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How to Boost Your Retirement Goals with Your Equity Compensation Plan

Employee equity compensation as part of a comprehensive compensation package is an attractive way for companies to supplement traditional salaries and bonuses. Having part ownership in your company’s equity can help motivate you to work hard and maintain your loyalty to your company over the long term. When you have a financial stake in your company, your company’s success becomes your success.

According to a recent 2023 workplace survey, employees feel that the most important benefit of equity compensation is its role in helping them achieve their long-term investment goals. Equity compensation offers you the opportunity to further add to your wealth, and understanding your specific equity compensation plan can help you capitalize on its full benefits. With some proactive planning, your equity compensation can enhance your investment strategy, grow your retirement savings, and help you reach your retirement goals faster.

Understanding Equity Compensation

Employee equity compensation can come in several forms:

  • Stock options: Stock options give you the right to purchase company shares at a predetermined price within a defined period of time known as a vesting period. Stock options are typically subject to set vesting schedules. 
  • Restricted Stock Units: Restricted stock units (RSUs) grant you a certain amount of company shares, which you cannot sell or transfer until they vest. RSUs generally vest over a defined period or after achieving specific performance goals.
  • Employee Stock Purchase Plans: Employee stock purchase plans (ESPPs) allow you to purchase company shares at a discounted price through payroll deductions during specific enrollment or offering periods.
  • Performance Shares: Performance shares are company shares that are granted based on your achievement of specific goals or targets.
  • Stock Appreciation Rights: Stock appreciation rights (SARs) allow you to take advantage of increases in your company’s share price over some time. You can elect to receive the appreciation in the form of additional shares or cash, but you aren’t required to purchase stock.

Each type of equity compensation comes with its own specific terms and conditions. If you are familiar with the fundamentals of your particular plan, you can use your equity compensation to your advantage to reach your retirement goals faster.

The Benefits of Equity Compensation

Generating Wealth

Equity compensation allows you to build wealth over time through your ownership of company shares. When your company does well financially, the value of your equity holdings can increase substantially and contribute to growing your retirement nest egg.

Consider this scenario: You receive your equity compensation in the form of stock options that have a strike price of $50 per share, with a current market price of $100 per share. As the stock price continues to appreciate over time and you decide to exercise your options, the difference between the strike price and the market price at that period becomes your potential profit. This profit can provide a healthy boost to your retirement savings.

Tax Advantages

Employee equity compensation can offer certain tax advantages over other traditional forms of income. Depending on the type of equity compensation you have, if you hold your company shares for a certain period of time, you can benefit from a more favorable long-term capital gains tax rate when you decide to sell. With careful planning and management, you can exercise your stock options or sell your equity holdings over time to help minimize your tax liability.

Tax law is constantly changing, so it’s important to know the most current rules concerning your particular equity compensation plan. It’s also essential to be familiar with the specified holding periods and conditional terms of your equity compensation so that you can better benefit from any tax advantages and optimize your savings.


Your equity compensation can help diversify your investment portfolio by providing a concentrated position in your company’s stock. However, it’s crucial to balance your equity holdings with other investments in a variety of asset classes so that you can reduce the risk of overexposure. If you have too much of your investment portfolio in your company equity and your company suffers a downturn, your portfolio may be negatively impacted.

The key to a well-diversified portfolio that includes equity compensation is determining your risk tolerance: knowing how much risk you’re willing to accept will provide guidance for how much of your investment portfolio should be dedicated to your company stock.

Integrate Your Equity Compensation into Your Retirement Goals

Equity compensation can play a fundamental role in your overall financial and retirement planning. You need to understand your vesting schedule, exercise and holding periods, and other requirements so that you can fully benefit from your equity compensation and increase the potential to add to your wealth.

If your equity compensation has appreciated significantly and you’re nearing retirement, you can consider selling your company holdings and using those proceeds to retire earlier than planned. You can enjoy the income provided by the sale of your company stock until you reach the age where you can access your other retirement investments without any potential penalties.

You can also use the proceeds from your equity compensation to fund your other tax-advantaged retirement accounts, such as Individual Retirement Accounts (IRAs) or your 401(k)s. This can help maximize your retirement savings while reducing your tax liability.

How Legacy Planning Can Help You

Your equity compensation is an important part of your financial strategy and can help you accelerate your retirement goals faster than traditional retirement savings and investments alone. By leveraging its potential benefits and understanding its risks, you can make the most of your equity compensation and move one step closer to retirement.

At Legacy Planning, we work closely with you to develop a financial and retirement plan to manage and maximize your wealth. We’re experienced in navigating employee equity compensation plans and developing strategies to incorporate them into your investment portfolio. To find out how we can help you take advantage of your equity compensation plan to reach your retirement goals, click here to schedule a conversation today.

Content in this material is for general information only and is not intended to provide specific advice or recommendations for any individual.


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