Michelle's Blog

A resource for the thoughts and writings of Michelle Brennan Hall

Be the Boss: Avoid these Executive Retirement Hazards

Running a company and being an excellent operator does not always translate to being smart about personal wealth. Here are the most costly retirement hazards of executives and business owners and smart ways to combat them.

Under-funding retirement is most dangerous to your long-term goals. Executives are usually capped at lower contribution amounts for retirement plans due to “highly compensated” IRS rules. Business owners tend to focus on building the business and neglect investing personally. Smart Idea: Commit to investing personally 20% of your gross income annually for retirement. In a combination of retirement plans at work and non-retirement investments personally; committing to build wealth outside of business strengthens your financial stability.

Over concentration in company stock or business interest is another risk to building retirement wealth. I see this often when executives have stock option plans, stock purchase plans and/or employer matching in company stock. The question is how much of one company stock is enough? Smart Idea: Love your company, but not its stock. Diversifying investments is a core tenet of smart investing. 

Illiquid net worth seems to plague both executives and business owners. It is easy to be lured into keeping too much company stock with promises of a future windfall and the false belief that your company is bullet proof to market conditions. Company stock presents two liquidity problems: 1) you may have restricted sale dates and 2) privately held stock may not be regularly valued and has limited buyers. Smart Idea:  Eliminate company bias and develop realistic expectations of your company and its performance. Build assets outside your business to balance your wealth portfolio.

The temptation for executives and business owners is to invest most of their money, time and talent into building the company. Balance between business and personal money goals is important.

Be smart. Diversify. Be liquid. And have options.

 

 

 

 

As individual situations vary, the information presented here should only be relied upon when coordinated with individual professional advice. Investing involves risk including the potential loss of principal. No investment strategy, including diversification, can guarantee a profit or protect against loss.

First Quarter Market Report- 2016
Money-Why's: Stock Indexes

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