6 Money Decisions Corporate Executives Face in the Year Before They Retire

6 Money Decisions Corporate Executives Face in the Year Before They Retire

Most executive retirement planning decisions are reversible. The ones that matter are not.

Six of them cluster into the last twelve months before a senior executive walks out. Each has a deadline that is set by a plan document or the tax code rather than by you, and several of them cannot be revisited once the date passes. That is what separates this from ordinary retirement planning. The stakes are concentrated and the windows are short.

Here is what tends to be on the table, and what each decision actually turns on.

1. The Deferred Compensation Distribution Election

If you have a nonqualified deferred compensation plan, this is usually the largest and least reversible item on the list.

The election you made years ago determines when the balance pays out and over how long. A lump sum lands in a single tax year, which can push a large amount of ordinary income into your highest marginal bracket in the same year you may also be exercising options or selling stock. Installments spread it, but they extend how long you remain an unsecured creditor of your former employer.

That last point gets underweighted. Nonqualified deferred compensation is generally an unfunded promise to pay, which means the balance sits behind the company's general creditors if the company fails. A ten-year installment stream is a decade of that exposure.

Changing an existing election is constrained by design. Under the rules governing these plans, a change that delays a payment generally must be made at least twelve months before the scheduled payment date and must push the payment out at least five additional years. There is no informal version of this. Get the actual plan document and the actual election form in front of an advisor and a tax professional well before your last day, because after separation the options narrow sharply.

2. The Option Expiration Clock That Starts on Your Last Day

Unexercised options do not follow you into retirement indefinitely.

For incentive stock options, favorable ISO tax treatment generally requires exercise within three months of termination of employment. Exercise later and the grant is typically taxed as a nonqualified option instead, even if the plan still permits the exercise. Nonqualified options run on whatever post-termination window the plan sets, which is frequently 90 days and sometimes longer for a retirement-eligible departure.

The design problem is that exercising costs cash and can trigger tax in the same year your deferred compensation may be paying out. Exercising early to avoid the deadline can create a larger tax bill than the deadline itself would have cost.

There is no default right answer. What can be said is that the calendar is not negotiable and the modeling has to happen before separation, not after. Some plans treat a qualifying retirement differently from a resignation, and that distinction is worth confirming in writing rather than assuming.

3. A Concentrated Position That Is Now Most of Your Net Worth

After twenty years of grants, restricted stock, and an employee stock purchase plan, a lot of executives find that a single employer's stock is the majority of their investable assets.

While you were employed, that concentration came with information and influence. In retirement it comes with neither. Your income no longer depends on the company, but your retirement still does.

Approaches to reducing concentration exist, and each has real trade-offs. Selling triggers capital gains. Selling gradually keeps exposure longer. Charitable strategies can address the tax consequence but only work if you were charitably inclined anyway. Hedging and exchange-based approaches carry cost and complexity, and some are not available or appropriate for most people. Trading windows, insider status, and company holding requirements may constrain your timing regardless of what the math prefers.

Nothing here is guaranteed to improve your outcome. Diversification seeks to reduce the impact of any single holding, and it can also mean giving up gains if that stock outperforms. The point is that the concentration should be a decision you made, not a position you drifted into.

4. The Gap Years Between Your Last Paycheck and Social Security

If you retire at 60, you may have years before Social Security begins. Benefits can start as early as 62, full retirement age is 67 for anyone born in 1960 or later, and delaying past full retirement age increases the benefit up to age 70.

Those gap years are often the lowest-income years of your adult life, which makes them the most flexible from a tax standpoint. That flexibility is exactly what gets wasted.

Filling the gap from a taxable brokerage account keeps reported income low. Filling it from a traditional 401(k) creates ordinary income. Some households use low-income years to convert traditional balances to Roth at lower rates than they expect later, once required minimum distributions and Social Security are both running. Required minimum distributions currently begin at 73 for those born from 1951 through 1959 and at 75 for those born in 1960 or later.

Whether conversions make sense depends on your bracket now versus later, your state, your Medicare premium surcharges, and how long the money needs to last. It is a modeling exercise with real assumptions, and the answer changes if tax law changes.

5. Health Coverage Between the Corporate Plan and Medicare

Medicare eligibility generally starts at 65. If you retire before that, you need a bridge, and the bridge is frequently the largest new expense in the first year of retirement.

The usual options are COBRA continuation from the employer plan, a marketplace plan, coverage through a working spouse, or a retiree medical benefit if your employer still offers one. COBRA is generally available for a limited period, often 18 months, and you pay the full premium rather than the subsidized employee share.

There is a planning interaction worth knowing: marketplace premium tax credits are based on household income, so a large Roth conversion or a lump sum deferred compensation payment in a bridge year can reduce or eliminate a subsidy. The tax-efficient move and the health-coverage-efficient move can point in opposite directions in the same year.

6. Withdrawal Order, the Quietest of the Retirement Planning Decisions

The default order most people fall into is taxable, then traditional, then Roth. It is a reasonable starting point and it frequently is not the most tax-efficient sequence for an executive.

A household with a large traditional balance may end up in a higher bracket at 75, when required distributions begin, than it was at 62. Drawing nothing from traditional accounts during the low-income gap years can create exactly that outcome. Blended approaches that intentionally fill lower brackets each year exist for this reason, and they interact with Medicare surcharges, capital gains rates, and the deferred compensation stream from decision one.

This is where the six decisions stop being six decisions. They are one plan with six deadlines, and solving them individually is how people optimize each piece and lose on the total.

Getting Help With Executive Retirement Planning Decisions

This is a narrow specialty. Most of the work is tax-aware planning around equity, deferred compensation, and the sequencing of the first decade of retirement, coordinated with a CPA.

Ian Weiner is one advisor listed on Sam's List whose published practice focus lines up with it. A CFP and CEPA practicing since 2019 from Bentonville, Arkansas, his profile lists high net worth individuals, retirees, business executives, and equity compensation among his specialties, which is the specific combination this situation calls for.

Fit still has to be verified by you. Ask any advisor how they are compensated, whether they act as a fiduciary at all times, whether they have handled deferred compensation elections and concentrated positions before, and how they coordinate with your CPA. Confirm registration and disciplinary history through adviserinfo.sec.gov before you engage anyone. Registration itself does not imply any level of skill or training, and no advisor can guarantee an outcome.

You can compare advisors by specialty, client type, and verified client reviews in the Sam's List financial advisor directory.

Frequently Asked Questions

Can I change my deferred compensation payout election before I retire? Sometimes, but the rules are restrictive. A change that delays payment generally must be elected at least twelve months before the scheduled payment date and must push the payment out at least five additional years. Accelerating payment is generally not permitted. Request your plan document and current election on file, then review both with an advisor and a tax professional well before your separation date.

How long do I have to exercise stock options after I retire? It depends on the grant and the plan. Incentive stock options generally must be exercised within three months of termination to keep ISO tax treatment, though the plan may still allow a later exercise taxed as a nonqualified option. Nonqualified options follow the plan's post-termination window, commonly 90 days. Some plans treat retirement-eligible departures differently, so confirm your specific terms in writing.

Should I sell company stock before or after I retire? There is no single answer, because it depends on your cost basis, bracket, other income in that year, trading windows, and any insider or holding restrictions. What is consistent is that a large concentrated position carries company-specific risk your retirement income no longer offsets. Reducing concentration seeks to lower that risk and can also mean forgoing gains if the stock rises.

When do required minimum distributions start? Required minimum distributions currently begin at age 73 for people born from 1951 through 1959 and at age 75 for people born in 1960 or later. Because those distributions are ordinary income, the years before they start are often the most flexible for tax planning, which is why the gap between retirement and RMDs gets so much attention.

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About the author: Kimberly Green is the cofounder of Sam's List, where business owners and high earners find vetted CPAs, financial advisors, and fractional CFOs. She's met one-on-one with 400+ financial professionals and writes from the real data behind thousands of client-advisor matches. Ask her anything about finding an accountant - she's heard it all, including the questions people are afraid to ask.