How Can You Maximize Your Employee Benefits?

MARK RIEPE: I'm Mark Riepe, and this is Financial Decoder, an original podcast from Charles Schwab. It's a show about financial decisions and the cognitive and emotional biases that can cloud our judgment.

Let's say you're considering a new job. Setting aside an obvious factor like your salary, what are some of the must-haves without which you won't consider taking the job?  

It turns out that this is one area where many Americans agree. Schwab conducted a survey of one thousand people who have 401(k) accounts and found that 88% said a 401(k) is a "must-have," right behind health insurance at 90%.

These two were way out in front of the third-place item on the "must have" list, which was life insurance, coming in at a distant 46%. I suppose it isn't surprising that a survey of 401(k) plan participants would consider it a high priority. But the fact that it finished almost as high as health insurance highlights how important having a 401(k) is to many of us in the working world.

The survey also helps to tell us why these accounts are so important. Another question asks, "What percentage of your retirement income do you expect will come from your 401(k)?"

The survey participants said they expect 40% of theirs to come from their 401(k) or their spouse's 401(k). That was the biggest source by far, with Social Security a distant second at 20%.

So the 401(k) plays a big role in our retirement strategy. But the role that our employers play in our financial life doesn't always stop with a paycheck or a 401(k).

In previous episodes, we've had my colleague Amy Reback on the show to talk about equity compensation. And, since last time we spoke with her, even more companies have moved into offering company stock as part of their employees' compensation.

On this episode we're going to talk about the 401(k) plan and equity compensation, with a focus on how to get the big decisions right, but also how to get help when it comes to making those decisions. 

Lucky for us, I've got two guests who can help us unpack this important topic, so let's get right to it.

Brian Bender is a managing director and the head of Workplace Services here at Schwab.

He oversees Schwab Retirement Plan Services, Schwab Stock Plan Services, and Designated Brokerage Services. Collectively, these businesses serve 5,000 workplace plans representing more than three million people and $400 billion in client assets. Brian has more than 25 years of experience in financial services, so it's great to have him here.

Brian, first of all, thanks for being here today. And secondly, before we get into a lot of the, you know, kind of the details of 401(k)s and employee benefits, maybe just tell us a little bit more about your background. How did you end up getting interested in a career in finance in the first place?

BRIAN BENDER: Yeah, thanks for having me, Mark. Appreciate it. Glad to be here. In terms of how I got to this place, I don't think anyone as a young child dreams of being involved in 401(k) plans and ERISA. But like a lot of folks' careers—winding road—I actually started off in college with plans of being a doctor. So I was pre-med, and I was president of the Microbiology Association, I think with an interest in helping people. But I think when the realities of the long road to becoming a doctor—all the school and debt that comes with that—I changed course towards the finance track. And when you say finance, that's a broad industry. Whether you're involved in managing money, you might be behind the scenes doing financials for an organization. But I think that theme of help for people is what drove me down the path that I did—where, you know, there is a lot of need for help and guidance and individuals who need assistance, and that's definitely something that interests me.

So, I think that lines up with my natural interests and talents. So my time has been kind of a 25-year career now, all involved in help for investors and a few varied roles. I'll tell you that early on I was involved … I worked in a call center. I worked in a branch talking to individuals. Since that time, most of my career has been involved more in the corporate side of things where I'm working with organizations who are offering retirement plans for their companies. But I can tell you that those conversations I had earlier in my career, where one-on-one I heard the concerns, the fear, that a lot of individuals have about investing—those drive a lot of my thoughts today, and the conversations that I do have with corporate employers. So a lot of focus in this area. Hopefully that wasn't too long-winded, Mark.

MARK: Well, I think this is like the 75th episode of the show, and I think you were the first person who was the president of the Microbiology Association. So this is great. But actually, I love the health analogy, because obviously, people's physical health is incredibly important. But as you and I know, because we're in this business, their financial health is also really important. And retirement savings is the number one objective for the vast majority of people. And a big chunk of that is tied to 401(k) plans that people get through their employers. But especially now with all this auto-enrollment that happens that companies do on behalf of their employees, it wouldn't surprise me if some people don't really understand their plan. So maybe what are the three most important things that an employee needs to know about their 401(k) plan?

BRIAN: Yeah, to your point, Mark, there's a lot there. But I think at a high level, three things would stand out to me.

Know how much you're saving and how you're invested. And of those two, I'd probably prioritize how much are you saving. There's a reality that we all want to pick high-performing funds and get returns, but that's going to vary from year to year. The thing that you absolutely control and has the most consistent impact on how much you end up with is—are you putting enough away and saving into the plan? So I think that's really important.

Number two—what are you paying for these services? There may be some record-keeping fees within a retirement plan, but the majority of costs is going to be the cost of the investment vehicles themselves, or the cost of the products. And you're going to have everything from index funds that may be four or five basis points up to other mutual funds that might be near 1% in cost. And I think it's important to understand what you're paying and what you get for that to make choices within the plan.

And then last I would say—make sure you understand what resources are available to you to make better choices. These plans likely have education materials that are provided by the employer or the plan administrator. They also run websites that can help give a lot of guidance and insights specific to the plan. And obviously we would always encourage folks to also look beyond that. If you look—podcasts like this, TV shows, the internet, there's a lot of articles and research that gives a lot of great information to help people navigate this information.

MARK: I mean, those are three great points. The sad situation, though, is for some people—I'm looking at a survey here that says 15% of 401(k) plan participants said they were enrolled in a 401(k) by their employer, but they don't even look at it. Now, that's an average, and the good news is that number goes down as people's age increases. For those who really haven't been paying attention, they're not taking advantage of learning about all those items you just listed—how can they be more assertive? How can they be more involved? How can they, I don't know, take more accountability for this account, which is really important to them?

BRIAN: Yeah, absolutely, Mark. And I would tell you that I would like everyone to take a deeper interest and be a little more assertive and engaging with their financial situation and with their retirement plan. But I would say step one for individuals is to really... accept who they are and how are they likely to behave. And if there's someone who is going to continue to be disinterested, not prioritize or not make time, there's a lot of autopilot solutions available in these plans. You mentioned auto enrollment earlier. There are auto increases. There are also managed accounts and ways you can outsource the decision-making. So, if that's the best bet for folks, they should definitely look into that.

For those who are willing to invest a little more time and research things, I'd recommend a periodic review—whether it's quarterly or twice a year, set aside time, mark it on your calendar—to go in, take a look at how you're performing in the plan, what changes you might want to consider, might trigger certain interactions that give you more help to make decisions and choices.

Last, I would say—knowing that folks aren't always real assertive or involved here—I think we see a lot of really good work by both employers and the record-keeping community who are pushing out information to individuals. And more of that is done in a digital format. And what's great about that is that we are able to serve up content specific to someone's situation. So it could be certain life events that take place—having a child, getting married. We can also look at age and certain investing behaviors. And from that serve up information that is meaningful to folks and, obviously, they're a lot more likely to read it, take action, when it's specific to their situation than being generic.

MARK: I think a lot of those life events are really important because those life events are often the thing that really will spur people to take action. One of the big ones, of course, is getting closer and closer to retirement, where they've got some big decisions to make about how they're going to be using their plan to help fund their retirement. And some of those details have actually changed this year with the passage of the … what's called the Secure Act 2.0. What should people keep in mind? What are the, you know—it's a complicated piece of legislation, but what are the most important things for most people?

BRIAN: Yeah, I'll speak a little bit to Secure 2.0 in just a minute, Mark, but I guess—I don't think that legislation really changes your first question of as people near retirement, what do they need to keep in mind? And I think one big item is, they spent a whole career looking—or trying to build a nest egg—and there's a lot of focus on that number. I would probably move away from that. There's a reality here that, you know, $500,000 may be all the money in the world to one person, and it's not enough to guarantee security for someone else. I would really look to break that down to be more specific, because a lot's going to change in retirement. You're not going to have that steady stream of income coming in necessarily from a job. It's going to come from your investments and that income.

So you need to think a little bit more about your budget. What's going to change? There are likely things that you will spend more money on and others, you know, costs that will go down. But really take that nest egg or that dollar amount and translate into, "What is it going to generate in terms of monthly income?" And from there, you can really walk through things. And you may need to make some adjustments, particularly around diversification and lowering risk. A lot of individuals spend most of their time building their portfolio, and they do that through equities. Equities can be subject to large fluctuations like a lot of investments are. As you move into retirement, a 20% downturn in the market would have significant impact to your overall savings. So the more you start to transition, diversify, add more stable instruments is going to add a lot of peace of mind.

Going back to your question on Secure 2.0, Mark—there's a lot of great pieces in that legislation that will help all investors and retirees put more into these plans and keep it there in a taxed-advantage way for a longer period of time. There's also a lot of new items there, things like student loan repayment, emergency savings accounts, increases in catch-up provisions, delays of required minimum distributions. Those things are all helpful, but I would tell you I worry a little bit that they're just more considerations, more things that come into play that can become confusing or create indecision. And as we've talked about throughout this conversation, it's getting people to not be afraid and getting them to engage is really important. So I think the key is—look at the bigger picture. Secure 2.0 are some things then that will help tweak, but they're kind of ancillary to the main things you need to be thinking about within your retirement plan.

MARK: Another thing to think about, a life event, if you will, or a big decision is—what do you do with your 401(k) when you change jobs? This isn't just kind of an idle curiosity. 23% of those in the Gen Z population probably will change jobs during the course of the next 12 months. So, for someone leaving that job, what are some of the things they need to be thinking about? What decisions do they got to make with respect to their 401(k)?

BRIAN: Yeah, that's a great question. And you're right. That's something that is ever-increasing as people tend to work in more and more jobs over the course of their career. I'm going to talk about both maybe a few things that are pitfalls to avoid, as well as some things that folks should think about doing when they change jobs.

I would say that number one, when you change jobs, get involved and enroll in your new 401(k) plan. As we talk about the delay or the lack of engagement that some have here, don't waste time. Get signed up. Start saving as soon as you have that available.

Then there's that decision of what are you going to do with your previous employer's retirement plan. And too often people take it as a cash-out, where they're paying taxes, they take those … that money out of the plan in the tax-sheltered environment, and they're kind of back to square one at that point. And you start building up that savings once again. So we obviously want to avoid that, which therefore would encourage people to, you know, consolidate their assets, whether it be rolling them over to an IRA account with a brokerage provider or rolling them into their new 401(k) plan. You mentioned people having multiple jobs. We see situations where someone has six or seven orphaned 401(k) plans that they're maintaining at old providers. We talk about the struggles of getting them to engage just on one account. It's definitely not happening when you have that many. So whether it be into an IRA or into your new employer's plan, bringing it together so you're making holistic decisions and kind of seeing all the information can be really useful.

MARK: Brian, as you mentioned, a lot of information is available to people from their employer about 401(k)s. There's a lot just in the popular mainstream financial press, a lot of stuff about 401(k)s. Is there anything there, any tips or advice that you think is underappreciated that people should be paying more attention to?

BRIAN: Yeah, I might be straying a little from that question, Mark. But beyond what they should do, I would ask folks to think about where others helped them or created awareness and they made better decisions along the way. Do that for your friends, relatives, colleagues. Talk about what's available here, the benefit of being in these plans. Get more people involved.

Specific to each individual's situation, I don't think this is really rocket science. I'll go back to the phrase, "Be honest with themselves. Be realistic about their situation and take action." And generally that means if you're new in career or a younger investor, you probably want to make sure you're saving more and putting what you can into the plan. There's tremendous advantages to doing that early and getting that compounding over decades.

If you're mid-career, it's probably time to take stock of your situation and be realistic. If you're behind the curve, you may need to augment your savings and look for vehicles beyond the retirement plan to kind of bulk it up and get back on track.

If you're late in career, we talked about this a little bit earlier, you probably need to think about where you need to make some adjustments. Where do you need to plan about how you will wind down into retirement, take risk off the table, maybe plan for income? So I think it varies, but across all of those, be willing to ask for help where you need it.

MARK: I love that answer because just the examples you went through clearly illustrate that there's no kind of one-size-fits-all for everybody. We're all in different stages of our life, and the advice is going to be different. And I think participants kind of get that. I'm looking at a survey here that says 73% of 401(k) plan participants would like to be receiving personalized investment advice for their 401(k). So younger employees, older employees, where do they go get that? Where are they going to turn to help to get that kind of advice they need?

BRIAN: Yeah, there's a lot of great resources. We touched on a few of these earlier, but when you're in a retirement plan, by definition, it's a benefit being provided by an employer. And there's more and more research.¹ Employers are invested in this. Employees that feel secure, feel good about their finances—they miss less days of work. They're more engaged at work. They're more productive. So a lot of employers give a lot of tools to their employees to help them in these decisions. The providers of these services—like Schwab is a 401(k) administrator—they have a lot of tools, again, to help make better choices, maybe declutter the information, different calculators. And then for those who want to go outside of their employer, you can work with your, you know, personal broker or advisor or whoever helps you in these decisions. Again, you know, don't go it alone. There's a lot of places willing to help. And the more information you have, generally, and the more at ease you are, the better decisions you're going to make and the better off you're going to be.

MARK: Brian Bender is the head of Workplace Financial Services here at Schwab. Brian, thanks for being here today.

BRIAN: Enjoyed it. Thanks for having me, Mark.

MARK: Next, we're going to speak with someone who has a lot of on-the-ground experience helping people navigate the world of employee benefits. And I have some questions for him about the other types of benefits out there beyond saving for retirement.

Chris Genetti is a CERTIFIED FINANCIAL PLANNER™ and corporate financial consultant here at Charles Schwab.

Chris, thanks for being here today. Before we get started, we're going to talk a lot about employee benefits and a lot of details there, but maybe before we start, just tell us a little bit about your background. How did you end up at Schwab? How did you end up in the financial services industry?

CHRIS GENETTI: Well certainly, Mark, and thanks for having me here today. I've been in the industry for about 15 years. I love working with employees and working with clients and families. It's very empowering. But I got a lot of this from my grandparents, who grew up in the Great Depression, when I was a young child. They had a focus on savings that they instilled in me, but they always mentioned, you know, "Always save something, even if it's a penny." That came from my grandfather. And my grandmother would mention, "Always focus on paying yourself first versus other people." So, you know, forget about all the credit cards and all the other things that may be in your situation. Focus on prioritized savings. So that stuck with me.

Also, you know, focusing on financial literacy and education throughout high school and college and graduate school, I realized that there was a lack of that. And to find out more of that, I had to learn about it in the industry itself for me personally. So I wanted to learn for myself, my family. I wanted to learn to help other people along the way. And I've been in various roles, all client facing, placing trades in branches, being a financial advisor, financial planner, and also a team leader.

MARK: Chris, on this episode we're focusing on how people's financial lives are increasingly tied up with the workplace. We've already talked about 401(k)s, but I wanted to talk to you about probably maybe the second-biggest compensation-related benefit that's out there, and that's equity compensation. Just briefly, how does equity compensation work? We've done some episodes on this in the past. But briefly, how does it work, and are you seeing companies moving more toward using things like restricted stock units as opposed to, you know, traditionally, a lot of that's been in the form of stock options?

CHRIS: Sure, so how it works is different companies like Charles Schwab act as a stock plan administrator for different publicly traded companies. They may have a stock purchase discount program, which is called as ESPP, Employee Stock Purchase Plan program, or RSUs, which is restricted stock units. Now, those give opportunities to the employees to gain equity share in their company, to have more ownership, and to receive different types of equity compensation. RSU grants are given upfront to new hires and also can be a sign-on bonus instead of cash, and the existing employees can have annual refreshers given during their full-year reviews, which typically vest over a four-year period of time.

But we are seeing employers realize that there is much more importance on partnering with a financial partner to fill the gaps in their benefits that are offered to employees. For example, they can have the best benefits in the world, but if an employee doesn't feel comfortable, kind of, putting them together and isn't able to fully maximize them on their own, then that's where we come in to fill that gap. We are, in general, also seeing companies focus more on restricted-stock-unit income, and essentially it gives the employee more ownership and a vested interest in their employer, and they're a bit more tangible than stock options.

MARK: Chris, you mentioned vesting a couple times there, and for people who have unvested stock units or maybe unvested stock options, these are things that they don't own them quite yet. How should they plan for that when it comes to thinking about things like changing jobs or even retiring, which is the number one financial goal that we hear about from people all the time?

CHRIS: Well, Mark, most of the clients reach out to us because they are thinking about retiring or some big life change in their career. And so there needs to be careful consideration. We don't want any employees or clients rushing into any of those situations without that consideration. It could be overwhelming as well without professional guidance. They're not sure—"How's my financial plan look? Do I have enough equity already to make the jump? Will I be OK with any pay differences from one role to the other? How do I go from having compensation coming in on a regular basis to actually living off of my savings that I've accumulated my whole life? Can that work?" So this is a perfect example of when an employee would not go to their employer overall—maybe not comfortable with bringing up, "I'm looking for a new job," or "I'm going to be retiring soon." And so we can assist with that.

Now typically, if you do leave your company that you're at and you have unvested equity—and those are unvested RSUs or unvested stock options—those will be forfeited. So you're walking away from future revenue and compensation coming your way. But it's always a balance. What are your goals? What is the time that you have that you want to stay at the company for longer? Do you want to stay for another three months, another six? Or are your RSUs starting to dwindle down in value, and you're willing to walk away from that future value because you want to go do philanthropic work or spend more time with your family or have health concerns or want to travel? There are many different reasons that our clients that we meet with bring up. And what is the opportunity of staying around at the current company versus retiring or moving on to a different position? You know, that's a personal decision, but it's also a decision that we can help you navigate with a financial plan that we can build and update for you on an ongoing basis. And as always, when you have unvested equity compensation out there, unvested equity compensation is always an incentive to stay longer. And that's what the employer intends it to be.

MARK: One of the nice things, Chris, about equity compensation, as you know, is when stock markets or the stock of the company does well, that's fantastic. But stock prices don't always go up. And 2022 is a great example of a rough year for the stock market. What kinds of questions were you getting from your clients, and what kind of behavior were you seeing on the part of employees? Have you noticed really anything different in 2023? Because at least as of the time we're recording this, you know, stocks have done overall have done pretty well.

CHRIS: Well, going back to 2022, that was undoubtedly a disappointing year for clients and employees overall, especially in the technology sector. We had some serious declines last year in technology. Some companies were down 50% to 60%. Now, that can be pretty jarring when that occurs, and that happens to your account, and you look at that balance. If we go back a little further, we had the complete opposite. We were very confident coming out of COVID in 2020, 2021. We were in a serious bull market.

So employees and clients we were meeting with didn't mind having concentrated positions. They were having a huge run up. They were feeling—they didn't want the fear of missing out on the upside. And then in 2022, the market turned. The market was lackluster in terms of its total return. We had loss aversion that clients were experiencing. They didn't want to start to sell stock at a loss, an unrealized loss when they had a big gain the year before. But year-to-date, leadership has bounced back. But it's only been narrow. It's been the top five or seven companies by market cap, which are predominantly technology-led. We're still waiting for the rest of the market to catch up.

So our experience is, at this point, most employees that we meet with are actually holding on to their equity, but also learning that they need to trim some as they go. They need to take some chips off the table and diversify, which is what we always talk about. We know a client isn't going to just sell 100% of what they have on their employer, nor do we want them. But we want them to be able to be aware and to manage their risk as needed. So refocusing once again on the financial plan, how does equity compensation fit into that? What do they want this to do for them? Buy a house, pay off their mortgage, pay off debt that's a drag for them? Maybe once again build up emergency funds now that yields are near 5% in some of the investment vehicles out there. Or fund college savings for children that are 5, 10, 15, and they know that that college expense is coming right around the corner.

That's what equity compensation can do for you, and it can be extremely powerful in that sense. And we also have an equity compensation planning session, which can guide clients through that process—what are the tax implications, what is the diversification strategy, and the general knowledge around your equity comp, so you can harness it versus just holding it.

MARK: Chris, earlier you mentioned the Employee Stock Purchase Program, or ESPP. For people, it really gives people the opportunity to buy their company stock typically at a discount. So how should they be thinking about that as part of their larger portfolio?

CHRIS: Well, our recommendation from our various research teams is to not have any more than 20% of one company making up your complete portfolio exposure. So that's just pure risk mitigation. So that's a principle to investing in the long run. Now this can be very challenging. We acknowledge that when you're having stock that you purchase at a huge discount from the current fair market value in your ESPP plan or you have vesting RSUs that are coming in every month or every quarter, it's easy just to hold onto those shares. But really, you have to know with RSUs, it's actually just a stock bonus. Instead of you getting a cash bonus and the taxes are withheld and that being directly deposited in your account after those are taken out, you're just getting stock, taxes are taken out in the form of stock, and you're getting stock that's sitting in your brokerage account. So it's two sides of the same coin. And no matter what, when you get RSUs, that is fully taxable as W-2 income. So the important thing is that you can hold it, for sure, but you can also decide to trim some or all and to fund other goals.

But we want to go back to our saving fundamentals. Don't leave any money on the table. And I've often seen some clients I meet with that actually don't fully fund their ESPP program. They're focused on paying off some debt in another area. They didn't realize that they're missing out on a huge opportunity to accumulate many shares and sell them at a much higher price than they purchased them for. And that greater gain could have went to pay off their debt much faster. So by underfunding your ESPP, you're shortchanging yourself on an employer benefit that is very important.

MARK: Chris, I wanted to talk to you a little bit about what the future holds for employee financial benefits. Programs like 401(k)s, equity compensation in the form of options or restricted stock, a lot of that stuff's been around for a long time. Now companies are offering things more like college loan repayments, increased reimbursements for things like childcare and ongoing schooling. What are you seeing out there?

CHRIS: Well, it's encouraging to see that a lot of the employers that we work with are constantly looking at, reassessing, and trying to improve the employee benefits that are offered. I mean, they have to. It's one of the most differentiating factors besides the work that the employee will actually be doing. So the Secure 2.0 Act brought a lot of optimism around different retirement enhancements, and it's quite complex and comprehensive in what it covers. But in general, there's a small caveat that is helping our employees starting in 2025. And that is—when they do matching, when they actually make student loan repayments, they will get matching to their 401(k), potentially, if the employer opts in to do that for their employees. So that's exciting. That starts in 2025.

And then also there's other programs like different types of flexible savings accounts. And these flexible savings accounts are not just for the typical sense of your own medical purposes and expenses, but actually to pay for child and adult care. We have many clients that are caring for young children, but also caring for aging parents. And they're in the sandwich generation, and so they have to take care of both at one time. That could be overwhelming.

Then we're also seeing some great student loan repayment programs that are just standalone, meaning if you go to an employer and you have a certain amount of student loan debt, and you graduated within a certain amount of time, they're willing to pay some payments and match you for a certain amount of time and up to a certain amount. That's exciting for new grads, in particular.

And then we always recommend that if there's an estate-planning legal benefit, that they take advantage of it through their employer. That's a great and a cost-effective way to build out your trust, your will, your powers of attorney, your medical directives.

But a major trend that we're seeing with employers of all sizes at this time, which we're really excited about, is the trend towards focusing specifically on financial wellness in the workplace. So what does this mean? Well, financial wellness, employers know and research shows that it actually equals overall wellness, you know, in many different ways, physical, mental, in many different ways. So more optimism from the employees, more productivity, they feel less overwhelmed by financial burdens.

So having great benefits is fantastic, but bringing in trusted partners to assist the employees that you have, in a confidential way, in a trusted way that's promoted by your company, is extremely powerful.

MARK: Chris, give me some examples of what specifically financial wellness looks like. Flesh that out a little bit for me.

CHRIS: Well, absolutely, Mark. Financial wellness can look different for the different events that we serve clients. And one of the ways that we can help clients is on one-on-one consultations. We've had clients we've met with that have actually wanted to buy a house, and they realize that after having a discussion around their equity compensation, the tax impact, and other considerations with their financial plan, that they could do it—and it was really empowering.

The second is when there are equity-driven events. Things that happen in the market, and like an RSU vesting or an ESPP purchase that's happening with an employer, we partner with them, and we can help to provide support when those events occur. We worked with another family that this was the first time they were getting an RSU vesting, and they realized that they could use this RSU vesting upon sale to actually pay off all their credit card debt. There was a lot of relief when that occurred.

Other market-driven events are related to the economy, the sector, the industry, and unfortunately sometimes we have to have consultations where employees may have a job loss. That's a stressful time for these clients and families that we're meeting with, but we still come to their side. And we can help them to refresh their financial plan to gain confidence once again at this point where there's so much that is undetermined and unknown. And using their equity compensation to, in a very useful and tactful way, bridge the budget gap that is needed for their family and making sure that their bills are paid.

MARK: Chris, let's say you had a week or so to educate people about financial wellness—what sorts of topics would you include in there? Give us sort of a top 5 things that you would focus on in terms of overall financial wellness?

CHRIS: Well, Mark, having a week and only five things to focus on would be a tall order, but I'll give it my best shot. I would say that first and foremost, it's important for the clients and employees that we meet with to have an overall market awareness. What's happening in the economy? What's happening with the Federal Reserve? What's happening with interest rates? What's happening overseas? They don't need to be experts in this area, but it's important to make sure that they know where are the right resources to get the information that they need that's non-biased, and that's not noise-driven.

The second thing I would mention is please build your financial plan, and if you already have one, refresh that at least on an annual basis. The financial plan is your compass. It's your GPS. You're taking all these actions to save and build wealth, but what is it going to do for you in the future? What is it forecasting? And financial planning software is more sophisticated now than ever. You're able to run different simulations, different scenarios. You can go and stress-test the plan and say, "Well, what if I lost 100 or 50% of my equity compensation? Would my plan still be successful?" Those are important questions that we can help you answer.

The third is managing debt and savings. Those go hand in hand. If we have too much debt, we can't save. If we don't have enough savings, we get back into debt. So it's a vicious cycle. So I would say—use debt responsibly. Debt used responsibly can increase your net worth, but when it gets out of control, it can be a huge burden for families. So be mindful of that. And on the saving side of things, we recommend having three to six months of emergency cash on hand. Now cash is yielding higher amounts, and so you can look at money market funds, CDs, Treasuries, and other options to get that cash working harder for you.

Also, proactively understand the tax impact of selling any shares, equity compensation related, that you have. So don't make it a surprise. Don't just do your trade and then all of a sudden think, "Well, I hope I picked the right shares." You can also consult with your tax professional, your CPA, and they can give you insights well ahead of time so you know that you're going to be selling the shares with the least amount of tax impact possible.

Also related to that—establish your estate plan. Make sure your beneficiaries are up to date on your account. And as your wealth builds, it may be essential to do things like having a trust, a will, a power of attorney, medical directives. Many employers that we work with are able to provide a benefit that you can sign up for as an employee, a legal benefit, that can provide those services included.

And lastly, number five would be "manage risk." Everyone has a different risk tolerance. It doesn't matter if you're early-stage career, mid-stage, late-stage—everyone has a different risk tolerance and risk appetite. And so making sure your investments across your entire portfolio are aligned, are aligned with that risk that you have as a personal investor, is very important. So revisiting the plan can help you do that.

MARK: Earlier in this episode we talked with Brian Bender about the three most important things people need to understand for their 401(k) plans. What would you say are the three most important things people need to understand when it comes to their equity compensation?

CHRIS: Well, from our experience doing financial plans and meeting with clients that have equity compensation, there are three things that are most important. The first is that it's important to understand that while equity compensation is extremely empowering as it's building wealth, as it's accumulating, as you're seeing the numbers go up and up—it can also be intimidating. And intimidating in the sense that if you have the unknown of, "I don't know what the tax impact will be, if I would like to actually use this to fund a goal," then there's tax paralysis, and you may not make any decisions or any sales because you just have that unknown. And it's kind of a story that we hear from our clients, "I didn't know who to ask. I don't know where to go. I don't think my colleagues really know my situation." So once again, we can work with you. We can do equity compensation planning sessions. Please, ahead of time, consult with your CPA and your tax professional to guide you with the right shares to sell for that goal that you're looking to fund.

Number two—equity compensation can dramatically accelerate your goals in your life. I've seen it hand in hand, time and time again—buying a house, starting a family, funding your retirement so you know you're really going to be secure when you don't have that W-2 anymore and you're relying on all the money that you've built up over your lifetime to live off of. Maybe helping your parents, doing home improvements. There are many things that employees desire doing in their life, and equity compensation can power that. But on the flip side of that, because of the nature of equity compensation being concentrated, because you work for the employer and that's how you're being compensated, you know, it can be volatile. There can be ups and downs in the market, and you need to be OK with that volatility. And if you're not, it's important to assess your risks.

The last thing I would say, number three, would be that we understand and respect that some clients that work and have equity compensation through their employer, they would like to hold their company stock concentrated forever. And that's their prerogative. And there are others that we meet with that say they are uncomfortable with the highly concentrated nature of their stock positions. So it just depends on the client we're talking to and the risk tolerance. But regardless of where they are in the risk spectrum, we are here to support the decisions of the clients. We are here to make sure that they are educated and supported around risk and reward tradeoffs that they should consider, tax awareness, when they do want to start trimming to fund a goal, and optimal positioning as their life and career stage will eventually shift towards. So how equity compensation is used is ultimately a driving force for our clients.

MARK: Chris, last question for you. Kind of the foundation of this podcast is that there are certain cognitive and emotional decision-making biases that affect people's financial decisions, often not for the better. Usually, they end up hurting the investor. So in your work, what are the kinds of biases that you see most often that people really should watch out for?

CHRIS: Well, Mark, it's great you bring that up. We see very often an overconfidence bias, and that is always a powerful force, especially if you're in a high-growth name, a high-growth company—you feel good about the outlook. You feel very optimistic about what you're working on. But things can happen. There are geopolitical that are market-driven, that are sector-driven, and just completely illogical and out of your control. And so you get overly confident, but you start to realize, "Wow, I didn't do proper risk-mitigation ahead of time." That's realized later.

So there's overconfidence bias, and then there's always the looming loss aversion. We have employees that hold on to stock a little too long, maybe it peaked, they think it's going to keep going up, and then they have a huge position in their company stock, and then there's a big decline. I mean, the perfect example is the peaks of 2021 and then the major declines of 2022. That was a huge roller coaster, an emotional roller coaster ride for many of our clients, but they didn't want to realize the losses and feel that pain because it is quite significant in their hearts when that does happen.

And the last thing we see too is actually regret bias. So, you know, a client has to make the best decision they can with all the information they have at that time. And so selling stock at a good price that they're happy with at the current levels and then funding and building up an emergency fund, paying off some debt, buying a house—that makes all the sense in the world. But I've had clients come back a week or two later and say, "Oh, my stock went so much higher. I wish I would have kept it. I just regret selling it." Well, I said, "You gotta focus on what did it do for you. You just transferred it from one bucket to the other sort of investment or the other sort of emotional benefit that that is actually giving you." So focusing on that is crucial and changes real lives.

Now, we have this saying—"Don't let the tax tail wag the investment dog." So understand the tax implications, make sure that they're fully understood, that you get tax professional advice or an equity compensation planning session. And then you're able to actually go into it in an informed manner, and you're able to know what share should I sell to actually get the least tax impact per share output from your equity compensation. So we can guide you through that. Don't just make the decisions and try to sell anything that looks good. Seek professional tax advice, and then we can guide you through that.

MARK: Chris Genetti is a CERTIFIED FINANCIAL PLANNER and corporate financial consultant here at Charles Schwab. Chris, it's been great having you on the show.

CHRIS: Mark, great to be with you here today.

MARK: I'm recording this the same weekend as Lake Tahoe holds its annual celebrity golf tournament. Most of the participants tend to be athletes who've excelled in other sports but also love playing golf.

One of the TV commentators made what I thought was a great comment. He said that these top athletes sometimes forget that their athletic fame came in a different sport. And just because they're superstars in basketball, hockey, football, or whatever, that doesn't mean they'll be a great golfer. As a result, their downfall is often that they take high-risk shots. Taking risk and succeeding often works in their chosen field—after all that's why they're great in those other sports. But those moves don't always make sense for a middling golfer to try. In other words, you need to learn before you leap.

I bring this up because Brian and Chris both mentioned that employees should be sure to take advantage of the educational resources your employer offers them. You may well be a great employee, but that doesn't mean you know everything about investing. So learn what you need to know before jumping in. And make sure you make it a priority and not something that perpetually resides at the bottom of your to-do list.

Keep a list of things you need to work on and things you want to learn, and make it a regular habit to cross things off that list one by one.

Here are some tips to help you stay on track.

First—be specific about your tasks and why you're doing them. A fuzzy goal like "learn about my 401(k)" may sound nice, but it's hard to track. Break that down into pieces. For example, what are the five or so things you want to learn about? Write those down. Now, let's face it, lots of financial topics can be a bit arcane, and it's easy to forget why it matters. Fix this by listing your task and why it's important for you do it.

Second—don't try to do too much at once. You may really want to learn how to eliminate your credit card debt and save enough for that trip to Japan and plan for your next stock-vesting date.

But trying to accomplish too many goals at one time becomes unmanageable. I think you'll be more motivated if you stick to a small number of truly achievable goals.

Third—celebrate as you cross items off the list. A nice pat on the back goes a long way to maintaining motivation.

To learn more about retirement planning and 401(k)s, you can check out workplace.schwab.com. And you can learn more about some of the topics Chris discussed, like ESPPs, RSUs, and stock options at eac.schwab.com/equity101.

Thanks for listening. If you've enjoyed the show, please leave us a rating or review on Apple Podcasts. And if you know someone who might like the show, please tell them about it and how they can also follow us for free in their favorite podcasting app.

You can also follow me on Twitter @MarkRiepe. M-A-R-K-R-I-E-P-E. Or check out my page on LinkedIn.

For important disclosures, see the show notes and Schwab.com/FinancialDecoder.

¹ Schwab Retirement Plan Services, 2022 401(k) Participant Survey, https://content.schwab.com/web/retail/public/about-schwab/schwab_2022_401k_participant_survey_deck.pdf