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Integrated Wealth Management

Financial Questions to Ask Yourself on Your Work Anniversary

Perhaps the notifications we get on LinkedIn have led to the popularization of the term “work anniversary. ” The passing of another year isn’t just nominal; it can be an opportunity to evaluate how well your job is meeting your financial needs. As you celebrate another year at your job, here are some questions that you should ask yourself.

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Income

The first thing to ask yourself on your work anniversary is if the salary still fits your income requirements. If not, consider putting together a summary of your accomplishments and contributions over the year to make the case for higher compensation.  Always know if your salary is in line with what others are earning. You can check this information on sites such as Payscale.

When looking at your income, try to get an idea of what your future earnings are projected to be if you were to continue on along the same path. At which point do you anticipate a bump in earnings? What action would you need to commit to in order to earn that increase?

It may be a good time to think about what your retirement will look like at your projected earnings. Are you comfortable with where you would be in retirement at this rate or does it signal a possible shortfall?

Key questions to ask yourself:

  • What do I need to do to make more money, and it is worth taking the risk at this point in my life to do that?

  • Am I earning an income that is commensurate with my skills and experience?

  • What is the position I will be in when I retire if I continue to earn the level of income I am projecting?

Benefits

Most people view their 401k as a “set it and forget” item that can be on auto pilot. In reality, though, your risk preferences may change due to life events (birth of a child, etc.) Or, you may not be needing to contribute as much if you have investment opportunities that may have arisen outside of your company offerings. Take a few minutes and evaluate the level of risk you are comfortable with seeing in your plan. The asset allocation should align with your risk preferences; if not, consider making an adjustment.

Compare your contribution rate with what the company is matching. If you are contributing over the match then you may be locking up your money into a retirement account that you can’t access without paying heavy penalty fees. It may be time to consider lowering your rate and considering other options such as taxable brokerage accounts. Evaluate whether you are not contributing enough to your 401k plan.

Another thing to look at is how your accounts are titled and verify your beneficiary designation on the accounts. We’ve heard of situations where people’s ex-spouses were never removed from the beneficiary designation on 401k accounts; if something were to happen to the account holder, the “ex” would inherit the money, like it or not!

Key questions to ask yourself:

  • Has anything major in my life changed since I established the investment line up for my 401k?

  • Am I completely comfortable with the amount of volatility my portfolio has the potential to bear?

  • Have I reviewed every account’s beneficiaries in the last 12 months?

Equity Compensation

Work anniversary time is also a very opportune time for reviewing equity compensation. In our experience we have found that most people don’t pay enough attention to their options because they’re exactly that – the option to buy the instrument rather than the stock or bond itself.

First, take a moment to figure out exactly what types of stock options you own. The most common ones are incentive stock options, equity performance awards, or restricted stock units.

For a look at what these different terms mean, read our blog by clicking here.

Then review the vesting schedule and overall tax liability. Factor this into your exit strategy for the position. Tax impact must be managed. Problems with the IRS are the ugliest kinds of problems to have, so if you have questions it is best to consult a tax or financial advisor.

In the case of deferred compensation, where a part of your income is paid out at a later date, it is worthwhile to assess if you are deferring the proper amount. This can be changed during open enrollment only.

Key questions to ask yourself:

  • What types of options do I own?

  • What are the tax consequence of holding or doing nothing, selling immediately, or leaving the company?

  • Am I comfortable with the potential tax liability that I would be brought to bear if my stock options were exercised today?

  • Does it make sense to defer more or less than I currently am?

  • What is my exit strategy to avoid holding an overly concentrated position in the same company stock?

For further information, read these blogs on Five Things You Should Know About Your Stock Options and When You Should Exercise Your Stock Options.

Summary

Your work anniversary can be a great opportunity to make sure that your finances are in order, within your company’s benefits and 401k plans and external to them as well. Keep in mind, though, that your employer isn’t necessarily going to offer financial advice, in most cases. For specific recommendations and strategies for a plan going forward, the best thing to do is consult a financial advisor.