By Kelly Metzler, CFP®

Your financial life is complex, and it’s easy to lose track of some aspects – especially those that can easily be put on autopilot. But being strategic about your employee benefits and savings vehicles allows you to make the most of your resources for today and in retirement.

Let’s take a look at five common areas executives tend to neglect in their financial lives and discuss why it’s time to review them.

#1: Reassessing Insurance Coverage

Protecting your wealth is just as important as building it. If you aren’t evaluating your insurance policies regularly, you could be putting yourself and your family at risk of being underinsured and over-exposed to costly losses. As your life evolves, your insurance needs may change as well.

If you were unable to go into the office tomorrow, would your loved ones be financially okay? As high-earners, it’s especially important for executives and professionals to consider the “what ifs” and prepare accordingly. Insurance policies can help fill the gaps in the event of an emergency and provide ongoing financial security for your family.

Common insurance policies for executives to consider include:

• Disability: Short- and long-term disability policies can replace a portion of your income in the event you’re unable to work due to illness or injury. 

• Umbrella: Umbrella policies provide additional liability coverage on top of the coverage provided by your home and auto insurance policies. With relatively low premiums, it can act as an additional layer of protection and help protect your assets in case you are found liable for damages or injuries that exceed the coverage limits of your underlying insurance policies.

• Life: Life insurance can provide your family with a death benefit that can replace lost income and help cover expenses such as mortgages, education costs, and daily living expenses.

#2: Concentrated Positions in Employer Stock

Equity compensation, such as stock options, Restricted Stock Units (RSUs), and Restricted Stock Awards (RSAs), can be a valuable incentive for employees and may be a material part of your total compensation package. Your employer might also offer the benefit of participating in an Employee Stock Purchase Plan (ESPP). Without proper planning though, these benefits can lead to an overconcentration of company stock in your investment portfolio.

Owning too much of any single stock increases the overall risk of your investment portfolio. For employer stock, you have the added risk that your income and job security is also tied to the financial health of the company. And if your total compensation has a large equity comp component, a decline in the company’s stock price will impact both your portfolio value and pay. 

Executives should monitor their company stock exposure and create a plan for how and when they will sell their company stock and diversify. Having a disciplined approach or ruleset – such as selling RSUs when they vest or setting a maximum percentage for employer stock relative to your total portfolio – can take some of the emotions out of the decision-making process and make it more likely that you will stick with your plan.

#3: Deferred Compensation Risks

As an executive or high-level employee, your company may offer you an additional opportunity to save for retirement in the form of a nonqualified deferred compensation plan.

Deferred comp plans can be useful tools for high-earners for several reasons. Primarily, they defer your income tax on the contributions until the funds are distributed, and there are no contribution limits.

There are, however, some important considerations and risks to keep in mind when deciding if participating is right for you. As a nonqualified plan, deferred comp is considered an asset of your employer. Should the company go bankrupt or become insolvent, deferred comp assets are subject to claims by the company’s creditors. These assets are not afforded the same protections as qualified plans like a 401(k).

Deferred compensation plans can also be more limiting in terms of how (e.g., lump sum or installments) and when payments will be made in the future. You should also be aware of what potential events could trigger a distribution earlier than expected from your plan, such as separation or change in control. 

While the tax deferral offered by deferred comp plans can be advantageous, there are risks and restrictions that should be accounted for when you incorporate it into your retirement planning strategy. 

#4: Saving to Taxable Accounts

A 401(k) is a helpful tool that executives can use to save for retirement, but it shouldn’t be the only tool used. 401(k) contribution amounts are limited, and even maxing them out won’t create enough savings for high-earners to maintain their lifestyle in retirement. 
By using other savings vehicles with different tax treatments, you can not only boost your retirement savings but control your tax liability in retirement as well. A brokerage account, for example, is a taxable investment account with no contribution limits or minimum age requirements for withdrawals.

You are responsible for paying taxes on investment income earned in your brokerage account each year. Because a brokerage account is not tax-deferred, it can be used in conjunction with your 401(k) to control your tax bracket in retirement.

#5: Employee Benefits

As a high-level employee at your company, your compensation package extends far beyond a base salary. If it’s been a while since you last reviewed your benefits, it’s even possible new ones have been added.

Take some time to review what’s available to you. You can always contact your human resources department if you’re unsure.

Some common executive benefits include:

• 401(k) plan

• Employer matching 

• The ability to do a mega backdoor Roth inside your 401(k)

• Deferred compensation

• ESPP plan or other equity compensation

• Health savings account (HSA)

• Insurance coverage such as disability, life, pet, etc.

Review your company’s offerings to determine if you’re participating in all of the opportunities that make sense for your situation. If your employer offers matching contributions for your 401(k) for example, neglecting to max them out means leaving free money on the table.

If you’re unsure about your employee benefits, we can sit down together to review how they work and how they can benefit you. There are often rules and restrictions involved, meaning it’s important to weigh any potential tradeoffs too. We can make a strategic plan for using your benefits to their fullest potential to address your financial obligations today and in retirement.

Conclusion

As a financial advisor, I work closely with executives to align all aspects of their complex financial lives with their long-term goals. I understand the ins and outs of your unique employee benefits and am happy to help you take full advantage of these offerings. 

I encourage you to schedule a call so we can review your financial resources together and make a plan that suits your needs.