After a long career at Shell, several imperative considerations and decisions about your benefits, savings, and investments impact what’s available to you in retirement and what you'll face in taxes. Despite an entire career working to create a nest egg that can provide peace of mind in retirement, Shell professionals’ finances often get more complicated in the years leading up to and immediately following their last day of employment. As a Shell employee, you can access some of the best company benefit plans available in the country. But, they're only effective if you leverage them properly.
How Much Do I Need to Retire from Shell?
A common question we receive from Shell professionals nearing retirement is, “how much do I need to save to enjoy retirement?” Unfortunately, there is no simple answer, as it depends on multiple factors and varies with each person.
Even though several of your peers may have similar Shell benefits to you, your other retirement accounts, investment asset allocation, and goals for how you wish to spend your retirement may differ vastly. For example, some advisors commonly recommend saving enough so you can plan to withdraw and live upon approximately 4% of those savings each year. While many advisors may offer cookie-cutter advice, we believe that a customized financial plan considering both what you’ve saved and what you want for your future is more effective in enjoying your financial independence.
3 Most Common Retirement Pitfalls We See Shell Professionals Make
As you near retirement, your choices can make a massive difference in your taxes during retirement and the funds you will have. Remember that the amount you save leading up to retirement is only one piece of the many needed to secure financial independence after you leave Shell.
1) Missing Out on Shell Benefits
Shell is one of the largest oil companies on the planet and was ranked #11 on Forbes Top 2000 rating in 2023. The employee benefits at Shell are one of your most significant and often most substantial assets. Therefore, taking advantage of these plans while still working at Shell is vital.
Are you Maxing out the Shell Provident Fund 401(k)?
Shell provides its employees with a 401(k) plan, the Shell Provident Fund. The company offers a generous 401(k) contribution, up to 10% of compensation, depending on an employee's tenure. If you are contributing after-tax dollars to the Shell Provident Fund, it may be beneficial to roll out the after-tax funds at least once annually to a Roth IRA to take advantage of the mega backdoor Roth strategy.
Learn how to max out the Shell 401(k) this year here >>
Did You Get the Tax Benefits of an HSA?
One of the benefits many Shell professionals often overlook is their Health Savings Account, known as an HSA. These accounts act as a personal saving account for qualified medical expenses for Shell employees participating in a high-deductible health plan who contribute to it.
An HSA allows the employee to make pre-tax contributions from payroll, which avoids federal, Social Security, and Medicare taxes. Additionally, funds in an HSA grow tax-deferred and can be withdrawn tax-free for qualified medical expenses, which is a triple-tax deferral!
To take the HSA one step further, you can invest within an HSA for long-term growth. Once you reach age 65, you can use the HSA like an IRA. You can take penalty-free withdrawals for any expenses (medical or otherwise), and you'll only pay income taxes on what you withdraw.
While for generally healthy individuals, a high-deductible plan and HSA can be beneficial, for those with serious or chronic health conditions, another health plan may be a better alternative to suit their needs. If you’re considering a high-deductible plan or starting an HSA, consult a fiduciary advisor to get an objective opinion on the pros and cons as they relate to your unique situation.
How Did You Invest Your Company Stock Compensation?
We often see many Shell employees with significant funds invested in Shell stock within their Provident Fund, either because of company stock received as part of their compensation package or through their purchases through the GESPP. Shell stock may seem particularly appealing to Shell employees, but overconcentration can quickly become a concern. Directing your investments into Shell stock means you're investing additional savings into a company you're already heavily concentrated in stock for, and you rely on the company for your salary, bonus, pension, 401(k), and other benefits. Why put all your eggs into one basket?
Consider this, the S&P 500 index fell about 25% in March 2020 and was back to pre-pandemic levels by August 2020. Shell stock, however, lost over 50% in value during the pandemic and didn't return to pre-pandemic prices until June 2022. The S&P 500 represents the large cap market, which fell as a whole in 2020, but not as much as many individual stocks did. The index also recovered much faster.
With a diversified portfolio, you can reap the benefits of a market run-up while remaining protected if certain stocks face challenges. As a Shell employee, there are various investment options within the Provident Fund, and it's crucial to evaluate the right ones to include within your portfolio to stay diversified.
Does it make sense to diversify when energy is outperforming the S&P500?
Learn more here >>
2) Failing to consider taxes
For many Shell professionals, the year of retirement or immediately after is their highest income year. If you aren't considering the tax implications of your salary, bonus, potential severance payouts, pension and BRP payouts, and other benefits, you could unintentionally push yourself into the highest tax brackets.
Let's consider an example we've seen recently for those offered severances during the pandemic. If you're offered severance and the flexibility to choose your last day, you'll want to consider how your income falls strategically. At Shell, severance payments are typically paid out in two payments: the first is paid within four weeks of separation, and the second is paid in February of the following year. If you can choose your date of separation, you could separate later in the year, say December 15th, to push your first payout into the early months following retirement. Then, your second payment would delay a whole year and pay out the following February. Making these elections can spread your income over multiple years and minimize the taxes due so you can keep more funds. Before accepting a severance package, it's essential to consult with experts who can help you analyze and assess the tax impact, so you don't leave any money on the table.
Download our Shell Severance Checklist here >>
3) Neglecting to Consider How Retirement Impacts the Pension BRP
Shell offers an 80-Point Pension Benefit Restoration Plan, a non-qualified pension plan. This means it does not receive the same preferential tax benefits as your qualified pension, the Shell 80 Point Pension. Instead, Shell calculates your 80-Point Pension Benefit Restoration Plan using a formula that includes the IRS-published segment rates from each September, which pays out as a lump sum.
In the formula, Shell uses the September segment rates from the year before your retirement date. For example, if you receive a payout at any time in 2024, Shell uses the September rates from 2023, and if you receive a payout at any time in 2025, Shell will use the September rates from 2024.
Monitoring segment rates has never been more critical, with the most significant interest rate increase since 1994 being announced by Federal Reserve Chairman Jerome Powell in June 2022. As segment rates rise, the value of a lump sum pension BRP payout will fall. If you noticed that segment rates were decreasing, similar to what happened in early 2020, and chose to wait a few months before electing to start your pension, you could potentially add hundreds of thousands of dollars to your benefit. As 2023 came to a close, interest and segment rates began to drop, which could substantially impact the lump sum you receive in retirement if you’re considering a 2024 or 2025 retirement date.
Segment rates are constantly changing, so watching the trend can be advantageous when determining the best time to take your pension for the most significant payout.
Partner with a Financial Advisor with Shell Benefit Expertise to Avoid These Mistakes
Planning for your last day at Shell should be an exciting, albeit bittersweet, occasion where you look forward to the thrilling or peaceful retirement years ahead. Unfortunately, however, many financial advisors don't understand the ins and outs of Shell's unique benefit plans or how to leverage the connections between the plans for your maximum benefit.
As a fiduciary RIA firm, we focus on providing expert advice in your best interest rather than selling you insurance products or annuities you don't need. Our team of Shell advisors has helped hundreds of Shell professionals retire confidently and can help you navigate the complexities of your benefits without leaving money behind. Get in touch with us to see the WJA difference and start your journey to your ideal retirement with the peace of mind you deserve.
These are only 3 of the 6 most common pitfalls we see from Shell professionals looking to retire.
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