Retirement
Retiring has a major impact on your stock-based compensation, and frequently differs across companies
How Retirement Impacts Your Stock-Based Compensation
When you're planning for retirement, understanding how it will affect your stock-based compensation is crucial. Your hard-earned equity awards can provide key income and wealth in retirement if handled properly. But missteps could lead to a loss of value. The key items you need to consider regarding your stock compensation when transitioning into retirement are (1) will vesting stop or continue; (2) what to do with vested stock options (if any).
Vesting Probably Will Stop at Retirement (But Not Always)
The most direct impact retirement has on stock grants is that ongoing vesting usually (but not always) ceases. The most important step you can take is to review your company's stock-based compensation documents, as well as your individual grants.
If you retire at a "normal" age. Around 20-30% of companies have policies that will allow individual who retire at a "normal" age to continue to vest their stock-based compensation. Of those 20-30%, ~15% have policies that will accelerate the vesting upon "normal" age retirement.
If you retire early. Around 5-7% of companies have policies that will allow individuals who retire at a normal age to continue to vest their stock-based compensation; with 5-7% having policies that will accelerate the vesting upon normal age retirement.
Your company policy for vesting upon/after retirement may be a blanket policy, service-years-dependent, or even custom to you.
Exercising Vested Stock Options
For any stock options that are vested at retirement, your company will also likely have a policy regarding how long you have to exercise the vested options before they expire. In most companies, this will typically be 90 days, but if your company has an post termination exercise period (PTEP) policy in place, then you may have longer.
If you have ISOs, recall that the IRS specifies that ISOs only retain their tax beneficial status for 90 days after you cease employment, regardless of any company PTEP policy. If a PTEP exists, ISOs will become NSOs on the 91st day.
Other Ways Retirement Impacts Your Stock-Based Compensation
Tax planning considerations. Optimizing for tax in retirement should be a major focus, as it can have a significant impact on your wealth. There are many books on tax planning in retirement overall, and that is outside the scope of this knowledge base. But when it comes to taxation regarding stock-based-compensation, we recommend you review our 50+ Tax Strategies section for details and potential items to consider
10b5-1 plans (if applicable) will likely expire. Pre-arranged 10b5-1 trading plans for selling company stock usually must be terminated upon retirement. You'll need to set up new plans if you wish to systematically sell shares in retirement.
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