Reaching executive status brings financial rewards for women, yet it introduces complex challenges in financial planning. For independent women, finding trustworthy financial advice tailored to their unique needs is crucial because Financial planning for women becomes significantly more complicated. That makes it all the more important to secure a stable financial future and feel empowered to navigate these challenges confidently.
While no two people have identical financial situations or goals, many women executives face similar challenges when it comes to money. The good news? Understanding these challenges — and the best ways to address them — can help you achieve the financial independence you envision.
5 Pieces of Financial Advice for Women Entrepreneurs and Executives
1. Consider diversifying your company equity
Company equity tends to make up a significant portion of executives’ compensation, and it’s not unusual for them to let those stock options and restricted stock options (RSUs) accumulate. Often, this is 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 your amount of net worth concentrated in your employer.
While everyone wants to believe in their company’s success, it’s never guaranteed. Many factors can cause a company’s value to decline, whether over time (think back to GE’s value decline from 2016 to 2020) or in a quick plunge (such as Boeing’s after the fatal 737 crashes). Even worse, losing your job in the case of a company facing hard times could result in a double whammy – the loss of your income and a major loss to your assets.
Just as with any portfolio holder, executives shouldn’t keep too many eggs in one basket. A diverse, well-balanced portfolio increases your odds of success and avoids the risk of having your financial future hinge on your company’s performance.
2. Executive compensation can have major tax implications
Executive compensation packages tend to differ greatly from those of non-executive employees. Factors such as greater company equity, performance and event bonuses, and severance agreements all make executive compensation much less straightforward.
The more complex your compensation package, however, the more decisions you have to make. And each decision could have major tax implications. You may, for example, be able to defer a portion of your salary until you retire (when you would presumably be in a lower tax bracket). When it comes to stock options, meanwhile, you have the choice of exercising them over time or doing so all at once.
For each decision you make regarding your compensation, you’ll need to ensure that the tax burden doesn’t outweigh the benefits.
3. Achieving goals takes careful planning
Being highly compensated affords you the freedom to not only live comfortably today, but also make exciting plans for the future. At some point, you might choose to:
- Buy a vacation home
- Help an adult child make a down payment on a house
- Contribute to a grandchild’s private school or college tuition
- Make a substantial donation to your alma mater or favorite charity
All of these goals require substantial assets — but with careful planning, they’re well within the reach of executives.
That said, managing your personal finances well enough today to set yourself up for success in the future requires a great deal of strategy. Even financially savvy individuals rarely have the time or specialized knowledge required to put together a comprehensive financial plan.
4. You may need more retirement savings than anticipated
No matter how much you enjoy your work, you’ll likely want to retire one day. And if you currently find yourself wanting to spend more time with your family, pursue outside passions, or travel more often, that day may come sooner rather than later. It’s worth keeping in mind, too, that American women live almost six years longer than men on average.
Again, early retirement is achievable for most executives — but it does take careful planning. And with fewer years of active income, you’ll need to make sure that your investments can support your desired lifestyle well into old age. After all, it’s not uncommon for women who retire early to live for 35 more years or longer.
As a result, maxing out contributions to your retirement plans — and investing those funds wisely — is especially important for high-ranking businesswomen.
5. Protect & efficiently transfer your wealth
A great deal of financial advice for independent women focuses on growing your wealth. Just as important as accumulating wealth, however, is protecting it and transferring it efficiently.
One of the best ways to protect your wealth is by purchasing adequate insurance, such as:
- Homeowners insurance
- Auto insurance
- Umbrella insurance
- Health insurance
- Disability insurance
- Long-term care insurance
- Life insurance
The best way to transfer your wealth, meanwhile, is usually through an estate plan and potentially a charitable giving plan. These strategies ensure that you can continue to take care of your loved ones and contribute to the causes you value most, even after you’ve passed.
No matter how young and healthy you are, planning for the future like this can help you achieve peace of mind.
Wealth Management for Women: Actionable Tips
Want even more tips on women’s wealth management? Read on for some of our top advice for independent women executives and entrepreneurs:
- Review your employer equity exposure to determine whether 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 holdings in the context of your total investment portfolio is crucial. A CERTIFIED FINANCIAL PLANNER® professional, serving as your financial advisor, can help determine whether you have a higher concentration of assets in your company than you should (based on your specific situation), and then recommend tax-efficient ways to diversify your assets.
- Executives working for startups and other high-growth organizations should be especially careful when determining their investment risk tolerance. If you’re tying up much of your wealth in your employer, you may need to be more conservative with your other assets.
- Avoid the temptation to aim for a specific stock price when deciding when 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.
- High-net-worth individuals often have different insurance needs than the average American. 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.
- Some types of monetary gifts are more tax-efficient than others. A financial advisor can run financial models to help you determine the best way to support your family or charitable organizations.
- Similarly, there are ways to pass your wealth on to your loved ones in a more tax-efficient manner. Irrevocable trusts, for example, are one of the most powerful ways to reduce the tax liability of your heirs upon receiving an inheritance.
- Licensed professionals can help you navigate the complexities that come along with executive status. To efficiently cover all of your bases, consider hiring a financial advisor, CPA, and estate planning attorney, who can work together as a team to support you.
Looking for a trusted partner to help you grow, manage, protect, and efficiently transfer your wealth? Look no further than Team Hewins.
With years of experience working with high-net-worth individuals, our team can help you develop a comprehensive financial plan tailored specifically to your circumstances and goals. And as a fee-only fiduciary firm, you can trust that our financial advisors only make recommendations with your best interest in mind.
Reach out today to schedule your free financial planning consultation!