• Peter Newman, CFA

Is my ESOP enough to retire?

If you work for an employee owned company, your ESOP balance could be a large part of your wealth or a small part of your wealth. Either way you should consider the value of your investment accounts to forecast how much income it may be possible to create. Add up the value of your ESOP, 401k, IRA and other investments. Once you know that value, you can work with a financial advisor or use an online calculator to project your retirement income.

Enjoying friendships and wine during retirement.
You’ve worked hard to achieve peace of mind during retirement. But will your ESOP shares be enough?

Below is an example of the total retirement savings, with a value of $4 million. One strategy is to use the annual growth / interest as your annual expense. Assuming the growth rate is 4% a year, you will have $160,000 as your annual income when you retire.

This retirement account totalling $4 million includes 80% assets within the individual’s ESOP, 10% in 401k, and 10% in an IRA account.
Retirement assets totally $4 million could generate a yearly income of $160,000 during retirement.

The income estimate above is only a guideline forecast using the 4% rule of thumb. Many factors could change your retirement income including a change in the value of your ESOP, how much is added to your IRA or 401k each year, the number of years left until retirement, the mix of assets (stocks, bonds, cash, real estate) in each of your investment accounts and the investment returns or losses in each account.

Track your investment account values each year.

Let’s take a closer look at each investment type that can help you replace your income during retirement. It is important to have multiple sources in case one of your investments has a challenge.


How do I replace my income in retirement?

How long your retirement income will last depends on the sources of the income you will have at your disposal. Below are common sources of retirement income.


Social security (and a pension if you are lucky enough to have one): One of the major benefits of social security is it will be paid until you pass away. At age 67 or 70 you should receive somewhere on the scale of $1,500 to $3,000 per month in social security benefits. If you take social security early at age 62, your benefit will be dramatically reduced. Head to the SSA website to begin estimating your Social Security Benefits.


Annuity: Perhaps you have been paying into an annuity contract for 20 years, you may be able to receive a stream of monthly income when you retire. You can also buy a single premium lifetime annuity that pays you income for life and potentially to your spouse. With a single premium annuity you will need a large lump sum payment to generate substantial monthly income during retirement. Not sure whether an annuity fits in with your retirement income strategy, consult your financial advisor to learn more.


401k, IRA, Brokerage Accounts, or ESOP: For every $500,000 in your investments accounts, anticipate approximately $1,500 to $2,000 per month in steady retirement income. So if you have $1.5 million, you should be able to generate about $3,800 to $6,000 a month before income taxes. Your situation will vary, work with your financial advisor to confirm these amounts.


Inheritance: Each $500k of funds you inherit could generate approximately $1,700 a month (pre-tax) in income during retirement. This assumes a 4% withdrawal rate and how long the money lasts will depend on how you invest the $500k.


Real estate or family business: If you inherit or own rental real estate or a family business, your income could be greatly enhanced.


Use the Peak Wealth Planning Income Replacement Calculator to give yourself a full picture of what you have now and what you will continue to contribute to your investments in the years leading to retirement.

Final thought.

How much you have saved and your retirement lifestyle (budget) are the leading factors to determine how long your money will last. I always tell my clients to make a commitment to paying yourself first while working, be strategic in your investments, and be realistic with your budgeted spending. By doing all three, you will be able to live your retirement vision.


Are you comfortable with your progress towards retirement? How about helping future generations meet their financial goals? If you have more than $1 million saved and need help from a wealth manager, I can assist. Schedule a call to learn more today.



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About the Author

Peter Newman is a Chartered Financial Advisor (CFA) and president of Peak Wealth Planning. He works with individuals nationwide that have accumulated wealth through company stock, ESOP shares, real estate, or running a business. Peter applies his unique background to help clients achieve their specific goals and enjoy peace of mind.


Peak Wealth Planning provides concierge services to meet your wealth management needs. Services include: financial planning, investment management, esop diversification, retirement income, insurance and estate planning advice, Peak Wealth Planning is a fee only financial advisor based in Champaign, Illinois.




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