by Chuck Steege, CFP, CEP
Eileen is the general counsel of a high tech company. Her company was just acquired by an out-of-state company. The sad fact is that all headquarters personnel are at risk of being let go. At age 60, she faces unplanned retirement along with many of her colleagues.
As a high-potential employee, she did everything right, from planning to accumulation. Eileen is well prepared for retirement – but not quite yet. A few years ago, she had worked with a financial planner who completed a comprehensive plan focused on retirement. Company stock represents a substantial part of her assets. Scenario planning was done to identify when she can retire, how much she needs and what would happen under certain assumptions. Based on the scenario planning, her current age of 60 is a little premature for retirement.
The company recently instituted a post-vesting holding period on performance shares. Performance shares granted to Eileen three years ago will vest in 31 days. Her shares are now subject to a two-year post-vesting holding period. That means the $150,000 in vested shares will not be available to sell until 2017.
As long as she ultimately declares her exit as “retirement,” her grants will continue to vest. The shares granted in 2013 and 2014 may vest and be subject to the same post-vesting periods. The shares are expected to vest in 2016 and 2017, and cannot be sold until 2018 and 2019, respectively.
Eileen’s potential retirement at 60 takes in these considerations:
- The value of her performance shares had been included as complementary in her retirement expectations. Now she faces a timing gap due to the post-vesting period;
- Eileen lives a good lifestyle, including a second home in Florida. She wonders if she should sell it to address the income gap;
- Her 401(k) and IRAs will remain untouched until later. Her planner has recommended that she not tap her Social Security until age 70 in order to maximize her lifetime benefit;
- Consulting work is an option to partially bridge the “no income” gap created by the extended post-vesting holding period. She has built a credible reputation in her industry network, so consulting is a viable option.
A variety of actions will help Eileen face an unplanned retirement. She should look at alternative sources of income and assets to bridge the gap. Too young to tap into her 401(k) or IRAs, her second home is an asset that could be used to meet several years of income needs. SFG would work with Eileen to construct a multi-year income and expense matrix to carry her into age 70, when she has full access to her retirement accounts, Social Security and other assets.
The name, likeness and circumstances in this example are a fictional composite of facts from executives similar to actual SFG Clients.
Mr. Steege is President of SFG Wealth Planning Services, Inc., SFG Investment Advisors, Inc. (SFG), a fee-only financial planning firm. Founded in 1993, SFG is dedicated to assisting senior executives and their employees with their complex stock-based compensation and planning challenges. More information can be found at www.sfgadvisors.com.