By Kyle Louvar, CFP®, AIF®
As an energy industry professional, you typically have access to a comprehensive compensation package. Understanding the many benefits your company offers can be challenging and often requires time, effort, and expertise that you just don’t have.
A trusted financial advisor who understands who you are and the challenges you face as an energy industry professional can help set you up for a successful retirement. Here are three retirement obstacles you may face as an energy industry professional and what you can do to conquer them:
Saving Now While Planning for Taxes Later
Many successful energy industry professionals have lucrative compensation packages that include much more than a basic 401(k) plan. Stock options, deferred compensation, defined benefit plans, and pension plans are just a few of the things that may be available to you. What most people don’t think about is how to strategically plan for how you should participate now and the advantages that may be provided to you in the future.
Different plans have different structures, benefits and tax implications. It is important to utilize these plans to save now, while also planning for tax implications in retirement. You’ll want to do this so you know how your targeted income distributions can fulfill your needs and minimize your taxes. Working with a financial planner to strategize early on and plan for the future can greatly impact your ability to maximize your future benefits.
Understanding How Your Pension Benefits Are Calculated
Many professionals in the energy industry have pension benefit programs available to them. However, many people don’t quite understand how a pension program works and how it may positively or negatively affect their benefits when they retire.
Many pension lump sum benefits are inversely related to interest rates. Thus, if interest rates go up, lump sum pension benefits may go down. In the past 10 years, interest rates have been historically low and pension benefits have been high. However, as anticipated interest rates rise, these benefits may be reduced. It’s important to plan for your retirement ahead of time and know what impact any lump sum pension may have when you decide to retire.
Tax Impact of Stock Options
As an energy industry professional, you have probably received equity-based compensation in the form of stock options or restricted stock units. While these can be excellent ways to build wealth for retirement, they can also create a large tax liability and may even push you into the alternative minimum tax (AMT) range, if you’re not careful.
Depending on the type of equity compensation you receive, your options will be subject to different vesting schedules. Coordinating your options in a way that maximizes your earnings and minimizes your taxes can be a significant challenge, especially if you want to convert your stock to cash right away. Once your options vest, you can do nothing, exercise the options and hold the stock, or exercise the options and sell the stock.
Since the tax impacts of stock options can be significant, it’s important to work with a financial professional with experience in this area when deciding when and how to exercise your stock options.
Are You Facing Some of These Challenges?
Are you an energy industry professional with questions about how to navigate these challenges and more? At Guided Capital Wealth Management, we utilize our proprietary process, The Paradigm FORMula, to help you create a dynamic plan that can maximize your retirement potential and help keep you on track to achieving your goals throughout your lifetime.
Kyle Louvar is the CEO and Wealth Management Advisor for Guided Capital Wealth Management, a fiduciary financial advisory firm offering fee-based advice, guidance, and education. After seeing the impact that the 2008 financial crisis had on families, Kyle became fully committed to helping his clients develop a financial plan that changes as their lives unfold and their needs evolve. Spending nine years working for one of the largest brokerage firms on Wall Street, Kyle holds a high value for process, expertise, objective advice, and customized solutions. His goal is to help his clients experience confidence in their financial future through a disciplined process of financial planning, investment management, and sound financial decision-making.
Kyle graduated from New Mexico State University, where he was a proud 4-year letterman in football for the Aggies and where he’s sat as a board member since 2015. Kyle holds the CERTIFIED FINANCIAL PLANNER™ and Accredited Investment Fiduciary® (AIF®) certifications. When not helping his clients, Kyle enjoys spending time with his wife, Nicole, and their two daughters. You can often find him coaching his daughters’ softball teams, playing golf, cooking, and traveling. To learn more about Kyle, connect with him on LinkedIn.