News & Insights

The #1 Thing That Most Executives Aren’t Doing With Their Stock Options and Executive Compensation Plans – and What It May Be Costing You

by Jim Freeman, CFP® on 10/23/2018

Executives are constantly overlooking the automation of their stock options - here's how to do just that.Executives who are time-constrained yet serious about reaching their financial and investing goals commonly overlook one important factor: automation. Set up your plan so that it will be automatically executed without you having to remember what decisions were made. Automate, automate, automate! Here’s why.

A Typical Executive’s Financial Snapshot

Let’s say that you are an executive for a successful company that offers the following executive compensation:

  • Salary & Bonus $350,000
  • Restricted Stock Units (RSUs) of $150,000 annually
  • Stock option grants annually
  • A deferred compensation plan
  • An employee stock purchase plan (ESPP)
  • A matching 401k plan

We also assume your portfolio is overweighted to your company’s stock and you’d like to gradually reduce this overweight. In addition, let’s suppose you are in a high tax bracket and you’d like to reduce your taxes if possible during your peak earning years. You also want to begin saving money for your kid’s college costs, have your mortgage paid off in 10 years, keep your spending to $200,000 per year and aggressively reduce your stock option holdings if your company stock hits certain price targets.

If you’re doing this all manually, as most executives are, you may not realize how much time you are spending on tasks that could easily be achieved in a fraction of the time. In addition, automation reduces the risk of error.

The Automation Advantage

So how could an executive go about reducing the amount of manual work that is done in their financial and investment planning? Here is how this might look.

  1. Sign up for automatic deductions to maximize your 401k contributions. This can easily be done through your 401k account provider.
  2. Sign up during your open enrollment to maximize (10% of salary is the typical max) your ESPP purchases since they provide you the opportunity to buy your company stock at a discount of 15% or greater.
  3. Sign up to defer 50% of your salary and bonus into your deferred compensation plan. This should save you over 60k in taxes assuming you are in a state and federal marginal tax bracket of at least 35%. Deferring 50% of 350k would leave 175k for living expenses but from this 175k you’ll have to deduct 401k contributions, ESPP contributions, and taxes. Let’s assume after these deductions you’d be left with roughly 80k to 100k for expenses. This will leave you short of the 200k you need for your spending needs. We’ll tell you later how to get these funds in the most tax efficient manner possible.
  4. Place limit orders to sell a specified number of stock options at various predetermined price targets. This will help you avoid missing sales opportunities because you are too busy and finally it will move you toward holding a more diversified investment portfolio.
  5. Set up an automatic mortgage payment that will pay off your mortgage in 10 years and set up fixed monthly contributions to 529 college plans for your kids.

As you can see, there is enormous potential to save time using simple technology that is probably already in place for most executives who work at mid to large sized companies.

Some Manual Execution is Still Needed

As mentioned earlier the above plan leaves you short of funds for living expenses. The most tax efficient way to raise this cash and diversify your portfolio at the same time is to sell your RSU grants as soon as they are received. RSUs are taxable upon receipt whether you hold them or not, so selling them will not increase your taxable income above what it already is. Selling RSUs is a manual process but you won’t forget it because if you do, you’ll be unable to pay your bills.

You should also set up all of your expenses and credit cards to be paid automatically. If set up properly, at the end of the year you’ll have executed your plan without paying much attention to it. Not only that, but you may end up spending less than your target of 200k since having to sell investments to make funds available for expenses can be a natural spending deterrent for many.  

Automate the Tracking of your Financial Position and Income and Expense

With today’s technology it is easy to automate your financial life, and doing so allows you to see all of your accounts in one place as well as to more efficiently track your income and expenses. Our firm now uses the robust eMoney platform to help our clients accomplish this.

Spending time on the front end to get such technology set up properly will save you time in the future as well as providing you a more telling look at your finances on an ongoing basis.

posted in General

Financial Survival Tips for the Sandwich Generation

by Ellen Li, MSBA, CFP® on 9/20/2018

Here are some Financial Survival Tips for the Sandwich Generation

Planning a financial life for yourself is complicated enough with competing goals such as pursuing a career, raising a family, saving for college and saving for retirement. But what about when an aging parent needs help or when an adult child moves home? If you’re a member of the sandwich generation, the people in their 30s or 40s who bear the responsibility for financially taking care of both their parents and/or children at the same time as themselves, here are some financial survival tips.

Meet Sandy of the Sandwich Generation

Being sandwiched in between several conflicting and serious responsibilities isn’t something anyone necessarily plans for, but as the following example illustrates, it’s easy enough for almost anyone to end up there.

Let’s take Sandy, a married 47 year old radiologist from La Jolla, California.  As a physician specialist, she makes a decent living, but the income didn’t come without a cost. She’s battling her student loans, even at this stage in the game. She’s earning a high salary, but at the same time much of it is consumed by taxes and professional expenses such as insurance and continuing educational requirements.  Moreover, because of the demands of her work, Sandy is often forced to hire support staff to assist with her home and domestic responsibilities.

Sound familiar?

Sandy’s financial picture isn’t flawless to begin with…and that’s less than half the picture, by the way.

Sandy has 15 year old and 12 year old children who are talented students. One wants to become an ultrasound technician, following in her mom’s footsteps. The other one hasn’t found a specific career ambition yet, but does wish to attend a four year university. Although she’ll be on the hook only for ultrasound technician school for her younger child, she still feels obligated to put aside more than the cost of her training for her so that she doesn’t feel shortchanged in comparison to her sister.

Typical story, right?

Now on top of that, Sandy recently lost her father, leaving her mother spouseless and in need of caretaking services that Sandy must help pay for. Sandy’s husband’s parents live independently at the moment but when they become unable to care for themselves the plan is for them to move into Sandy’s home. The hope is that the timing of this will coincide with Sandy’s children going away to college, but there is no guarantee that it will, or that Sandy’s children will live away from home while attending school.

Whether it’s is a spicy Reuben or a classic tuna fish, the Deli has served up Sandy quite a sandwich to digest. In fact it’s completely overwhelming for most people.

If you find yourself inevitably sandwiched in between a rock and a hard place, what can you do to avoid a bad case of indigestion?

Financial Survival Tips for the Sandwich Generation

Realize that while nobody has complete control over their life, we do have the ability to control as much as possible by creating a financial plan.

The general steps we suggest that people take as part of our financial survival tips for the sandwich generation are below:

  1. Prioritize goals. For Sandy, it means sitting down as a family and figuring out which needs are the most immediate and which can wait.
  2. Figure out resources. Who or what can you call upon? Gather information about what is available to you in terms of time, money, family help, and public or private resources. Consult the wise Google for answers on this one!
  3. Develop a long-term plan that takes #1 and #2 into account. As this differs depending what stage in life you fall into, we go into each type of plan below.

Aging Parents

It’s never too early to have a conversation with aging parents. Do they have all the bases covered? Make a checklist that includes long term care insurance, wills, trusts, and health care proxy designations.

It’s important in your planning with aging parents to clarify how the family would like the transfer of responsibility from parent to adult child to happen. Come to an agreement with all family members involved who may be sharing in this responsibility.  For Sandy, the family would meet together – Sandy, her husband, and both sets of parents.

College Planning

Start the conversation with high-school age children to define parameters based on realistic goals and financial obligations. Have you started a 529 account?  Gather information about other resources such as loans, scholarships, grants, and work/study programs.

For Sandy, college planning would mean having a family meeting with her children and husband as well as follow up meetings with perhaps a college planning expert or school guidance counselor.

Adult Children

Don’t wait until your kids graduate from college to have the conversation. Initiate conversations with college age children to set expectation and help establish financial independence. Offer guidance and loving support, not just the promise of a “free ride.” If moving home can not be avoided, consider charging rent and/or asking them to contribute to pay for their share living expense. Have an exit date that is mutually agreed upon.

Your Own Retirement

Many people in the sandwich generation tend to put their own financial needs last. We caution you against doing that. Sacrificing your own financial health for others may backfire by weakening the strong foundation that a family needs. So continue putting money away for your own retirement as much as possible, and don’t forget to review your own financial plan that takes into account your personal milestones.

In Sandy’s case for example it would mean working on a debt paydown plan and making sure that she sticks to it at the same time as utilizing the Health Savings Account and the 403b plan from her work. Using this strategy may result in more favorable tax consequences.

Don’t do it alone

Even the Reuben sandwich comes with a side of fries. Realize that you don’t have to fight this battle alone. Find a trained, experienced financial advisor whose guidance you can trust and gobble up all they have to offer!

posted in General

Questions to Ask If You’re Considering Working During Retirement

by Chris Jaccard, CFP®, CFA on 9/10/2018

Ask yourself several important questions about the benefit and tax implications of taking Social Security benefits while working.

One of the best ways that modern retirement has changed for the better is the high amount of retirees embracing the decision to stay active. Whether you’re working full time, part time, or pursuing your own dream business or an “encore career”, it should be factored in to your Social Security strategy. Read this article to learn about the benefit and tax implications of taking Social Security benefits while working.

Reduction in Cash Benefits

If you have claimed Social Security and reached your full retirement age (between 65 and 67 years of age depending on your year of birth) you can earn as much as you want and keep all your Social Security benefits.

However, if you claimed benefits before your full retirement age, your benefit could possibly be reduced.  For example, if you claimed early and earned income in 2018, the Social Security benefit paid to you is reduced $1 for every $2 you earn over $17,040.  If you realize you made a mistake in claiming early, you have a once in a lifetime opportunity to pay back what you took and reset the clock – but it must be made within one year of claiming benefits.

Read: A deeper look at Social Security Claiming Strategies

This reduction due to early claiming is not a permanent loss, as the Social Security Administration (SSA) will make a recalculation and add back the withheld benefits when you reach full retirement age.  Still, it may have a large impact on your cash flow and hence spending ability.

Questions to ask yourself:

  • What, if any, is the reduction on every dollar earned now that I am combining SS and income from my work?
  • How much can I work and still get benefits? (only relevant if claimed SS prior to full retirement age)
  • Am I within the one year window period of redacting my SS claim?

Read more

posted in BlogPersonal Finance

Is your CPA a Tax Preparer or a Tax Planner?

by Jim Freeman, CFP® on 8/14/2018

Tax planning ranks low on the list of activities people enjoy. Yet despite how astronomically large the tax bill can be in April, after tax season many people do not sit back down with their tax professionals to do in-depth planning. As a result, simple things getting overlooked on a regular basis that needlessly cost taxpayers thousands of dollars.

The goal of today’s blog is to give you a partial checklist and, most importantly, to inspire you to bring this topic up with your tax advisor and to initiate an annual tax planning protocol.

Below I’ve highlighted a few of the more commonly neglected categories:

  • Am I maxing out my tax deductible retirement plans? There can be numerous tax-sheltered buckets to fill here. Some defined-benefit retirement plans allow for six-figure annual contributions! Filling these buckets both lowers taxable income and allows your savings to compound tax-free.
  • Am I eligible for the new Qualified Business Income deduction? If not, what can be done so that I am?
  • If I am a business owner, am I unnecessarily overpaying on my payroll taxes by paying myself too high a salary?
  • Am I eligible for a Heath Savings Account (HSA) and am I funding it? Many people use their HSA as another retirement account as you get to add $3,500 per year pre-tax, those savings compound tax-free, and years later in retirement they can also be withdrawn tax-free. In this way, the HSA works like a hybrid Traditional/Roth IRA.
  • Are there any simple adjustments available that can help drop my taxable income into a lower tax bracket? For example, business owners can strategically deploy capital expenditures into a certain tax year. Or charitable contributions can be prepaid or delayed. Or 529 College Savings Plans can be strategically funded for tax efficiency.
  • Am I taking advantage of “tax loss harvesting” in my investment accounts?

These are just a few. There are many nooks and crannies to explore and exploit for tax savings. They are often easily uncovered through these basic due-course planning discussions. A great example of this is charitable giving. Oftentimes I see people making annual donations from their after-tax savings when they should not be. For retired clients, they can often use pre-tax IRA funds to make such a donation. Or we’ll see others who could be donating appreciated stock thereby avoiding capital gains tax.

The complexity of taxes scares people off but as you can see there as so many ways that money can be saved by paying a little bit of attention to them. The good news is you don’t have to even understand it. All you need to do is schedule the annual tax planning check-up.

posted in General

Introducing eMoney, a Financial Planning Beneficence for our clients!

by Ellen Li, MSBA, CFP® on 8/1/2018

As of this month, Financial Alternatives is rolling out a Personal Financial Management platform called eMoney for our clients. This portal will provide clients with secure access to real time values of all of their accounts across various custodians including held-away 401K accounts and liabilities such as student loans, mortgages, and credit cards.

What benefits does eMoney provide for our clients?

You can see the whole picture by logging on to just one platform

Gone is the day when you have to wait for Fidelity or Schwab’s month end statements or Financial Alternative’s quarterly reports to get an integrated look at your financial situation, from all angles and leaving no stone unturned.

You’ll no longer need to provide your bank account or liability statements for your annual review if you link the accounts in eMoney. Also, you won’t have to worry about keeping track of multiple account log ins anymore as your information will all be held in one place.

You can reduce time spent on creating a budget

eMoney isn’t just about investments.  Clients can add their bank accounts to this platform as well. Just as Mint does, you can see your checking balances and bills.

Procrastination is a huge problem when it comes to budgeting. Who wants to repeatedly track down every last bill or savings account statement? Reduce time spent on the administrative aspects and you’ll find time spent on creating your budget to be more productive.

Read more

posted in BlogGeneralPersonal Finance

Avoiding the Web Can Be Bad For Your Financial Health!

by Chris Jaccard, CFP®, CFA on 7/23/2018

With cybercrime constantly making headlines, it’s no wonder that some people have resorted to avoiding the web altogether as a way to prevent exposure to this risk.

Think again.

Unfortunately, the premise that you can’t be hacked because you haven’t set up online accounts with your bank, utility company, brokerage firm, etc., isn’t a sound one anymore. Many years ago this may have been true, but the unfortunate reality is that nowadays there is nowhere to hide from cybercrime.

The Allure of Anonymity

Despite the advantages that our cyberconnected world has delivered to our doorstep, it seems like this change isn’t one that people welcome with complete open arms.

According to a study by Pew Research Center, 86% of adult internet users have resorted to tactics to enable them to travel the web incognito. Examples include clearing or disabling cookies, trying to mask your identity, using a fake name, or using an anonymous browsing service (as per Rainie et al, 2013). It’s clear that most people have a desire for more online privacy.

Technology can empower our lives and strengthen our ability to connect with the people and things that we want in our lives. Yet there is a price for this progress. In today’s world it seems as if everything is connected to the internet somehow. As far as we’ve come, however, we’re still in the dark about controlling the flow of information so that it doesn’t get into the wrong hands in the midst of all of this.

Read more

posted in BlogGeneralPersonal Finance

Loopholes for Substantial and Perpetual Property Tax

by Jim Freeman, CFP® on 7/9/2018

This blog was written in conjunction with guest author Matt Brand.

Homeownership is quickly becoming a luxury that fewer can afford in California these days. But it doesn’t have to be – if you know the tax code.  In this column we highlight some lesser known property tax loopholes that can help ease the financial burden for those who qualify.

Tax Loophole That May Apply to You

Most people know about Proposition 13, which applies to all California homeowners. It caps property tax at 1% of home value as determined by purchase price and then it limits annual increases to no more than 2% annually thereafter.

There are a handful of loopholes that apply to people in specific circumstances and these are not well known.

Proposition 60 lets homeowners who are 55 or older sell their home, buy a new one, and transfer their “old” home’s tax assessment basis to the new home (“property tax portability”). Such fortuitous transfers are permitted only once in a lifetime. And this law only applies to moves into a home of equal or lesser value and to moves within the 11 participating counties (including San Diego). But these rules may soon become more flexible.

Read more

posted in BlogInvestmentsPersonal Finance

Financial Questions to Ask Yourself on Your Work Anniversary

by Ellen Li, MSBA, CFP® on 6/26/2018

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.


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?

Read more

posted in BlogPersonal Finance

What is the Right Way to Educate the Next Generation About Money?

by Jim Freeman, CFP® on 6/22/2018

Here are some tips for successfully imparting the knowledge and wisdom about money that your family needs to educate the next generation about money.

Most families, even the more financially successful ones, don’t talk about money the right way, or even put much attention into discussing money as a family at all. For a variety of reasons this is harmful to a family’s continued wellbeing. Here are some tips for successfully imparting the knowledge and wisdom about money that your family needs to know to educate the next generation about money.

Family Money Conversations are Tough

More often than not, family dialogues about money don’t happen the right way. Everyone wishes they had more money. As a result, conversations can get emotional and often degenerate into:

  • Arguing
  • Complaining
  • Finger pointing
  • Regret
  • Resentment (Mom and Dad paid to send you to med school and didn’t have enough for me)
  • Shame (I loaned my ex-boyfriend some money and he never paid me back)
  • Jealousy (My brother makes more money than me)
  • Fear

If money is even on the agenda at all, it’s normally not a constructive addition to the family meeting. How is that conducive to a system that will educate the next generation about money?

Read more

posted in BlogPersonal Finance

Stuck in Paradise

by Jim Freeman, CFP® on 6/4/2018

The following is an excerpt from The Financial Alternatives Column in Coast News. In this article, Jim’s co-author Matt discusses his decision to stay in his condominium.

I recently explored upgrading from my current condo into a house, but the resulting property tax and mortgage expense increase would be too great for me to justify a move. This same predicament, which I call the “golden handcuffs” provides disincentives for many homeowners to move, fanning the flames of the affordable housing shortage in North County.


posted in Blog

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Posts are general in nature and do not constitute the rendering of legal, investment, accounting or other professional advice.