Philip, a retired senior executive of a publicly traded corporation
With more than 20 years of company service, our client was experienced in his field of business, but not prepared for managing the complex financial issues surrounding retirement. As a senior manager, he had accumulated a wide array of retirement benefits. In addition to his pension, Philip had a substantial 401(k) balance, restricted stock, and stock options.
Our client’s biggest concern was the long-term solvency of his company pension plan. He was also concerned about the concentrated position in company stock. He was also unsure how all these pieces would fit together to fund his retirement.
Potential course of action:
After we gain a complete understanding of Philip’s financial situation, we would discuss his needs, wants and wishes. We then would use Goal Planning & Monitoring software to create a comprehensive financial plan designed to help demonstrate whether his resources were adequate to fund his goals. Between the restricted stock, options and his pension, the majority of his wealth and retirement income was dependent upon one source – his former employer.
To address our client’s reservations regarding the sustainability of his company pension plan, we would recommend he roll over a portion of his lump sum pension amount into an immediate annuity and the remainder into an IRA. The immediate annuity would serve as a guaranteed* source of lifetime income, partially replacing the pension. We would also recommend he roll over his 401(k) into the same IRA.**
We also would reach the conclusion that our client needed to divest himself of his concentrated stock exposure. He was fully vested, but if he sold all his stock in a single year it would have created a significant tax liability. Instead we would plan to stagger the stock sale over four years. To help preserve against a decline in value during the four-year period, we would design a strategy to establish a floor value for the outstanding shares before they could be sold. The proceeds from these sales could be invested into a professionally managed diversified portfolio designed to maintain purchasing power over the years to come.
*Guarantees are based on the claims-paying ability of the issuing company.
This is a hypothetical scenario for illustration purpose only and does not represent an actual investment.
**Be sure to consider all of your available options and the applicable fees and features of each option before moving your retirement assets.
The projections or other information generated by Goal Planning & Monitoring regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results and are not guarantees of future results. Goal Planning & Monitoring results may vary with each use and over time.