Planning and consideration for executives near retirement

Executives tend to be very focused on their careers, working to drive profitability at the companies they lead. However, if some of that attention isn’t paid to funding their retirement, it may haunt them.

“A career in the C-suite is highly compensated, but it can be relatively short,” says Robert Klug, regional executive at The Huntington Private Bank. “The average executive’s tenure is five years at a particular company, and they’re usually between the ages of 53-54. These are peak earning years, so it’s important to save as much as possible for retirement, and minimize the risks facing those savings.”

Smart Business spoke with Klug about the retirement challenges facing the C-level.

What are the major retirement assets of high-level executives and what miscalculations might plague this group when it comes to funding retirement?

Usually the majority of C-level retirement funding is some form of company stock, be it shares held directly, restricted stock or stock options. There also are deferred compensation plans that pay out after an executive’s exit.

A surprising number of executives fail to exercise their stock options. C-suite professionals can get so hyper-focused on their job that sometimes their stock options go unexercised and are lost.

Another common problem is a lack of portfolio diversity. Instead, they rely entirely on company stock. They may have amassed significant wealth through restricted stock and stock options, but there comes a point when the executive needs to manage and reduce the risk of a position that’s too concentrated.

There’s also the timing and payout of deferred compensation plans to manage. An executive could miscalculate the rate of deferment, or elect to have it all paid out in one year and get saddled with a huge tax bill on the one massive payout.

Executives might feel they don’t have the time to get caught up in the details of their retirement plan. They may not recognize the risk of having their wealth tied to one company, which places their retirement plans entirely on its success. There have been cases where executives believe they’re on track for retirement, then the company’s stock takes a huge hit and the whole plan is blown. Very late in the game, these people need to rethink their entire plan and likely make sacrifices that delay or drastically alter their retirement plans.

What should high-level executives use as a guide to determine if they’re able to lead the retirement life they want? What adjustments can be made to ensure the money they have will last?

Just like anyone looking to retire, the guide should be the person’s expected lifestyle and spending habits. One way to calculate this is to look at average annual spending and divide by 4 percent. That is the net worth that’s needed before retirement.

Executives in their peak earning years should increase their savings rate. Some may need to extend their career by a few years to reach the number they need.

They may also need to adjust their projected spending. Take a close look at the lifestyle and cost of it and try to cut back. Even finding a way to reduce spending by a few hundred dollars per month could make a big impact over the long term.

Another option is to find ways to supplement retirement income with other income, such as through consulting work or serving on boards.

How can C-level executives ensure they have the retirement life they want?

More than anything, planning is key. Developing a plan with a trusted adviser can be a big help to busy executives.
A retirement plan isn’t something that can be developed in one meeting and forgotten. It takes oversight because circumstances change and markets fluctuate. An adviser can provide that oversight, keeping an eye on investments and giving regular updates to ensure the plan stays on track.

Work with a trusted attorney, CPA or wealth manager who can have a frank conversation about the executive’s retirement position. There may be challenges along the way. It’s important to work with some who can deliver difficult news and be trusted to find a solution.

It’s never too late to plan. Don’t go into retirement without one.

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