Navigating a job change is a significant undertaking, especially for those with considerable assets and financial interests. This guide is designed for professionals, including executives, physicians, and business owners as they work through the intricacies of transitioning to new opportunities.

Here are some important things to consider:

• Review your compensation plan.

Understanding your compensation package is important, because compensation is usually a huge part of transition decision. Beyond salary, bonuses, and deferred compensation, it’s essential to assess the long-term value of your total package. For example, if you are re-locating, consider the impact of cost-of-living adjustments.

Don’t forget to evaluate non-monetary benefits such as professional development opportunities, wellness opportunities, and overall company culture. All of these can have a significant impact on your job satisfaction and overall well-being.

• Evaluate your retirement plan.

What do I do with my old retirement plan(s)?

Roll into an IRA: Working with a financial advisor can help you determine if rolling into an Individual Retirement Account makes sense. The benefits of this option include having more investment flexibility and control. Typically, you will have a broader range of investment options compared to an employer sponsored 401(k) plan. This allows you to diversify your portfolio while also consolidating accounts if you have multiple 401(k)s with previous employers. If you work with an advisor, you will have professional investment management as well as financial planning available. A good financial advisor will also be able to help with tax and estate planning matters, though he/she cannot replace your CPA or attorney.

or

Move your old retirement plan to your new employer: Most employer sponsored retirement plans allow for assets from previous retirement plans to flow into the new plan. This is certainly better than leaving the assets with your old employer’s plan, but this option likely does not include the investment options and flexibility as well as professional management and planning found if you roll assets into a managed IRA. That said, it may be your lowest cost option.

• Understand changes to your health insurance.

Be aware if there is a waiting period for health insurance with your new employer. If that is the case, look into extending your previous employer’s coverage through COBRA if there is a gap.

Have a solid understanding of the different health insurance plans offered by your employer and consider factors such as the network of providers, deductibles, co-pays, coverage for prescription drugs and preventative care to name a few.

Take advantage of  tax-advantaged accounts like Flexible Spending Accounts (FSA)s and Health Savings Accounts (HSA)s if your employer offers them.  These accounts can help you save money on qualified medical expenses. Additionally, HSAs can serve as an additional retirement savings vehicle.

• Review Stock Options and Equity Compensation Programs.

If your previous employer offered stock options or equity, be sure to understand the vesting schedules and the implications of leaving.

Equity compensation can significantly increase your wealth, but also add complexity to your financial and tax planning picture. For example, the decision to exercise stock options should be timed to optimize tax implications and align with your broader financial goals, risk tolerance, and time horizon. Working with a financial advisor can help you make an informed financial decision.

A job transition is an important time and opportunity to reassess your financial strategy. By taking a look at your compensation, retirement planning, healthcare options, and equity compensation, you position yourself for both peace of mind and long-term success.

If Confluence can be a resource to you during this transition, please reach out. We are happy to help!

Month in Review

• Stock and bond markets rallied during March, with broadening of results- large cap value stocks (+5.0%, Russell 1000 Value TR Index), small cap stocks (+3.6%, Russell 2000 TR Index), and international stocks (+3.3%, MSCI ACWI Ex-USA NR Index) finished the month ahead of large cap growth stocks (+1.8%, Russell 1000 Growth TR Index).
• Economic data continues to look strong in the United States. The Federal Reserve also confirmed their forecast of three 0.25% interest rate cuts in 2024.

Time to Look Beyond Cash?

Last month we discussed the difficulty in forecasting changes in interest rates. During March, investors spent the month aligning their outlook with the Federal Reserve’s guidance, which remains some level of interest rate cuts sometime later this year. While the exact timing cannot be known, we do know that historically there have been opportunities to shift out of cash investments near peak interest rates.

Going back to the six previous cycles since 1984, investors have been better off investing in bonds, US stocks or a balanced portfolio compared to staying in cash during the 12-months following the peak level of interest rates. Forecasting the exact time of peak interest rates/rate cuts is fruitless, but for long-term investors there is an opportunity to look beyond cash.

Source: Bloomberg, FactSet, Federal Reserve, Robert Shiller, J.P. Morgan Asset Management. The 60/40 portfolio is 60% invested in S&P 500 Total Return Index and 40% invested in Bloomberg U.S. Aggregate Total Return Index. The S&P 500 total return figure from the 1984 period was calculated using data from Robert Shiller. The analysis references the month in which the month-end 6-month CD rate peaked during previous rate hiking cycles. CD rate data prior to 2013 are sourced from the Federal Reserve, whereas data from 2013 to 2023 are sourced from Bloomberg. CD subsequent 12-month return calculation assumes reinvestment at the prevailing 6-month rate when the initial CD matures.

March is National Nutrition Month!

This dedicated span of time encourages us to spotlight the significance of nutrition and healthy eating, recognizing this as a core pillar to both mental and physical well-being. I’m excited to dive into a topic that holds a special place in my heart – metabolic health. See below an introduction, as we explore how choices we make in dietary habits play a crucial role in shaping metabolic well-being – and what that even means!

The human body is intricately detailed and complex, similar to a car. While many of us don’t comprehend a car’s inner workings, we can sense when something is “off” and impacting optimal functionality. Similarly to a check engine light flipped on, there are many cues the body gives that it’s utilizing food for fuel less than optimally, such as the following: cravings, weight struggles, energy slumps, relentless fatigue, etc. Sadly, many of us have ignored these signals for too long.

The engine of the car is likened to the body’s metabolism. Just as the engine converts fuel into usable energy so the car can operate, being in good metabolic health ensures our body is able to generate and process energy efficiently to sustain life.

What factors determine metabolic health, you may wonder?

Clinically, it hinges on five specific and measurable factors¹:

1. Abdominal obesity (>40” around waist in men, >35” around waist in women)
2. Impaired fasted blood sugar (100 mg/dL or higher)
3. High blood pressure (130/85 mm/Hg or higher on multiple occasions or on medication for high levels)
4. High triglycerides (type of fat; 150 mg/dL or greater or on medication for high levels)
5. Low “helpful” cholesterol (HDL) levels (<40 mg/dL for men, <50 mg/dL for women)

According to the recent study published in the Journal of American College of Cardiology in July 2022, it’s estimated that only ~7% of adult Americans adults have optimal metabolic health, leaving 93% with markers in unhealthy ranges².

Each marker out of range increases the risk for development of complications like heart disease, Type 2 Diabetes, or stroke. Three or more out of range is considered metabolic syndrome. Getting an annual physical exam and bloodwork empowers your healthcare provider to evaluate your risk for metabolic syndrome. The good news is that lifestyle choices highly influence the health of these markers – namely eating a balanced diet and shunning a sedentary existence as two very practical realms to target.

Balanced Diet

Nutritionally, a balanced diet revolves around diverse, nutrient-rich whole foods while limiting processed items. A simple example of this would be choosing an apple (whole form) as opposed to apple sauce or apple juice, as often as is doable. This is due to the quality of nutrients the whole form contains as opposed to added processing.

When it comes to energy, the body’s preferred fuel source is glucose (think of this like gasoline), which comes from eating carbohydrates (carbs). In simplest terms, when we eat foods containing carbs, our blood sugars rise (as we expect). In those with good metabolic health, the body efficiently takes that glucose and converts it into usable energy and blood sugar levels are returned to normal through a process of hormonal “checks and balances”.

Conversely, poor metabolic health impedes glucose being used for energy efficiently, but rather leaves it in the blood stream, hence the term “high blood sugar”. When levels are high in the moment, you may experience the check engine symptoms listed above. Over time, chronically elevated blood sugar levels can lead to conditions like Type 2 Diabetes. When it comes to managing blood sugar levels – a quick tip you can implement today is the principle of “no naked carbs”.

No Naked Carbs

Clothing your carbs so they’re not “naked” means simply to pair a carb food with a protein or fat source to promote a steadier blood sugar response and limit a “spike” which may result from eating a carb only. Some examples would be peanut butter with a banana, cheese with crackers, or a hard boiled egg with grapes. This is just one simple tip to promote keeping your “engine” in tip-top shape, which will keep your body operating more efficiently in the moment and the long haul.

Sedentary Lifestyle

A sedentary lifestyle can be described as one marked by excessive sitting, lying down, and not engaging intentionally in physical activities that would increase heart rate or test muscle tone. For many Americans, especially depending on time of year and where one lives, this can include commute time to work, working from home sitting in front of a computer for most of the day, television watching, video game playing, etc.

Lack of movement, especially after eating food, can be disadvantageous for metabolic health as it can promote an “insulin resistant” state. Movement, like exercise (as simple as walking at a brisk pace or weight lifting) can promote “insulin sensitivity” which allows the body to utilize the incoming sources of foods more efficiently. The U.S. Department of Health and Human Services recommends the American adult to engage in physical activity categorized as moderate-intensity of 150 minutes per week and optimally 2 days of muscle strengthening, also³. This helps not only with metabolic health, but weight maintenance, mood, increasing “helpful” cholesterol (HDL), increasing creativity and promoting longevity, among many other benefits.

No matter where your starting point is, it’s time to get moving!

Let’s get your engine in check!

This introductory overview offers a flyover look into the intricacies of metabolic health, distinguishing between manifestations and potential risks. I hope you are encouraged that lifestyle factors like what you eat (good nutrition) and how much you move (exercise) can greatly reduce your risk for chronic disease, keeping your “engine” operating efficiently. By fostering awareness of the importance of metabolic health, we can be proactive in our approach to reducing risk factors. Time to take a look “under the hood” of your car!

Month in Review

• Rally continued for stocks in February, with the key development of broader participation- for example, US small cap stocks had a strong month.
• String of inflation data and commentary from the Federal Reserve pushed bond yields higher during February.
• The inflation report released during the month (January CPI) showed prices rising more than expected, driven by higher housing related costs.

Attention to Interest Rates

Investors are curious as to when the Federal Reserve will start lowering interest rates. During February, investors recalibrated expectations once again for the start of rate cuts, believing that the first reduction will be pushed back to June 2024. This change makes sense for various reasons: inflation continues to remain somewhat firm, and the labor market remains very strong.

Historically, forecasting the path of interest rates has been notoriously difficult to do and ultimately, introduces unwarranted noise into investors’ outlooks. The chart below shows how even the Federal Reserve struggles to predict its own interest rate decisions.

Nearly 1 in 5 people living in the United States will suffer a disability lasting more than one year before the age of 65.¹

Many individuals do not like to think or talk about a potential long-term disability, but they do need to talk about disability insurance. 

Why Physicians Should Consider Disability Insurance

Imagine not being able to practice your specialized medical skills due to illness or injury. The financial impact could be devastating for you and your family. As a physician, your income hinges on your ability to work. That’s why individual disability insurance as part of your financial plan is crucial for safeguarding your earning potential.

Understanding Disability Insurance Types

Choosing disability insurance involves understanding the different types and the benefits each brings. For example, there are two categories of disability policies, short-term disability and long-term disability. Short-term disability policies are typically obtained as a group policy benefit from one’s employer while long-term disability policies are also offered as a benefit through an employer BUT are more commonly purchased as an individual policy through a broker or financial advisor.

Additionally, you can purchase own-occupation coverage or any-occupation coverage. The difference between the two is meaningful. Under an own-occupation policy, a person is typically considered disabled if they are unable to perform the material and substantial duties of the job they were working at the time they became disabled. Under an any-occupation policy, a person is considered disabled if they are not able to perform substantial duties of any job for which the person may earn a certain percentage of their pre-disability earnings.  

For physicians, it is essential to work with an advisor who understands your needs and unique situation to recommend the right disability insurance strategy.

Key Considerations

Beyond basic understanding of disability insurance, it’s important to understand key factors like the carrier, benefit amount, elimination period, and renewal options.

• Insurance Carrier – know who you are working with. Currently, only 5 carriers offer “true” own-occupation coverage.
• Benefit Amount – the IRS publishesd “Issue & Participation” amounts based on your income and existing disability coverage.
• Waiting Period – the amount of time one must wait to collect benefits when disabled – typically 90, 180, 365, or 730 days.
• Benefit Period – how long one will be eligible to receive their tax-free benefit. This is typically to age 65, 67, 70, or lifetime.

The above list is not all encompassing but should be considered as you construct your insurance package.

Here to Help

At Confluence Financial Partners, we work with physicians to secure and protect their income in the event an unexpected illness or injury becomes reality. Please reach out if you would like to start the conversation today.

Life and disability insurance and life insurance with long-term care benefits are not issued through Confluence Insurance Services. Products and services referenced are offered and sold only by appropriately appointed and licensed entities and financial advisors and professionals. Not all products and services are available in all states. 

1. Centers for Disease Control and Prevention. Disability and Health Data System (DHDS) [Internet]. [updated 2023 May; cited 2023 May 15]. Available from: http://dhds.cdc.gov
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$96 Trillion is going to pass from one generation to the next over the coming 30 years.

This is either going to go smoothly or poorly, and much of that answer will come down to estate planning.

Your estate plan is a crucial aspect of securing your family’s future, and communicating this plan effectively to your children is perhaps even more important.

Here are 4 key strategies to help ensure your heirs are ready:

1. Talk About It

This might seem basic, but start the conversation early. Don’t wait for a crisis to discuss your estate plan. Start the conversation with your children while everyone is in good health and spirits. Choose a suitable time and place for the discussion, ensuring minimal distractions. This will allow your children to focus on the important matters at hand without feeling rushed or pressured.

• Clarify Roles and Responsibilities

Clearly communicate who will be responsible for executing your wishes and managing your affairs if you are unable to do so. If your adult children will be filling these roles, tell them. Don’t assume that your oldest child will understand why you made your middle child the executor. Explain your decisions and choices so that when the time comes there won’t be any confusion or hurt feelings.  

• Educate Your Heirs on the Structure of Your Estate Plan

You don’t have to share all of the details right away, but make a plan for bringing in the next generation into your financial picture. These discussions are difficult to begin in most households, but at some point you should consider letting your adult children know what you have and how all of it will be transferred. Eventually you should share detailed information about your assets, including properties, investments, and savings. Do you have a financial plan with your financial advisor? It would be wise to share it with your children.

When in doubt, over communicate. You would be amazed at the disagreements that will come up after you are gone, many of which are due to a lack of direction and clarity on your part. Don’t assume your children will know what to do. Spell it out for them.

• Address Potential Concerns and Questions

You don’t have to share all of the details right away, but make a plan for bringing in the next generation into your financial picture. These discussions are difficult to begin in most households, but at some point you should consider letting your adult children know what you have and how all of it will be transferred. Eventually you should share detailed information about your assets, including properties, investments, and savings. Do you have a financial plan with your financial advisor? It would be wise to share it with your children.

When in doubt, over communicate. You would be amazed at the disagreements that will come up after you are gone, many of which are due to a lack of direction and clarity on your part. Don’t assume your children will know what to do. Spell it out for them.

Nobody likes to have these conversations, but they are important. We often talk at Confluence about helping our clients maximize their legacies, and typically children are the most important part of a legacy. We are here to help you facilitate meaningful conversations with the next generation that help you ensure your wealth impacts future generations positively. Don’t wait, the time to communicate is now.

Month in Review

• It was a choppy month for stock and bond markets as volatility rose towards the end of January. US large caps squeezed out a positive return, while US small caps and international equities trailed.
• Investors pushed expectations of interest rate cuts out, helping to increase interest rates, which weighed on major bond markets during the month.
• Economic data remains strong enough that the Federal Reserve largely took a March rate cut off the table in late January.

Equity Markets Following Bear Market Recoveries

The S&P 500 reached a new all-time high on January 25^th, illustrating the progress the equity market has made following the most recent bear market. Along with making new all-time highs comes an influx of short-term noise, making it important to review the history of market returns following bear market recoveries. Looking at all 14 cases since 1957, the S&P 500 rose an average of 23% over the 18 month period following the 20% recovery from a bear market low. In present day, the S&P 500 had a bear market low on October 12, 2022, and recovered 20% roughly 9 months later in June 2023. Ignoring short-termism around all-time highs, history suggests the equity markets continue to rise after recovering from a bear market.   

Source: Yahoo! Finance as of 1/30/2024; BMO Capital Markets via Brian Belski.

What’s on Deck for February?

• Earnings season will wrap up, after companies posted largely mixed results in January. 
• Banks are back in focus following the surprise weakness in some regional bank earnings. Given the events of March/April 2023, investors have heightened sensitivity to any perceived weakness in the banking channel.
• The Federal Reserve does not have a (FOMC) meeting in February, so investors will look for additional information from Fed officials following the January meeting. The Federal Reserve surprised investors by taking a March rate cut off the table, suggesting it would happen later in 2024 depending on economic data.

Many companies offer equity compensation programs to attract, motivate, and retain top talent while conserving cash and aligning the interests of the employees and shareholders. While these incentive programs provide a great benefit, they must be carefully managed to avoid upsetting your financial strategy or posing a significant tax burden. Below we discuss two of the most common stock option plans that we help our clients understand and maximize.

RSU – Restricted Stock Units

As an employee, you may receive a Restricted Stock Unit (RSU) grant as part of your annual performance assessment or generally as part of your overall compensation package. The majority of RSUs have a vesting schedule, so you don’t receive the full value from the outset (Your employer wants to schedule vesting over a period, rather than all at once, to retain your services!). For example, if your company grants you 400 RSUs, you’ll probably get 100 shares to vest each year (typically on a quarterly schedule) until you vest all 400 shares, at which time you may receive a new grant.

RSUs give you an interest in the company but no actual value until they are vested. Upon vesting, the Fair Market Value (FMV) of the shares is considered income. You will then have the right to sell the vested shares and receive the cash proceeds or hold the shares for a longer period.

Regarding Taxes

Your income will include the FMV of the shares as they vest. You can sell your vested shares and convert them to cash. Alternatively, you may keep the shares, but any gains made after the vesting date would be taxed as capital gains when you sell. If you hold shares and they drop in value, you might be faced with selling those shares at a loss, while paying tax on vesting date FMV you never actually received.

Your employer typically handles your tax withholding at the vesting date by selling enough shares on your behalf to cover the estimated tax liability and distributing the remainder to you. The IRS requires a statutory 22% withholding rate. Because your vested RSUs influence your taxable income, and effective tax bracket, your employer’s tax withholding rate may not be enough.

Strategy

RSUs accrue over time and, if held, can lead to a significantly consolidated position in one firm. An experienced executive might start with 100 shares vested, then 200, then 300, and so on. Suddenly, they discover that a sizable chunk of their holdings, perhaps also a significant percentage of their net worth, consists of company stock.

Accumulation of company stock can lead to more than just lack of portfolio diversification. Generally, having a sizable stock position in the same company that also pays your salary isn’t advisable. If that organization, for a myriad of reasons, experiences a downturn this could have a double-whammy effect.

As a result, it may be advisable to sell all RSUs as they vest. There should be no additional taxes owed, because your costs basis will be the FMV at which you received the stock. In fact, keeping RSUs as they vest is the exact same thing as taking each cash bonus and investing it 100% in your company stock. If you wouldn’t do that, you shouldn’t hold all of your RSUs. By converting the shares to cash you will be better able to manage taxes due and invest proceeds in a more diverse manner. This should provide you with greater and more predictable long-term success.

To do so effectively, we need to do 3 things:

1. Reflect.
   1. To lay the foundation for an exceptional 2024, it’s important to get yourself in a positive state. The state you’re in matters! If you don’t take the time to reflect, you will likely come up short. Take a moment to flip through your phone’s photo album, review your calendar, and take inventory of what all you accomplished in 2023. Putting yourself in a positive state will help you dream and plan for the year ahead with excitement.
2. Plan.
   1. What does an awesome 2024 look like for you? The more specific, the better! A good way to do this is to think about each quarter and what 3 or 5 things you want to accomplish. Dig into the ‘why’ behind these goals; make it emotional and powerful. The significance of your ‘why’ will inherently help you find the ‘how.’
3. Measure and stay focused.
   1. To turn your dreams into accomplishments, it’s crucial to establish specific metrics and maintain your focus. In the hustle and bustle of life, staying focused on your ‘why’ can be challenging. Regularly revisit your goals, assess your progress, and adjust course if needed.

By implementing the Reflect, Plan, Measure framework, we will become active participants in the creation of a year filled with intention and excitement.

Great Days Ahead!

When someone thinks about socking away money in a college fund for children or grandchildren, the first thing that comes to mind is a 529 plan – a savings plan for qualified educational expenses, which may include not only tuition, but also room and board, books, and other school supplies.  But did you know that a 529 can also be an attractive consideration for transferring generational wealth?

The Advanced:

• Contributions are considered completed gifts.  You can annually give $18,000 (for 2024) per donor per beneficiary, or $36,000 per couple per beneficiary, without being subject to the gift tax.
• “Super funding” – Contributions can be front-loaded, up to $85,000 (up to $170,000 for married couples)– or five years’ worth of contributions at once.  If you decide to do this, you can’t fund the account for the next four years.
• You can name a trust as the account owner, which will give you control even after you’re gone.  Trustees can make decisions for the account that are advantageous to the beneficiaries and ensure your wishes for the account are carried out.
• Contributions to a 529 plan reduce the taxable value of your estate and because contributions are treated as completed gifts, they are immediately removed from the donor’s estate and exempt from the current federal estate tax limit ($12.92 million per person or $25.84 million per couple).
• Another new benefit starting 2024 (per Secure Act 2.0), it is now permissible to rollover up to a lifetime limit of $35,000 tax free from a 529 plan to a Roth IRA.  The money must be moved to a Roth IRA for the beneficiary of the 529 as opposed to the owner of the 529 account; and the account must have been in existence for at least 15 years. Only funds in the plan for at least 5 years are eligible for rollover. (Please note that annual Roth contribution limits will apply based on the rules included in the legislation and the IRS could interpret differently upon implementation.) 

Whether you want to reap the ‘basic’ benefits of a 529 savings account, or want to discuss the ‘advanced’ benefits – the best approach is reaching out to your Confluence Wealth Manager or starting the conversation altogether. We look forward to helping you and your family with education planning in 2024.

About the Author

Known for his professionalism and calming demeanor, Zac is focused on helping his clients reach their financial goals through comprehensive financial planning and unbiased guidance.  Zac and his team support and care for…

Sewickley

724-719-6609

zac.saunders@confluencefp.com

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