Audio originally published on Podcast 71 October 8, 2024.
Planning for retirement is a crucial aspect of financial wellness, and if you're part of an employee-owned company, you might have unique opportunities to build wealth through an Employee Stock Ownership Plan (ESOP). In a recent podcast, I had the pleasure of speaking with Peter Newman, founder of Peak Wealth Planning, LLC, a firm that specializes in helping ESOP participants secure their financial futures.
The Importance of Planning Early
Many of us tend to push off retirement planning, especially in the early stages of our careers. I have heard a number of my peers say, "I wish I had started planning for retirement sooner in my career." This is a sentiment many of us share, but it’s never too late to begin.
For younger employees, even small, consistent contributions can make a big difference. Peter recommended starting with as little as $20 a week. It may seem small, but over time, that adds up—and thanks to compound interest, you’re not just saving money, you’re growing it.
Financial Benchmarks by Age
Peter shared some useful benchmarks for those wondering if they’re on track for retirement:
By age 35, aim to have twice your salary saved.
By age 45, try to have four times your salary saved.
By age 60, aim for six times your salary.
These benchmarks can help guide your saving strategy and provide a clear path forward. Remember, these savings can come from multiple sources, including ESOP balances, IRAs or 401(k) plans. When coupled with Social Security benefits, they provide a minimum viable retirement nest egg.
Understanding ESOPs and Retirement Planning
As an ESOP participant, you may not be a high earner throughout your career, but the potential for building wealth is significant. ESOP balances can range widely, with some individuals retiring with substantial sums. These can range from tens of thousands into the hundreds of thousands or even millions of dollars.
Peter highlighted the critical decision of when to sell your ESOP shares. Many companies allow partial sale at age 55, with further opportunities at 60 and full distribution upon retirement. The question then becomes: Should you reinvest that money into a retirement account like an IRA, or should you use it for immediate expenses? This is where personalized financial advice is invaluable.
How to Find an ESOP Financial Advisor
One of the key takeaways from our discussion was the importance of working with a fiduciary—someone legally required to act in your best interest. Peter recommended looking for a Certified Financial Planner (CFP) or a Chartered Financial Analyst (CFA) who has experience working with ESOPs. They can help you navigate decisions about diversification, tax considerations, and long-term investment strategies.
Peter also stressed the importance of understanding how your financial advisor gets paid. Transparency is key, and you should feel comfortable asking questions to ensure you're receiving unbiased advice.
Conclusion: Building a Strong Financial Foundation
In conclusion, building wealth and securing a comfortable retirement is not something that happens overnight—it requires careful planning, consistency, and the right guidance. Whether you're just starting out or approaching retirement, it's important to take proactive steps toward your financial future.
If you're part of an ESOP, you're already on a great path, but making the most of it means knowing when to sell your shares, how to diversify, and how to set realistic savings goals.
As Peter Newman wisely stated, “Your savings account is life’s shock absorber.” With the right plan in place, you can absorb life’s financial shocks and enjoy the stability of a well-rounded retirement plan.
Are you on track with your retirement planning? If you have any questions or want to learn more, don’t hesitate to reach out to a financial expert who can guide you on your journey to financial freedom. If you have a net worth over $2 million and need help from a wealth manager, the Peak Wealth Planning team can assist you.
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About the Author
Elizabeth Wheeler is the Manager of Communications at Parksite Inc., a leading building material supplier and 100% ESOP S Corp. In her role, she oversees both internal and external communications, fostering a strong ESOP culture among the company’s 420+ associates. Elizabeth manages public relations (PR), podcasting, charitable initiatives, political lobbying efforts, and strategic messaging for the organization.
Elizabeth is also actively involved in ESCA's Leadership and Development Council and the Illinois ESOP Association, where she contributes to advancing employee ownership initiatives. Previously, Elizabeth served as the Vice President of HomeAid Chicago and held roles as the Director of Communications for the Northern Illinois Home Builders Association and Employee Relations Manager at Hollywood Casino.