When you begin thinking about retirement, it's challenging to know which of the hundreds of "retirement planning" articles are right for you. While suitable for most soon-to-be retirees, much of the advice found online is not ideal for professionals who built their lifelong careers at BP. Retirement planning for professionals at BP is different than it is for most Americans because BP has some of the best retirement plans and benefits in the country (if not in the world). So while the readily available "cookie-cutter" advice is not wrong for most Americans wanting to learn about retirement savings strategies, your BP benefits are unique. As a BP employee, leveraging your BP benefits for an effective retirement is crucial to keeping the most of your hard-earned savings for your golden years.
Unfortunately, many BP employees make one or two simple mistakes based on general financial planning advice given by those lacking understanding of nuances surrounding BP's benefits. Particularly in the final years leading up to an employee's last day, even one or two mistakes on benefit elections can have substantial costs during your retirement. Our team of BP benefits experts compiled this guide to help you avoid them and keep more of what's yours.
How Much is Enough to Retire from BP?
When meeting with us, many BP professionals ask, "how much do I need to save in my final working years before I retire?" In truth, it depends on several factors:
- Which of BP's benefits do you have access to, and are you making the most of them?
- How much have you saved already?
- When do you want to retire?
- How do you want to spend your retirement?
Even if your fellow BP colleagues have access to similar benefits, your other investment choices, goals for retirement, and legacy planning preferences can often differ significantly. Working with an advisor who can offer you a customized and comprehensive plan is essential to leverage what's available to you for a financially secure future.
BP Retirement Planning Mistakes
When you've determined which resources you have access to, the next step is to create a plan to make the most of them.
Often with BP retirees, we see a few common missteps that can result in missed funds or unnecessary additional taxes.
Learning which decisions and strategies you can make today is a crucial first step to avoiding these common retirement pitfalls as you start your journey in retirement.
Underutilizing BP Benefits
BP was ranked #28 on Forbes top 2000 largest global companies in 2023 and is one of the largest oil companies in both the US and globally. As a result, the employee benefits you receive as a BP employee are among the most significant and often most substantial assets you bring into retirement. Therefore, making the most of these plans while you are still working is crucial.
Maxing out the BP Employee Savings Plan 401(k)
As one of the largest energy companies globally, BP offers a 401(k) program, the Employee Savings Plan (ESP). The company contributes up to 7% of an employee's salary to their 401(k). The maximum amount for how much an employee can contribute to the ESP depends on their age and adjusts annually for inflation. Unfortunately, many people often miss out on 401(k) savings opportunities. Sometimes, we also see employees overfunding sources in the ESP that can trigger contributions to BP's Excess Benefit Plan, which isn't as flexible for tax optimization and planning.
Learn how to max out BP's 401(k) this year here >>
Are you Overly Invested in your BP Company Stock?
As BP professionals climb the career ladder, they often obtain more of their compensation through the company stock. Typically, as a BP employee, you also have opportunities to invest in BP stock through Share Value Plans, Restricted Share Units, Reinvent Shares, and the BP Stock Fund in the 401(k). When BP employees have substantial company stock in their portfolio, we discuss diversification strategies for better balance across investment options.
Does it make sense to diversify when energy is outperforming the S&P500?
Learn more here >>
Underestimating the Tax Impact of Your BP Benefit Payouts
The year you retire from BP is often one of your highest income years. Think about it – if you retire in September of a given year, you've already received your bonus and ¾ of your annual salary. In addition, at retirement, you may also receive severance payments, leftover vacation payouts, and your pension as a lump sum. Stacking these various benefit payouts can add up to a LOT of income for one year and a LOT of income taxed at the highest brackets.
When working with BP professionals, we often map out these benefit payouts and timelines to ensure we're as tax-efficient as possible. For example, suppose you're offered severance and have the opportunity to choose your separation date. In that case, you could separate later in the year to push the payment to the following year to minimize your tax burden. Rather than electing to start your pension immediately at retirement, you may choose to start it the subsequent year when you need more cash on hand.
Improperly Timing When You Take the BP Pension
Speaking of the pension, did you know that you don't have to start the Retirement Accumulation Plan (RAP) Pension immediately after retirement? BP calculates your pension when you elect to commence the benefit, not the month you retire. This is excellent news for BP employees because you can plan to start your pension at the most optimal time for your situation.
As you may know, you can take your BP Pension as either an annuity or lump sum. While both have pros and cons, we see many BP professionals choose the lump sum option for its flexibility in financial planning. However, BP's lump sum pension calculation considers recent IRS-published segment rates to determine the value. As these segment rates rise, the lump sum's value will fall.
Watching the trend of recent segment rates can be advantageous in determining the best time to commence your pension for the most significant payout. For example, if rates are trending up, waiting a few months to start your pension could result in hundreds of thousands of dollars in lost value in your pension payout. Conversely, if rates begin to fall, waiting could be beneficial. Therefore, keeping an eye on these rates as you near retirement is crucial because changes could significantly impact your lump sum value and overarching financial plan.
Partner with a Fiduciary Financial Advisor with BP Benefit Expertise to Avoid these Mistakes
As you near your final days at BP, you may have mixed emotions of excitement for the next chapter and hesitation to leave the workforce. But when you look to retire, your BP benefits can yield substantial additional savings if you pull the right levers at the right time. When working with BP employees, our advisors understand the unique complexities of the benefit plans and can help you retire confidently without leaving money on the table. So, start the conversation to learn how you can begin your financial independence journey toward the future with peace of mind today.
These are only 3 of the 6 most common pitfalls we see from BP professionals looking to retire.
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