The Executive’s Guide to Financial Planning

Financial Planning for Executives

We see investors of all stripes as financial advisors. Over the decades, we’ve observed that most people invest like the rest of their community. Entrepreneurs, executives, retirees, young families, medical professionals – they all have similar goals. But executives are cut from a different cloth, which makes sense. So many of them are also founders that have helped build and run great companies. They know how hard it is to build a business and they know where the pitfalls are.

So how does that play out when it comes to investments? Since compensation at executive levels is so often wrapped up in stock options, investment portfolios can end up looking concentrated. This ups risk. Complicated executive compensation structures, risky portfolios, and a strong need to minimize taxes are all issues that should be sorted out while you’re still working.

We’re going to break down what you can do as an executive to navigate this maze and how the decisions you make will impact your portfolio.

First up, Deferred Compensation Plans

While your 401(k) plan is a type of deferred compensation plan, it’s a qualified plan, meaning that it is governed by a complex collection of laws known as ERISA. These plans provide outstanding tax benefits but do so with some fairly restrictive rules.

Non-qualified (i.e. not ERISA) deferred compensation plans (NQDC) provide tax benefits with far greater flexibility. These are sometimes called “golden handcuffs” because they are designed to retain key people, but the value to the executive is significant. They can provide both tax benefits and incentives but require a level of planning beyond that of a 401k.


The biggest reason to defer compensation is to minimize taxes, but you may need to choose whether to defer salary, bonus, or both, and you will need to decide on the timing of eventually getting the funds. This means having a clear understanding of your goals, investment picture, and tax situation as your elections will impact all three.

Bonuses are a common option for deferral since these funds aren’t generally earmarked or budgeted for something specific. Saving the tax bite on money you may not strictly “need” is a popular option. Beyond this, you may also have the ability to choose how to invest the funds you defer. Coordinating these investments with your existing portfolio should be done carefully to provide optimum asset and tax diversity.

What about concentrated positions in the company?

Stock awards are the fastest way to riches and ruin. You’ll see huge gains if profits at the company rip, but you could also end up owning nothing if the company goes belly up. Stock options and awards may comprise a significant portion of your total pay, so how much is an acceptable concentration of risk? What if you wanted to liquidate some or all of your company stock, would you be able to? There can be limitations on the sale or borrowing of company stock, and there may also be holding requirements set by the company.

If you do want to sell, how can you do so and avoid accusations of insider trading? The executive perp-walk is never a good look. Fortunately, the SEC has created rule 10b5-1 that allows insiders to execute trades at a predetermined price, amount, and date to insure against accusations of insider trading. The SEC has recently announced plans to tighten up these regulations, but they are still in the recommendations stage. Conversely, will you get a discount if you want to purchase more stock? Can you borrow against or hedge your positions?

Your company stock can form the basis of your holdings. There are certainly advantages to that, but you still need to structure other investments to provide diversity. Careful planning is required. For example, you will want to avoid your company’s industry and possibly the entire sector depending on the size of your concentrated holding. The popular market-cap weighted index funds and ETFs may not be a good option, particularly if you work for a large tech firm that already constitutes a healthy portion of the index.

Where a Supplemental Executive Retirement Plan (SERP) makes sense

A SERP is a type of retirement plan offered to key executives that can be tailored to specific needs. They are essentially an agreement between the company and the executive that provides specific, supplemental retirement income but ties it to various eligibility conditions that the executive must meet.

These plans are usually funded by the company through a cash value life insurance policy. The benefits accrue without current tax consequences for you, the executive. The life insurance policy provides for either a continued payment in retirement or a lump sum to your family. SERP withdrawals are taxed as regular income, so you’ll need to understand retirement income picture to know how to make this work for you without creating an outsized burden in any given year.

The Bottom Line

Beyond your salary, there are a lot of ways that executives can be compensated for the role they plan in building and growing a company. And all of them have implications that need to be thought through. And this is just compensation – other insurance and quality of life benefits are all part of the package. So how do you pull all of this together into a safe and stable retirement income stream? What do you do if you want to retire early?

We’re here for a shameless plug – contact us and get the ball rolling. We can help you pull the picture together with a complimentary retirement assessment.


The information contained herein is intended to be used for educational purposes only and is not exhaustive. Diversification and/or any strategy that may be discussed does not guarantee against investment losses but is intended to help manage risks and return. If applicable, historical discussions and/or opinions are not predictive of future events. The content is presented in good faith and has been drawn from sources believed to be reliable. The content is not intended to be legal, tax, or financial advice. Please consult a legal, tax, or financial professional for information specific to your individual situation.

You're Finished!

Thank You!

Your checklist is on the way! Don’t forget to check your spam folder if you don’t see it soon.

Almost Done...

Tell us where to send our Newsletter.

Where shall we send your Retirement Readiness Checklist?