6 Questions If You’re Within 5 Years of Retirement at ExxonMobil
Prospective clients from ExxonMobil will ask, “So, how much should I save inside the EMSP?”
The most straightforward answer, of course, is, “At least 6%, so you benefit from ExxonMobil’s very generous 7% match.”
But the question goes beyond the obvious. Spoiler alert: the answer depends on your circumstances.
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1
The Case for Most or All
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- Saving between 6% and 20% of your salary in the EMSP will generate a lot of money over a twenty-five-to-thirty-five-year career if invested and managed wisely. Payroll deduction makes saving easy—it’s “pay yourself first.” Compounding returns and dollar-cost-averaging of your investments help the account grow.
- The investment options inside the EMSP have very low expense ratios and cover a broad swath of investment opportunities for salaried individuals.
- During your working career, the tax-deferred nature of appreciation within the EMSP and the tax deduction for before-tax contributions all help keep the long reach of the IRS away from your pockets.
- Once you choose an appropriate allocation for your assets, you can almost put your savings on autopilot and pay attention to more demanding tasks, like your job or your family.
- It’s hard to get money out of the EMSP, which helps participants avoid spending down savings targeted for retirement.
- Low-cost ExxonMobil stock aligned with after-tax contributions and Net Unrealized Appreciation (NUA) tax treatment can provide bridge income before 59-1/2 or a good source for charitable giving.
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2
The Case Against Most or All
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- Saving money in an outside brokerage or investment account offers flexibility not available with funds inside the EMSP. Investment options are broader, and access to funds is easier.
- Upon retirement, you will likely roll over to an IRA most of what’s in your EMSP and your tax-qualified ExxonMobil Pension Plan benefit. That may make you “IRA-heavy” relative to the rest of your wealth. Uncle Sam may claim 25% to 35% of every distribution. You’ll also have to take Required Minimum Distributions (RMDs) at some point, whether you need them or not. Assets in an investment account aren’t subject to RMDs.
- You pay taxes annually on dividends, interest, and capital gains in a taxable investment account, but you can access your invested capital income-tax-free since the investment consists of after-tax dollars.
- Assets held in a brokerage account generally get a “step-up” in cost basis upon your death; 401(k) and IRA assets don’t get stepped up.
- Depending upon your level of wealth, you can invest in alternative investments like private equity or private debt in a brokerage account. You can also use savings outside of the EMSP for real estate or collectibles.
- Should you need funds before age 59-1/2, there’s no 10% penalty for accessing assets in an investment account.
- You can use money invested in an investment account for college tuition, gifting, or buying that BMW you’ve lusted for over the years. You can’t do those things as easily with money inside the EMSP.
Sorry to disappoint you if you expected a precise answer to the question. In our practice, we say, “Prescription without diagnosis is malpractice.” While an adequate answer might be “some of both,” the correct decision for you depends on your situation and may change over time. A comprehensive look at your goals and assets and discussing strategies to achieve your objectives should help refine your thinking. Let’s talk!
Meet Doug Garrison
Doug is a Partner based in the Houston office and a member of the firm’s Wealth Management practice. He is responsible for delivering investment...Read more
Meet Doug
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