This is the story of two hypothetical corporate executives, “John” and “Michelle.” Both work very hard for highly profitable companies. They hold positions where their personal economic futures are directly connected to the future economic success of the companies they direct by traditional golden handcuffs.
They both work long hours developing and managing strategic decisions and tactical actions of their companies. This often requires travel to Washington, D.C. and other locations around the globe.
In their “spare time” they serve on the board of local community organizations, contributing their leadership skills to help maintain and improve the quality of life where they live.
They both have a lot of financial margin in their lives because of their high salary levels, bonuses, retirement plan choices, stock awards and stock options.
They also have many choices regarding these various components of their compensation packages. They can choose how much to defer into their 401k plans and their SERPs (Supplemental Executive Retirement Plan). They can choose when money will be paid out of their SERPs. They can choose how many vested shares of company stock awarded to them that they want to sell, and when. They can choose when to exercise their vested stock options and whether to hold onto the net shares acquired or sell them.
Each of these decisions come separately and have their own unique deadlines. However, due to John’s busy schedule, he often finds himself forced to make a decision just before the deadline.
He does the best he can – annually making his SERP contribution and pay-out choices; selling shares of company stock at what he hopes is a good price; exercising company stock options while they are in-the-money and before they expire.
And, while his wealth is increasing every year, he wishes he had the time to really think through the ramifications of all these interconnected decisions to be sure they coordinate and support each other and his dream of financial independence.
Michelle has no more time available than John, but she goes about making her financial decisions very differently.
She and her financial advocate have worked together to develop the step-by-step actions necessary for her to create the life she dreams about, including the decisions surrounding her compensation package.
Michelle defers the maximum she can into both her 401k and SERP because of the tax-saving leverage they provide. She chooses pay-out options from her SERP that will bridge her from when she expects to retire and when required minimum distributions are required from her IRA. She manages her current holdings of company stock and her future awards and grants; knowing the price she must extract from these in order to keep her financial progress on track, selling or holding shares accordingly. She exercises her company stock options in a very deliberate manner, optimizing the leverage they provide and capturing their contributions to her wealth accumulation.
As a result, Michelle knows what to do if future events go as planned. However, even more importantly, she knows the changes and adjustment she can make to her strategies and actions to respond intentionally when future events don’t go as planned.
The difference between John and Michelle is that John is making financial decisions in a disconnected manner hoping his financial life works out. But since Michelle is managing her financial decisions in coordination with an integrated financial plan and with the counsel of her financial advocate, she is much more likely to create the financial future she dreams about.
Frankly, both John and Michelle will probably be OK. But John will always wonder if he left money on the table. Instead, Michelle can be confident in her decision making and enjoy her hard-earned wealth with more peace of mind.
Please feel welcome to let us know if we can help you create the financial life you dream about.
About the Author
Tom Kirk is president, founder and WealthCoach at FirstWave Financial in Satellite Beach, Fla.