3 Questions to Ask About Your Company Stock
Compensation isn’t always straight forward. When you reach a certain level of success, the way you are paid for your work gets more complicated.
Most senior executives receive some form of stock-based compensation, but the mix has changed considerably in recent years. The days of incentive stock options (ISOs) and non-qualified options (NQSOs) are almost over, with most companies phasing them out in favor of restricted stock units (RSUs).
Even if you think you have it figured out, those complications could mean you’re missing important opportunities.
These are the questions you should be able to answer about your company stock and other assets. If you can’t answer them with any certainty, it’s time to discuss with a trusted advisor.
Is my nest egg as big as my net worth?This is a very common mistake: assuming your net worth and your nest egg are the same thing. Let’s face it. Net worth isn’t the most important number. The real number you should be concerned with is your nest egg—the sum of assets that will generate income in retirement. An advisor can run scenarios and models to plan for varied possibilities.
It could be the case that your net worth and your nest egg may be different due to taxes and vesting periods. It takes careful and complex analysis to determine what they are worth now and how they will affect your income in the future.
How big does my portfolio need to be, and how should it be allocated?The income you need depends on what kind of lifestyle you are used to, and a sound portfolio strategy should produce that income consistently now and in the future.
Sound strategies rarely involve highly concentrated allocations to a single company stock. At the same time, the obvious allocation options are not always the right ones. At Pinnacle Wealth Advisors, we design customized portfolios to achieve specific objectives. Our toolbox includes a wide variety of investments that consider lesser known opportunities in addition to the traditional world of stocks and bonds.
How much of my company stock can I afford to keep?When most executives retire, they do so with large chunks of company stock. It can even be an emotional point of pride for longtime company owners or leaders. And while concentration can be a great way to build wealth, it may be a risky way to maintain it, especially during retirement when you are no longer meeting your living expenses through employment income.
Diversification doesn’t mean you have to give it all up. You can find a satisfying balance. Talk with your advisor about how much you can keep without jeopardizing your plans for retirement. If your desired income is on the lower end of the spectrum, you can probably afford to keep more. If you expect to travel, have an expensive home or keep upgrading your luxury car, you might have to let it go.
Having company stock as part of your compensation plan can be a very good thing, but it takes careful planning to transition to a diversified retirement portfolio. It should be one piece of a larger portfolio that is custom tailored to you and your needs. If you felt uncertain about any of the questions above, reach out to as at Pinnacle Wealth Advisors. We can find the answers together.
Nathan Kurita has worked in financial services since 2001 with a diverse career in asset allocation and security selection for both institutional and private wealth clients. He can be reached at [email protected].
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