How to Evaluate a Separation Package from P&G
When it comes to evaluating a separation package or early retirement offer from P&G, there are many factors to consider, and collaborating with a knowledgeable financial advisor can help you make this important decision. It is even more critical to fully understand your options because the P&G compensation and retirement plans include embedded and powerful planning opportunities. These recommendations hold true regardless of the existing economic environment at the time you receive a package. However, a challenging market environment may provide even more opportunities.
When evaluating a P&G separation package, the key areas to consider are the retiree health care plan, stock options, and the Profit Sharing Trust (PST) plan.
Will You Be Able to Access the P&G Retiree Health Care Plan?
The P&G retiree health care plan is one of the most valuable retirement benefits. Why? With the current cost of purchasing health insurance on the open market, the monthly premiums of the P&G retiree health care plan provide incredible value. Furthermore, a P&G retiree’s out-of-pocket medical costs are significantly lower than most other retirees. Once you reach Medicare age, the P&G plan continues as your “backstop”—often called a Medigap plan—by providing ongoing coverage for the remainder of your life and your spouse’s life. This retiree health care plan can control one of the riskiest unknown expenses that could otherwise derail even the best of financial plans. For over thirty years, we have advised our P&G clients as they have evaluated retirement and recognize the inherent safety this benefit adds to the client’s long-term financial security. The hard part is knowing whether or not you qualify for it.
What Happens to My Stock Options?
Through your hard work and P&G success, you may have been awarded stock options and restricted stock units (RSUs) through the Long-Term Incentive Plan (LTIP) or Short-Term Achievement Reward (STAR). These awards can provide significant opportunities to build future wealth while still strategically funding post-retirement cash flow needs. Some questions to ask:
- If you are offered a separation package, will you forfeit any previous awards?
- What happens to the elections you most recently made for your upcoming LTIP and STAR plans?
These awards are too powerful to make a separation decision without being clear on the implications of the awards.
What Do I Do with the P&G PST?
The P&G PST is a powerful retirement tool. Retirees can shift a sizable amount of their wealth from higher-taxed retirement accounts to far lower-taxed brokerage accounts, leading to a greater level of financial security than they may have expected. And challenged stock markets can further create opportunities.
There are many considerations for what to do with the PST upon retirement, and if you are considering a separation package, you might want to consider the following:
- Even in the case of a depressed P&G stock price, are the tax benefits of your low-basis P&G stock great enough to allow you to separate from P&G confidently?
- If you are separating before the age of 55, do you know how to access your P&G stock on a penalty-free basis?
- Are you aware that there are two opportunities to take a qualified distribution of P&G stock from your PST?
- Do you understand the comprehensive implications of the Frank Duke Method (a lump-sum distribution strategy) on your specific situation?
- Do you know how you will utilize your stock options/RSUs, separation payment, PST assets, and any other investment assets to generate a tax-efficient cash flow stream for your future?
- Could today’s lower P&G stock price and a lower market valuation on all your assets still be enough for you to achieve your short- and long-term financial goals?
The opportunity to retire from P&G after a long and rewarding career poses many questions related to how you will support yourself and your loved ones in your next phase, whether that’s retirement or a new opportunity. At Truepoint, our specialists in P&G retirement planning work together to analyze your complete financial life and find the right approach for your unique situation. Contact us today to see if we can answer your questions about retirement.
