Here are key short- and long-term decisions facing any executive in this situation:
· Severance pay. This varies by company, your position and years of service, but will typically range from two weeks to two years of salary.
This lump sum feels like a windfall, but it can disappear quickly without a plan. Options include paying down debt, making new investments, using it for future cash flow, enhancing your child’s college savings or using it as part of your withdrawal plan during retirement.
· Stock options. For longtime Coca-Cola employees, company stock is often their most lucrative asset.
An executive with 10,000 shares valued at $42 per share must have a plan for his or her $420,000 in Coca-Cola stock. I’m often asked if it’s wise to keep the stock or diversify into other holdings; developing an overall wealth management strategy will help answer this important question.
· 401(k) retirement plans. To reduce taxes, people need to contribute the maximum amount from their remaining paychecks to their 401(k) plan before they are terminated. In many cases severance pay can’t be deferred into the 401(k) plan, so time is of the essence.
Also, each person must decide if he or she wants to leave investments in the company 401(k) or roll them over into a separate Individual Retirement Account. Executives with after-tax money in their 401(k) plan have a new opportunity to move some of this money to a tax-free Roth IRA.
· Pension. Taking a lump sum or a monthly annuity could be the most important decision you make regarding your retirement.
Everyone has different needs, but most people who are married, in good health and between ages 55-65 choose the monthly annuity. Those with significant assets or other company pensions may want to roll the lump sum into an IRA, deferring the taxes.
Many ex-executives also face decisions on deferred compensation and how to replace company-paid medical benefits. A financial advisor can help map a strategy to maximize annual income while also managing the value of long-term investments. The income strategy often involves determining a start date to begin drawing Social Security, as well as withdrawals from their 401(k) accounts and pension incomes.
Most people lose a high-paying job only once. Creating a strategy that takes full advantage of all available options can help get anyone back on their feet and prepare them for their financial future.
Lisa Brown is a partner and wealth advisor at Brightworth, an Atlanta-based financial planning and investment firm.