For women who have reached executive level at a company, challenges inevitably come along with the perks. And while you might not think money is one of them, the reality is that your financial planning needs are less straightforward now than they used to be.
While no two people have identical financial situations or goals, as a group women executives tend to face similar issues and decision points when it comes to money. Understanding the financial planning challenges that you’re likely to encounter—and the best ways to address them—can help you get the future you envision.
1. You could have a lot of net worth concentrated in one company: Your employer.
If your compensation package includes stock options or restricted stock units (RSUs) that you rarely or never sell, you could unintentionally tie up a disproportionate percentage of your assets in a single company. It’s not unusual for executives to let their stock options and RSUs accumulate, often because they believe in their company’s potential and expect the stock price to continually increase.
But as the number of options or RSUs grows, so does the amount of your net worth that’s concentrated in your employer. While no one wants to believe their company could fail, there are many factors that could cause the stock price to slowly erode (as GE’s did from 2016 to 2020) or quickly plunge (as Boeing’s did after two fatal 737 crashes). Worse, if an economic downturn causes you to lose your job, and you’ve left stock options and RSUs on the table, you’ll lose both your income and a large chunk of your assets.
2. You could face big tax liabilities if you’re not careful.
The more complex your compensation package, the greater the tax implications. For example, if you’re offered deferred compensation, is it worth deferring a portion of your salary until you retire and are likely in a lower tax bracket? If you let your stock options accumulate and decide to exercise a large group of them at once, are you prepared for the tax impact? Careful planning can help you avoid paying more tax than you should for these compensation types.
3. You might want to retire early (and that takes planning).
No matter how much you enjoy your work, if you’ve dedicated a lot of time and energy to your career then you might hope to retire early and spend more time doing what you enjoy outside of work. Perhaps your job requires long days and a great deal of time away from home, and you’re looking forward to spending time with family, pursuing current hobbies or new passions, or traveling more. As much as these endeavors may beckon, after years as a high earner you could find it difficult to envision a time when you’re no longer receiving a large paycheck and you’re living off your investments instead.
4. You might have big plans that require substantial assets.
The more you earn, the more you’re likely to want to spend or give away, whether now or later in life. You might want to buy a vacation home, travel more often (especially post-pandemic), help your grown child make a down payment on a house, contribute to a grandchild’s private school or college tuition, or donate a large sum to a charity that aligns with your values. It’s important to ensure you can afford these plans while still achieving your other goals and that you’re taking the most tax-efficient approach to giving.
5. You might live for many years in retirement.
Women have a longer life expectancy than men on average—about 5 years longer in the US and about 7 years longer globally. If you retire early, it’s not out of the question that you could live for 30 to 35 years in retirement, or more. To ensure you have the funds to carry you that far, you’ll need to plan well.
Financial Planning Strategies for Women Executives
It takes proper financial planning to work towards your personal and financial goals and enjoy the fruits of your labor in your later years. Strategies for women executives who want to keep their goals within reach may include:
- Reviewing your total equity compensation to determine if you are holding onto a large number of vested stock options or RSUs or will have more options vesting soon.
- Assessing the amount of your equity compensation in the context of your total investment portfolio. A CERTIFIED FINANCIAL PLANNER™ professional can help determine if you have a higher concentration of assets in your company than you should (based on your specific situation), then recommend ways to diversify your assets tax-efficiently.
- Avoiding the temptation to aim for a specific stock price at which you’re willing to sell vested options or RSUs. It may be more advantageous to establish a schedule for selling a portion of your company stock periodically, especially if you feel the need to diversify.
- Considering your risk tolerance when determining how much of your wealth you’re willing to tie up in your employer, especially if you work for a startup or high-growth company. You may want to be more conservative with your other assets if you’re betting on your company’s stock to take off.
- Determining the most favorable way to give monetary gifts to family or charitable organizations. A financial advisor can run financial models to see if you can afford to be as generous as you hope and calculate the impact on your portfolio.
- Developing a sound estate plan that minimizes your taxable estate and the tax liability your heirs will face eventually.
- Protecting the wealth you’ve worked hard to build by ensuring your insurance is adequate. For example, adding a rider to your homeowner’s policy can cover expensive jewelry and artwork while an umbrella liability insurance policy can protect your assets from lawsuits.
- Leaning on a team of specialists to help you navigate the complexities that come with a larger portfolio and more complicated compensation package. A financial advisor, CPA, and estate planning attorney can work together to make sure your financial plan covers all the bases effectively.
The fee-only financial advisors at Team Hewins can develop a comprehensive financial plan that helps you overcome the challenges and tackle the decision points you may face as a woman executive. Contact Team Hewins to schedule a financial planning consultation today!
There is no guarantee that financial planning strategies will be realized or successful.
Team Hewins, LLC (“Team Hewins”) is an SEC-registered investment adviser; however, such registration does not imply a certain level of skill or training, and no inference to the contrary should be made. We provide this information with the understanding that we are not engaged in rendering legal, accounting, or tax services. We recommend that all investors seek out the services of competent professionals in any of the aforementioned areas. Certain information provided herein is based on third-party sources, which information, although believed to be accurate, has not been independently verified by Team Hewins. Team Hewins assumes no liability for errors and omissions in the information contained herein. Certain information contained herein constitutes forward-looking statements. Nothing contained herein may be relied upon as a guarantee, promise, assurance, or a representation as to the future.