Key Focuses for Tech Professionals

Technology professionals have unique financial planning needs. This roadmap can help you optimize the process.

Pre-Read: Key Questions This Article Answers

• Why are the key elements of a financial plan for tech workers with stock comp?

• How can/should a tech worker prioritize their focus when developing a financial plan?

• How can a financial advisor help me develop a plan for my stock options/RSUs?

Key Financial Planning Elements

There are a number of approaches to creating a financial plan. As noted previously, the key intent is to connect your finances with your life goals, and that starts with understanding (1) where you are today financially, and (2) your financial and life goals (where you want to go). Our preferred method is to conduct planning element by element (though there is definitely an interplay between elements as well) . At 30-40 Wealth Partners, our client financial plans predominately focus on the following elements, ranked by priority/client need:

30-40 Wealth Partners Financial Planning Vectors and Prioritization

Primary Focuses

Stock-Comp Planning

Key Questions/Focus Areas

• Please visit the dedicated page covering this: Stock Comp 80/20 Rule

Gotcha's/Misses/Items to Potentially Reconsider Doing

• Listening to advice from friends and co-workers regarding what to do. Your situation is unique to you. Advice from friends, co-workers, management is well intended, but lacks your specific context, which can make it bad advice for your specific situation and goals.

• Doing nothing because you didn't/don't know what to do. Not taking any action with your stock comp is a valid decision path, but it needs to be intentional. Doing nothing because you didn't know what to do can create significant risk and/or adverse tax consequences.

• Ignoring tax consequences when making stock comp decisions (cross-listed here + in tax). Stock-comp decisioning is typically an investment/risk decision first, but nearly every decision or action also has a tax impact. Ignoring or failing to understand the tax dynamics of your decision can result in surprise tax bills, incorrect tax filings, and/or a material decrease in your after-tax wealth.

• Not selling 100% of your RSUs when they vest. While not selling vested RSUs can make sense in rare cases, the vast majority of the time selling 100% is the optimal choice. For more information: There is No Tax Benefit to Holding RSUs After Vesting

Investment Management

Key Questions/Focus Areas

• Is your company concentration risk appropriate? Some concentration risk is typically unavoidable in the tech industry (i.e. pre-IPO stock doesn't have a liquid market; unvested grants can't be sold). But when/where you have a choice, is the total level of concentration risk you're taking appropriate for your risk profile and financial goals?

• Is your investment portfolio risk level appropriate (excluding company stock)? Have you considered and determined the appropriate amount of risk you can, and desire, to take in your investment portfolio, incorporating your risk tolerance/preference/need, and your financial goals?

• Is your portfolio appropriately diversified? Appropriately diversifying is commonly known as the only "free lunch" one gets in the investment world. Have you adequately considered and diversified your portfolio by (1) asset class, (2) company size, (3) geography, (4) industry, (5) duration, etc.?

• Are alternative investments appropriate for your portfolio? Have you considered and included alternatives in your portfolio? And, if yes, which ones and with what allocation percentages? For context on why to consider --> data analyses by JP Morgan Asset Management found that over the last 30+ years, portfolios with a 30% allocation to alternatives had both (1) higher returns, and (2) less volatility/risk than similar portfolios that didn't include any alternatives.

Gotcha's/Misses/Items to Potentially Reconsider Doing

• Ignoring holistic concentration risk (owned stock + vested options + future vesting). Only considering owned stock in your investment portfolio can materially under-estimate concertation risk. At a minimum, vested options should also be included. But if you plan on staying at the company, the value/shares that you'll vest in the future should be considered as well.

• Over-allocating to tech stocks. You likely have significant stock-based-comp, and also work in tech. Further increasing your allocation to the tech sector by investing in tech stocks should typically be reconsidered.

• Prioritizing/considering taxes more than investment risk. If your company has had an exit, you likely have significant wealth in one (or multiple) forms of stock-based-compensation. Considering taxes is important, but your financial plan and your portfolios concentration risk should be your primary focuses. For more information on how to think about and create a selling/divestment plan see: Divestment/Sale Planning

Optimize For Tax

Key Questions/Focus Areas

• Please visit the dedicated section covering this: 50+ Tax Strategies

Gotcha's/Misses/Items to Potentially Reconsider Doing

• Not working with a CPA familiar with stock-comp to file your taxes. Paying for tax prep isn't inexpensive, but in our experience it's very frequently the right choice. Stock-comp taxation is both complex and full of weird gotchas. When reviewing clients' tax returns (and we aren't a licensed tax professional; just very tax-aware re: stock comp), a rough estimate of how frequently we see tech workers taxes prepared incorrectly are:

  • [15-30%] An individual completed and filed their taxes using tax software

  • [5-15%] Taxes prepared by a CPA who does not frequently works with stock comp

  • [Less than 1%] Taxes prepared by a CPA who does frequently works with stock comp

• Ignoring tax consequences when making stock comp decisions (cross-listed here + in stock-comp). Stock-comp decisioning is typically an investment/risk decision first, but nearly every decision or action also has a tax impact. Ignoring or failing to understand the tax dynamics of your decision can result in surprise tax bills, incorrect tax filings, and/or a material decrease in your after-tax wealth.

• Not considering how your life may change over the next 5 years. If you anticipate a major life change over the next 5 years, its likely your tax profile will change as well. Taking (or not taking) certain actions prior to a change can have a significant impact on the cash you get to keep vs. pay to the tax man.

Important Secondary Focuses

Retirement Planning

Key Questions/Focus Areas

• Have you considered/defined the type of retirement you want? Retirement isn't what it use to be. Some individuals want to never stop working (they like the intellectual stimulation work provides), others want a traditional mid-60s retirement, and others still would like to retire early. And in retirement, some envision increased expenses for significant travel, while others desire a low-key lifestyle (and with it likely a decline in spending). There is no wrong answer, but the type of retirement you envision drives a lot of the decision making and planning.

• Are you on track for retirement? Do your assets, income, spending rate, planned savings rate, and year until retirement provide a high level of confidence that you'll be able to retire when you want to and have the type of retirement you're envisioning?

• Are you saving for retirement in the optimal way(s)? There are a plethora of retirement savings strategies and accounts types (401k; IRA; Roth; Pensions; 403b; SEP; SIMPLE; etc.). Knowing what account type(s) are available to you, if they are tax-advantaged, and will provide you with the best long-term outcome can be confusing at times.

Gotcha's/Misses/Items to Potentially Reconsider Doing

• Not contributing to, or meeting, the max "match" from a 401k plan (when you have the funds to do so). An employer-match for a 401k account frequently offers the best return on investment there is. If you have the funds to save/contribute, understanding your employers match rules and ensuring your contributions are setup to fully capture the max provides a material boost.

• Borrowing from, or cashing out year, your retirement accounts. This isn't always a terrible idea, but in our experience it tends to be 80-90% of the time. If you're borrowing from your retirement account or cashing it out early, it's usually a strong signal that you need to better plan your finances.

• Forgetting about IRAs or 401ks you have. A 401k from 3 employers ago, an IRA you setup when you were 15, a Roth IRA your parents setup for you and you both forgot about --> we've seen/heard it all. This is your money; and its important to know where you have it.

• Not considering a Backdoor Roth IRA strategy (when it would be a worthwhile). The ability to contribute to a Roth IRA is subject to an income cap,, which many tech workers exceed. That said, a backdoor Roth IRA strategy accomplishes nearly the same outcome, but without any income cap. It's not always a good idea (especially if you have traditional IRA funds), but in some cases it's a great way to save extra money for retirement in a tax-optimized account.

Risk Management & Insurance

Key Questions/Focus Areas

• Do you (and your partner, if applicable) each have the appropriate amount of long-term-disability insurance? Long-term-disability insurance is the most frequently ignored insurance/risk we see with clients. Should you become disabled (accident; challenging medical diagnosis) and are unable to work, long-term-disability can be your financial lifeline. And unlike life insurance, long-term-disability is frequently a need for single individuals (in addition to married couples) who are not near retirement.

• Do you (and your partner, if applicable) have the appropriate amount of life insurance? Life insurance need analysis can be conducted in a couple different ways. But in general, it's designed to provide a lump sum payout to at least semi-replace your future career earnings if if you pass away unexpectedly early. Single individuals with no children may not have a large need (no immediate family to financially protect if you passed away), while married couples with younger children are the most frequently under-insured.

• Have you (and your spouse, if applicable) considered or acquired personal liability (aka "umbrella") insurance? Like it or not, the US is a litigious society. And like it or not, when an individual believes they have a claim against you (valid or not), one of the first bits of research an attorney does is an analysis of your career and your known assets (to proxy your earnings and assets). The more successful you are, the more likely it is you'll be sued if an individual believes they've been harmed and you're a liable party. Umbrella insurance frequently kicks in where your auto and home owners liability coverage stops -- providing you with a higher degree of personal liability protection.

Gotcha's/Misses/Items to Potentially Reconsider Doing

• Being under-insured. We get it; it's not fun to pay something that you don't plan/desire to actually use/need. And insurance can be exactly that (especially for types of insurance where the odds of an insurable event occurring are low). But if/when those events occur, insurance is typically your financial life saver. Whether due to incorrect needs analysis, ignorance, or another factor --> being under-insured can create a world of harm if an unlikely and financially traumatic event occurs. It's not worth the risk!

• Not considering the pros/cons of employer provided vs. 3rd party insurance. Employer provided insurance for certain things is a nice perk; and electing extra coverage through an employer can also make sense at times. But you also need to understand the risk you're taking -- because most employer provided insurance policies are not portable (i.e. if you leave an employer you can't take it with you). For example, what if you are diagnosed with a terminal illness and are given 2-4 years to live? You likely don't desire (or cant) keep working during that time, but leaving your employer would result in the loss of your life insurance policy, and due to the diagnosis you won't be able to acquire coverage from a 3rd party insurer anymore.

• Confusing short-term disability insurance with long-term disability insurance. Some individuals just think/hear "disability insurance" when their company discusses their benefits package and believe they're covered. But disability insurance comes in two parts; short-term and long-term. Short-term has it's purpose, but most tech professionals could financially handle a few months of lost income. Long-term disability coverage is the bigger risk-factor/need, and is also the less common employer-provided type of disability insurance coverage. Further, long-term policies are structured to have a max monthly payout, and some companies opt for low max payouts to save on the benefit cost to them.

Estate Planning

Key Questions/Focus Areas

• What plan would you like for your child(ren) if you/partner unexpectedly passed away? It's an incredibly difficult dynamic to wrap your head around and consider. But its typically of the highest importance for parents. Who would you nominate to be their guardian? And if/how would you want your assets distributed to them?

• Is a revocable trust appropriate for your situation? Revocable trusts can serve a number of purposes, but the three most common reasons are (1) Avoid probate (a big time and cost hassle); (2) Control (create whatever rules you desire for if/how your assets are distributed); and (3) Privacy (the distribution of your assets is private vs. public).

• Beneficiary designations. One of the simplest ways to setup part of your estate is to specify a beneficiary of accounts that allow you to do so (e.g. IRAs/401ks).

• Minimize estate tax. Estate taxes are a hot-button political topic and have changed many times over the past decades. If you have considerable assets --> thoughtfully developing and implementing a strategy can yield significant savings for your heirs.

Gotcha's/Misses/Items to Potentially Reconsider Doing

• Thinking of estate planning as "important but not urgent" (especially if you have children). It may be challenging to consider, but should the unexpected happen you'd 100x rather have documents (and potentially structures) that specify your wishes vs. no docs and your family trying to "figure it out amongst themselves".

• Not updating estate documents after life events. We've encountered multiple individuals/households whose estate docs are 10+ years old (and 2 kids, 4x increase in assets, and 2 across-state-lines relocations later). Paying to update these docs isn't fun; but it is important.

Tertiary Focuses

Cash Flow Planning

Key Questions/Focus Areas

• Do you know how much you spend on average (and on what)? Spending is an easy thing to lose track of. Having a strong understanding of what you spend on (and preferably what things you buy that give you the most joy), is one of the most impactful things to achieve your long-term financial goals.

• Is your savings rate appropriate/healthy (relative to your financial goals)? Your money should be in services of maximizing your happiness (today, tomorrow, and decades in the future). Finding the optimal balance between spending today and saving for future wants/goals requires discipline and planning.

Gotcha's/Misses/Items to Potentially Reconsider Doing

• Incorrectly knowing/estimating your spending rate. One of the most frequently seen issues we see is misestimated spending. We highly recommend using a spending tracking tool for 12+ months to have better insight (both for recurring monthly spend and "one-time" expenses...which tend to not be one-time/recur).

• Increasing your spending by ~ the same amount your salary increases. Increasing your quality of life as you grow in your career/earnings is natural. But if your spending scales just as fast, it can set you up for trouble.

• Not saving much/any today believing that you can/will do it in the future. Spending discipline is a muscle; it takes time to develop and atrophies without use. There are not many individuals/households who can make material life/spending changes down the line after years of not saving/limited discipline.

Education Planning

Key Questions/Focus Areas

• Do you desire to pay for your child(ren)'s education? If so, how much (half, all)? Do you anticipate public in-state, out-of-state, or private college? What about graduate school?

• Do you plan/desire for your child(ren) to attend public or private K-12 school? If so, how will it cost, and how do we budget for it?

• How can you tax-optimize your education savings? 529 plans are the most popular tool, but other saving strategies also exist. Certain states also offer a tax deduction for 529 contributions (but the plan has to be a state plan).

Gotcha's/Misses/Items to Potentially Reconsider Doing

• Not saving for children's college. Like most types of savings, the healthiest way to meet a goal is bit by bit over time. If you desire to pay for some/all of your child(ren)s college, starting early is usually the best choice.

• Not considering a 529 plan for private K-12 (if your state allows it). A recent tax law change allows the use of 529 plan funds (up to $10,000 per year) to pay for private K-12 schooling. But some states also don't comply (which can be a bit challenging to navigate).

• Not being aware of/considering "superfunding" a 529 plan (if you have the funds and desire to). Superfunding allows you to put up to five years of contributions into the account all at once without triggering gift tax. It effectively "pulls forward" the next five years contributions (something to be aware of). But superfunding can get more dollars into an account earlier, increasing the tax benefits (if you have the funds today).

Debt Management

Key Questions/Focus Areas

• If you have debt, what is the optimal pay-off plan? Which debt should you prioritize paying off first?

• Does refinancing or debt consolidation make sense? The interest rate environment changes daily. Refinancing your existing debt can make sense if rates have fallen. Opting to consolidating your debt can also be a smart move in certain situations.

• Should you use excess cash to pay down debt or for other priorities? It's not always clear what the financially and psychologically optimal choice is.

• Does your current savings rate provide a path to debt freedom? For many types of debt, the plan is to pay them down/off as quickly and reasonably as possible. Ensuring your savings rate puts you on a path to success is critical.

Gotcha's/Misses/Items to Potentially Reconsider Doing

• Not paying off your credit card each month. The interest rates on credit cards are some of the highest you're likely to encounter. If you don't pay off your credit card balance in full, you're likely to be paying more than 20%-plus interest rates.

• Not optimizing your debt. Paying 25% interest on a credit card, when the debt could be consolidated to a 10-15% rate is practically the definition of "burning money."

• Living beyond your means. If you're using debt to finance your lifestyle, it will very likely catch up to you eventually (and when it does, it's likely to hurt).

Employee Benefits Optimization

Key Questions/Focus Areas

• What benefits does your company provide you with? Many tech companies have generous benefits packages. Your first order of business is knowing/understanding what is available to you.

• What key decisions do you need to make (and pros/cons of each)? Most benefits packages require you to select certain items; for example choosing a PPO; HMO; or HDHP+HSA for medical insurance. What does each cost, what do you get, and which is likely to be the financially optimal choice for you?

Gotcha's/Misses/Items to Potentially Reconsider Doing

• Paying for items included in your employee benefits. For example, some tech companies offer free estate planning for employees. Others offer fertility services for you or a spouse.

Other Financial Planning Focuses and Value-Adds

Beyond the core vectors listed above, a talented financial advisor should be able to help with (or at least be a thought partner) on a number of other key financial decisions you make in your life. For example, at 30-40 Wealth we have helped clients with all of the following:

Career Support and Analysis

• Income calibration. How does your compensation compare to others; are you being under paid?

• Job offer negotiation. Does an offer seem fair? Any typical or atypical items to negotiate?

• Networking/connections. Does 30-40 Wealth know anyone in our network that we think would be beneficial for you to meet/speak with?

Real Estate Analysis (Primary Home and Investment Property)

• Primary home purchase. What price range(s) generally make sense for your financial situation? And based on your near- and medium-term plans, does buying makes sense versus renting?

• Mortgage financing. What are the best rates currently available, and should you consider a fixed-rate versus ARM mortgage type?

• Relocation analysis. While primarily a non-financial decision, what are the financial impacts and considerations when relocating?

• Investment purchase analysis. Do the financials on a prospective investment purchase make sense?

• Tax considerations and optimizations. Are there any unique tax dynamics that we can/should consider?

Other

• Inheritance planning. If you anticipate a significant inheritance, how can/should we incorporate that into your financial plan?

• Charitable giving. If you're charitably inclined, are there tools or strategies we can consider to optimize your taxes and/or amplify your giving?