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June 25, 2020

Podcast: Executive Planning Opportunities During Employment Transitions

Financial Planning Committee

COVID-19 has created a lot of change for many individuals and families. For some, this has meant a change to employment, the role within the company or possibly a change to their compensation package. Executives may be faced with the decision of taking a severance package, an early retirement package or a reduction in pay.

On June 24, JNBA President Kim Brown; Elise Huston, CFP®, Advisory Services Manager and leader of JNBA’s Financial Planning Committee; and Patrick Moyneur, CFP®, Senior Advisor – Director of Advisory Services, recorded a seven-minute podcast about executive job transitions. Click the button above to listen to the podcast episode.

If you are navigating these unexpected life transitions, here are some things to consider.

Cash Flow

When evaluating a severance package, it is important to first evaluate the family’s cash flow and understand what the change will be to compensation. In some cases, the severance package will provide 12 months of base salary pay to the individual but will not include other incentive compensation they were used to receiving (such as bonuses). It will be important to understand if the base salary will be sufficient income to cover the individual’s or family’s fixed expenses.

COVID-19 has also changed or delayed many short-term plans and goals ranging from family trips, purchase of a new car to buying or selling a home. These short-term goals and cash needs should also be considered as you evaluate needs over the coming years.

Tax Planning

A sudden change to income may create some unique tax planning opportunities. The reduction in income could result in a lower tax bracket than originally planned in 2020. This may provide an opportunity to accelerate other income to fill up a lower tax bracket. For example, you may want to realize additional capital gains, or if you are over the age of 59 ½, you may look to accelerate a distribution from an IRA to free up additional cash while maximizing the lower tax bracket.

Another tax planning opportunity surrounds an executive’s stock options, restricted stock, deferred compensation plans and other compensation. In many cases, a severance package or early retirement package will require the individual to exercise their options or receive payout of their deferred compensation plan within the time frame of the agreement, which could result in additional taxable income. It is important to understand the potential income from these savings plans and coordinate the timing of receiving payment or exercising options to maximize your tax plan.

Ongoing tax planning will be important during any employment transition, especially if you intend to re-join the workforce. New income from a future job could change the existing tax plan. We recommend working closely with your JNBA Advisory Team and tax professional to evaluate options and review the tax plan.

Validate Goals

Times of transition can be a great opportunity to further clarify your values and goals. As you think about what is important to you and your family, you may decide to take the early retirement package and retire a few years sooner than originally planned. You may also decide to use this time to re-evaluate how you want to spend your time and find a career that better aligns with your goals and values. Once we evaluate how your goals may have changed during this job transition, we can re-establish a plan to help achieve those goals. This would also be a good opportunity to reassess your investment strategy to ensure the portfolio allocation is well aligned with the new plan.

Almost all life transitions have a financial tether. At JNBA it is our job to help you create a financial life plan and work directly with you to successfully navigate your life transitions.

We know that many individuals have been laid off or furloughed during these unprecedented times. If you or someone you care about has experienced a job transition, we are always available as a resource to help navigate this time or provide a second opinion. We encourage you to reach out to your JNBA Advisory Team if you have any questions regarding these planning opportunities.

JNBA is neither an attorney nor an accountant and no portion of the above should be construed as legal or accounting advice. All legal and accounting issues should be addressed with a legal or accounting professional of your choosing.

Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from JNBA Financial Advisors, LLC.

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