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Retirement Saving Strategies for Corporate Executives



Retirement Saving Strategies for Corporate Executives

Three ways to increase your savings rate

By: Michael Day, Senior Financial Advisor, M&T Securities, Inc.
And Natasha Wilbur, Senior Financial Advisor, M&T Securities, Inc.

As your career has advanced, your income has likely grown. To help plan for a successful retirement, focus on building excess cash reserves, funding your 401(k) and other benefit plans, and having a solid financial plan in place.

Depending on your compensation level, you may also need to consider career risk level. How can you ensure the comfortable lifestyle you enjoy now will continue into retirement?

1. Use deferred compensation plans; stagger payout dates
There are different types of deferred compensation plans available to upper management and corporate executives. The most common is a supplemental executive retirement plan (SERP). You may have heard it referred to as a top hat, excess benefit, or benefit equalization plan.

With this plan you specify the date compensation will be paid. Often, payout dates are selected with no thought given to tax consequences, career plans, or retirement. Participants simply receive a lump sum payment. This can do more harm than good.

Carefully selecting the timing of deferred compensation payouts helps you minimize taxes and creates a smoothing of income as you transition into retirement. Staggering the payout dates over years helps alleviate the tax consequences.

2. Reduce exposure to company stock
Like many executives you may have a disproportionate amount of your net worth tied to company stock. It may come in the form of nonqualified or incentive stock options, restricted stock units, or possibly employer matching contributions or an ESOP (employee stock ownership plan). Maybe you’re tempted to purchase discounted stock through an employee stock purchase plan (ESPP).

Instead, you might be wise create a plan to divest company stock. There are a number of ways to do this; we highlight three:

  • Exercise your stock options—Your stock options—incentive and nonqualified—are taxed differently. A tax advisor or financial planning specialist can help create an exit plan letting you exercise options while minimizing tax consequences.
  • Sell shares of stock—If you own stock from restricted stock options, ESPP investments, or through a standard purchase, consider a covered call strategy to generate income while establishing price points at which to sell. If you are reluctant to part with shares, this option permits you to create a plan to reduce your risk exposure to a single company stock.
  • Hold shares in employer plans—Stock in an employer plan is one you may not want to sell. Often with stock from employer-matching contributions you benefit from net unrealized appreciation (NUA). This special distribution allows you to pay ordinary income tax on the company stock you distribute from your retirement plan. The gain you receive is treated as long-term capital gains, which are treated at a lower tax rate than ordinary income.

3. Use financial planning services
A financial professional can help project a sustainable income for you in retirement. Doing so early lets you make adjustments that will be beneficial to you later. Review your current benefits with your advisor to take advantage of all available opportunities and make the decisions that are right for your financial future.

Michael Day
Natasha Wilbur

Senior Financial Advisors Michael Day and Natasha Wilbur specialize in turning financial complexity into clarity for successful individuals and families. Contact Mike at 315.427.3480 or or Natasha at 315.345.4996 or nwilbur@mtb.comto discuss your personal financial needs.

Brokerage services and insurance products are offered by M&T Securities, Inc. (member FINRA/SIPC), not by M&T Bank. M&T Securities, Inc. is licensed as an insurance agent and acts as agent for insurers. Insurance policies are obligations of the insurers that issue the policies. Insurance products may not be available in all states.

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This article is for informational purposes only. It is not designed or intended to provide financial, tax, legal, investment, accounting, or other professional advice since such advice always requires consideration of individual circumstances. Please consult with the professionals of your choice to discuss your situation.

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