An Executive’s Guide to Retirement

Countless executives retire with each passing year. Stepping away from the business you played such a prominent role in can be complicated and the succession planning process often takes years to see through. But while you’re busy formulating an exit strategy that ensures your business can succeed in your absence, it’s important that you also commit sufficient time to figuring out what the next phase of your life will look like.

If you’re a business leader with an eye on retirement, this guide outlines a handful of things to consider in the interest of securing the future you’ve worked so hard for.

Understand What You Want From Retirement

Retirement looks different for everyone. As an executive, you likely derived purpose, fulfillment, and structure from your career and these can be difficult to find new outlets for. That’s why it’s crucial for you to carefully consider what your next chapter will entail.

Executives tend to step down around the age of 62, according to a study by Harvard Business Review.1 While a handful of executives take on similar roles with other companies, most opt for a form of semi-retirement that keeps them engaged and allows them to continue to contribute to the professional sphere. This can look a number of different ways, including:

  • 1 out of 4 Fortune 500 CEOs become active in private equity.
  • 1 out of 2 assume leadership positions at nonprofit organizations.
  • 2 out of 3 serve on public boards.

Additionally, many former executives teach within their field of expertise, and some even write books about what they learned over the course of their careers. These are ways that you can bolster your professional legacy while also giving back to the professional community by helping the next generation of leaders.

Before formalizing your retirement, take the time to sit down and consider what’s important to you. Ask yourself what you would like to make happen in the next stage of your life. Whether that’s actively working on a board, promoting a charitable cause, or spending time with family, having a clear roadmap can help you position yourself for future success.

Plan for Healthcare Costs

When it comes to planning for retirement, one of the hardest costs to forecast is healthcare. Without a crystal ball, it’s impossible to predict with certainty what your future medical and/or care needs will be, but it’s nonetheless essential to budget for these.

Medicare, while likely to account for a portion of your healthcare coverage, may not cover all of your future medical expenses. There are premiums, deductibles, and various out-of-pocket costs, not to mention services Medicare doesn’t cover at all. You should also consider the potential need for long-term care services, which can be expensive and are not typically covered by standard health insurance or Medicare.

A Health Savings Account HSA can be a useful tool in this planning process, offering what’s referred to as a “triple tax advantage”: contributions are tax-deductible, any potential growth is tax-free, and withdrawals are tax-free for qualified medical expenses. While withdrawing funds for non-qualified expenses results in a 20% penalty, this penalty disappears once you turn 65. After this point, you can withdraw HSA funds for any purpose without paying a penalty, which reduces the risk of overfunding the account.

Contribute to an Executive Deferred Compensation Plan

Do you have funds left over after maxing out your 401(k) that you’d like to stash away for retirement? If so, an executive deferred compensation plan could make sense for you.

Executive Deferred Compensation Plans EDCPs) are arrangements between an employer and an employee — often a top executive or key employee — in which a portion of the employee’s income is paid out at a date later than the income was earned, typically once they’ve retired. An EDCP can afford you certain tax advantages, such as lowering your taxable income during your highest-earning years and allowing you to defer your tax burden until you’re ready to start making withdrawals in retirement. Funds in the plan may also be invested, potentially growing over time.

While these types of plans are highly customizable, they’re also subject to less regulation and may expose you to risks. Given the complex nature of these arrangements, it’s recommended that you consult with a financial professional before taking action.

Consider Your Stock Options

As an executive or business leader, stock options may make up a good chunk of your total compensation and the way you manage these assets can bear significant financial and tax implications. Here are some things to keep in mind.

Exercise Price: Also known as the “strike price,” this represents the value of your options.

Vesting Schedule: This tells you when you’re eligible to exercise your options. Vesting schedules are often based on time spent at the company — 25% after one year, 50% after two years, etc. — but they can be performance-based as well. Review your company’s policy carefully.

Tax Implications: Different types of options are treated differently by the IRS for tax purposes. Non-Qualified Stock Options NQSOs) are taxed as ordinary income upon exercise. Incentive Stock Options ISOs) may qualify for favorable long-term capital gains treatment, which could result in a lower tax rate.

Timing & Market Conditions: Assessing your company’s stock performance and future prospects can help you decide when to exercise.

Overexposure: If a significant portion of your wealth is tied up in company stock, you may want to consider selling some stock over time to diversify your portfolio.

Regulatory & Contractual Restrictions: Be aware of any blackout periods or insider trading restrictions that might impact your ability to exercise.

Company Policies & Changes: Stay informed of company policies or structural changes, like mergers or acquisitions, which could influence stock option value or exercise terms.

Looking Ahead to Your Retirement

The retirement planning process can look a bit different for executives and business leaders than it does for the average employee — and it’s not just because you may have more assets to account for. You could have access to tools that most workers don’t, such as an executive compensation plan or additional workplace benefits. You’ve also got your business legacy to consider.

A financial advisor can help you navigate the retirement planning process, working with you to secure the retirement you deserve.

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1 Feigen, Marc A., and Ron Williams. “The CEO’s Guide to Retirement.” Harvard Business Review, November 8, 2018.

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