock. In the end, on the recommendation of SFG and his own plans, Gregory decided to retire and spend more time with his family.
For more information about evaluating stock-based compensation to determine retirement readiness, please contact us.

*The name, likeness, and circumstances in this example are a fictional composite of facts from executives similar to actual SFG Clients.

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Executive Compensation, Non-Qualified Deferred Compensation, Performance Stock Units, Restricted Stock Units, Retirement Planning

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