When Should Executives Start Planning for Retirement?
The quick answer
Executives should start planning for retirement about 10 years before they want to stop working, and get serious about the details five years out. Executive pay packages include stock awards, deferred compensation, and bonuses that follow their own schedules and rules. Many of the decisions that affect how much you keep, like deferred compensation payout elections, have to be made years in advance. Waiting until the last year or two often means leaving money on the table or paying more tax than necessary.
Why do executives need to start earlier?
Most people retire with a 401(k), maybe a pension, and Social Security. Executives often have much more to coordinate:
Unvested stock: Leaving at the wrong time can mean walking away from awards worth more than a year's salary.
Retirement rules in your equity plan: Many plans let you keep vesting, or vest early, if you meet a "retirement" definition, such as reaching age 55 with 10 years of service. Missing it by a few months can be costly.
Deferred compensation: Payout timing is usually set years ahead and is hard to change.
Bonus timing: Leaving just before a bonus is paid can mean giving it up.
Concentrated company stock: Trading windows and ownership requirements can limit how quickly you can diversify.
Each of these can be managed well, but only with enough lead time.
What should you do, and when?
10 years out: set the direction
Figure out how much you need to retire comfortably and whether you're on track. Start reducing concentration in company stock gradually, and make deferred compensation elections with your likely retirement date in mind. This is also the time to max out every tax-advantaged account you have.
5 years out: map the details
List every stock award, its vesting date, and what happens to it when you leave. Read your equity plan's retirement definition closely. Review your deferred compensation payout schedule and model the taxes in each year. Start thinking about where you'll live, since moving to a lower-tax state can change your plan.
1 to 2 years out: pick your date
Choose a retirement date that captures bonuses and vesting you've earned. Plan health insurance if you're retiring before Medicare at 65. Decide when to claim Social Security, and build a plan for how you'll turn your savings into steady income. The years between retiring and taking Social Security are often a good window for Roth conversions, since your income may be lower.
Common mistakes executives make
Leaving before a vesting date or bonus: A few weeks can make a six-figure difference.
Not reading the equity plan's retirement rules: Many executives don't know they qualify for continued vesting, or that they're just short of it.
Taking deferred compensation all at once: A large lump sum in one year can push much of it into the top tax bracket.
Holding too much company stock into retirement: Your paycheck is gone, but your wealth is still tied to one company.
Starting too late: Many of the best options, like changing payout elections, require years of lead time.
Frequently asked questions (FAQs)
Is it ever too early to start planning? No. Even in your 40s, choices about deferred compensation and company stock shape what your retirement looks like.
What happens to my unvested stock when I retire? It depends on your plan. Some awards are forfeited, some keep vesting, and some vest early if you meet the plan's retirement definition. Check your grant agreements well before you set a date.
Should I tell my company early that I plan to retire? That's a personal decision, but understand your equity and bonus terms first, since timing can affect what you receive.
Start planning your retirement
Thinking about retirement in the next 5 to 10 years? Reliant Wealth Advisory helps executives plan around their equity, deferred compensation, and taxes so they can retire on their terms.
Click here or book a time below:
About the author
Michael Walstedt, CFA, CFP®, is the founder of Reliant Wealth Advisory, a fee-only fiduciary firm in Hoboken, New Jersey. He helps business owners, executives, and tech professionals in the New York/New Jersey area, as well as nationwide, with financial planning and investment management.
This article is for educational purposes only and is not tax, legal, or investment advice. Tax rules change, and your situation may differ. Consult a qualified tax professional before acting.
