One of my primary reasons for focusing specifically on helping those in Pharma is that it tends to be a very benefit heavy industry, and that can make planning for financial goals a bit more complicated.
For example there tends to be a lot of really great incentives given to employees that are usually tied to how the company performs - things like stock options and restricted stock units.
These types of benefits are unrestricted by age in the same way most retirement benefits would be which is a nice benefit. But that also means there tends to be an over reliance on these benefits for the types of goals some might want to accomplish before they reach retirement age:
For example sending the kids to college, paying off the mortgage, or maybe just buying that nice car you’ve always wanted.
But if you have a future goal in mind that you’d like to work towards these also have some uncertainties that can make planning harder to accomplish.
X Marks the Spot
Let’s say you have a goal that requires you to have $50,000 saved in 5 years.
You want to know how much you should save each year to reach that amount in time.
To determine how much you’ll need to save, in most situations, you’ll look at how much interest you expect your investment to earn and then plan accordingly.
For example at 0% interest to have $50,000 in 5 years you would need to save $10,000 each year.
However if you can earn 7% interest each year, you only need to save about $8,700 per year to reach that same amount.
The tricky part about relying on these benefits for goal setting is that you have no control over how much you’re going to be getting from one year to the next.
These types of benefits tend to vary from year to year and could be based on your personal performance with the company, how the company performs as a whole, or both.
So if you’re relying on these for a particular goal you may end up disappointed if you’re expectations for future benefits aren’t met.
Additionally estimating how much interest these benefits might earn can be tough to nail down. When relying on the stock of one company there’s less diversification and more exposure to company specific risks.
So bad earnings or something unexpected with the company has the potential to derail any growth goals you may have.
On top of that the way growth works can vary a lot depending on what types of benefits you have.
A stock option’s growth is quite different from an RSU and that can make it hard to estimate what future year earnings might looks like.
To learn more about these differences check out some of my previous posts here, here, and here.
What now?
Don’t get me wrong, these benefits are phenomenal to have and you should absolutely take advantage of them. My point is that if you have a particular goal in mind for these benefits I would suggest taking a conservative approach when it comes to your own planning.
Assume low numbers when it comes to what benefits you think you’ll receive in future years, and be modest with what you anticipate those investments will earn.
Better to underestimate and be pleasantly surprised then to expect more then you end up with.
And if you’d like a more thorough analysis for your financial planning?
Schedule a call with me.
It is only 30 minutes, doesn't cost anything, and there are no obligations to do anything after you call.
