264: Peter Newman Part 2 -Diversification and Distributions, A Deep Dive

Bret Keisling That is excellent, and for listeners, I was surprised, and again, I said this at the beginning of the first episode with you, Peter We've done now almost 560, 570 podcasts between the podcast and the mini cast, and that's the first time we ever had that in depth, you know, and there aren't frankly a whole lot of subjects that we haven't covered a little bit, so it's great information, it's relatively new to our audience and I hope people will check it out and they can check out your episode as well as the third one that we're yet to record but, and all of our archives at www. esoppodcast. com. And with that housekeeping out of the way, today Peter, we are going to focus on a very important question. Oftentimes when companies transition to employee ownership or employee owners go to the conferences, either the NCEO or the ESOP Association, one of the questions, and there are seminars on it, When do we get the money? How does this result in payoffs and all that sort of thing? And it is certainly a valid, viable question that's very important. And we are going to talk about that with you today when folks get their money and how they get their money. And we're going to do a deep dive on diversifications and distributions.

Peter Newman I think a good point of departure is to just remind all, all of our listeners. That employee stock ownership plans are a tax deferred retirement savings vehicle. Generally, what that means for the majority of participants is You receive a percentage of your salary each year as a contribution to a tax deferred retirement account at no cost to the employee. What does that really mean for an employee? It means if over the years, this doesn't happen overnight, but if the company does well, meaning it makes a profit, it does well in its industry the value of the shares that you receive each year in your ESOP account can actually increase. And that means that builds wealth for you as a participant, and it potentially leads to retirement income with diversification distributions that we'll talk about. The flip side of that is if you're in an industry that's doing poorly, or the company for some reason doesn't perform well, although most ESOPs are very well run companies, the value of those shares could actually decrease. And that could impact your future retirement income. But generally in my experience, I have seen the ESOP become a significant portion of, employee owners, nest eggs, helping them plan for and move into retirement. And Bret, as you mentioned, going to conferences talking to ESOP participants. And having been involved in this type of planning work for 10 years, the most common question participants ask and HR folks or CFOs running plans get asked is, how do I get paid? And there's two ways you can get paid. One is diversification, and diversification typically happens while you're still working. The second way you can get paid is with some distributions. And the common reasons for distributions are, you've separated from the company, maybe before retirement, voluntarily or involuntarily, there's an unfortunate event and someone's passed away, and the one that my practice is often focused on is retirement. There is a third way when someone might get paid out, and that's if a ESOP company is sold. But that's not what we're covering here on the podcast

Bret Keisling today. And Peter, let me just interrupt you to point out a couple of things and kind of set the table, if you will, for the conversation. First of all, The details of every employee owner is different. They are plan specific, and what you're going to talk about are generalities that in your experience might be the most prevalent way things are done, or what you're used to see, or maybe show a couple of different options, but you're not giving specific advice. On anything to anybody, you only do that to your clients. And people should look at this with generalities, but if they go, and you'll do a very good job, and I'll be watchful of it too, of talking about the plan specifics that you're addressing, but if you, the listener, go back and your plan is different, Anything that you talk about is going to have to be modified accordingly and the other thing and I'm glad you raised the point is that just to put a bow on it, if your ESOP is sold, and it is a series of episodes we could do on that topic alone with you and or others, but if your ESOP is sold, Typically by law, you are required to be paid off immediately as part of the sale. So there are tax implications. That doesn't mean you get the money, but it's also kind of an easier conversation to tee up. So that's why we're not discussing with it today. We are talking about the operating companies that are continuing to operate and in good stead, and you are at whatever age, and you will cover that, and you're just approaching retirement ideally, as opposed to death or disability in the normal course of your life and your business. Have I kind of set the

Peter Newman parameters okay? That's an excellent point, Bret, and also to add, as a fiduciary and giving information, this is general educational information. As Bret indicated, I'm not giving specific financial, investment, legal, or even relationship advice. You need to consult with your home circle professionals. But jumping into it Diversification is usually the first time the idea of retirement planning comes up. And what does diversification mean and when does it happen? Diversification means that you have the option, but not the obligation, to sell back some shares to the company, or to the ESOP, to the trust, as a participant in this tax-deferred retirement account. And most companies that I see offer the first diversification event when you hit the milestone age of age 55 and you've had at least 10 years of participation in the ESOP. And at age 55, if you're eligible for diversification, you'll receive a notification that says, Hey, Joe, you have 2 million in your employee stock ownership plan, and you're eligible to sell back 500,000 of that. And then the company, when you sell that 500,000 back, you'll indicate on a form, I would like to sell my 500,000 back, and I would like to either: A, move that money to an Individual Retirement Account, B, I might be able to move that money to a company 401k plan, or C, I might receive a check. I might say, hey, mail me a check, I want some money. And if you select option C, when you turn that form back in, you need to be aware that you will owe a regular income tax on that 500,000 In my example, and because you're below age 59 and a half in my example for someone age 55, you will also owe a 10 percent IRS tax penalty. Many folks are not aware of the penalty for below age 59 and a half. And there are definitely pros and cons to why one might take the diversification and receive a check. There's pros and cons to why you might continue to move it over to an IRA and build wealth for retirement. But the other thing to understand is that 55 is an option. You're not required to sell back those shares. You could say, hey, I think my company is doing really well. I want to let my 2 million grow even more, in our example, and I'm going to wait and see at age 56, 57, 58, 59, how the company is doing. But that option of that 25 percent remains available each year. Under IRS guidelines and most summary plan documents I've seen for ESOPs, that goes up to 50% at age 60. So it gives you an incremental stepping stone to diversify additional shares. And I'll stop there Bret and see, you know, what thoughts you have before we go a layer deeper into diversification.

Bret Keisling I appreciate that. And let me just clarify, the up to 50% at age 60, is that 50% is the diversification not the tax penalty?

Peter Newman Correct. That's 50% diversification. So, in our example, let's just say, to keep the math simple, you know, you had a 2 million account at age 55, let's pretend there were no share value changes and you didn't receive any additional shares between age 55 and 60, Just to make it simple, you could sell back 500, 000 at age 55, you wait till you're age 60, and then you sell back another 500, 000. That gets you half a million of two million, half of all the shares and all the value you've accreted. Once you sell back the first 25%, it doesn't go 50 percent of the remaining amount. It's 50 percent of all the shares you've ever received. Good. So that's an excellent question.

Bret Keisling And and Peter, as you know, I spent seven years as an ESOP trustee, but my. Involvement with diversification was making sure it was offered at the, you know, the right time. I, I had absolutely no position, nor should a trustee, on whether or not diversification occurred. So, let me ask, the one thing that I just had in conversation is, first of all, And I'm not a savvy investor under any stretch of the imagination. So my question comes from that perspective, but I've heard, and everybody has, heard generally that diversification is a good thing. Generally speaking, you want to be diversified in your, total portfolio, but. There's a flip side of is there any awkwardness or any concern for the employee that they are somehow either betting against the company or perceived by management to be betting against the company if they diversify? So that's not quite a financial question. It's kind of a posturing question, but do you ever see that come up?

Peter Newman So a couple comments about that. One is we have a saying in the investment and financial planning world that concentrated risk or concentrated activity builds significant wealth. So, for example, working at an employee owned company, where you get stock grants to your ESOP account every year, you can build up incredible wealth. By the way, this is also true in the public sector. If you work at a a publicly traded company and you either buy stock every year or you get stock grants. Different taxation treatment, but similar concept. You get shares each year. Concentrated activity builds wealth, diversification preserves wealth. And let me give an example for non financial people. I'm a huge vegetable gardener. I love to vegetable garden. Our goal every year is to try to not have to buy vegetables at the store for six months of the year. That's how much, how passionate we are in my household about gardening. We don't always succeed, but we try because we just love it. And several years ago, after gardening for about seven years, you know, we planted butternut squash. And that year, we had a bumper crop of butternut squash. I am not exaggerating. We had 75 butternut squash. Some of them were as big as baseball bats. So, you know, butternut squash stores really well, it's a, you know, can store over the winter. For a year, we were eating squash soup, we were giving away squash to our neighbors for housewarming gifts. We had a Halloween party, and we had squash, like, for decorations for the Halloween party, because it went with the fall theme. But we had a bumper crop of butternut squash, and that's great, we like squash, right? So if you think of a stock, and your stock did amazingly well, and it went way up, that's great. What happened the following year when I planted my garden? Well, I thought the squash did good, so I'll plant tomatoes, I'll plant radishes, I'll plant kale, I'll plant lettuce, and I'll plant squash, and I'll get another 75 squash. Well, the next year I got like three squash and I also got all my other crops I planted, but I planted a lot of different crops, right? And if I had only planted squash the second year, I would have starved and I would have been buying all my vegetables at the grocery store. So, a good way for folks who are not investment professionals like myself to think about diversification is think of the gardening example. If you only plant one crop and it doesn't rain or get the right fertilizer and it gets wiped out, That's sort of what can happen with a single stock in either a public company or a private

Bret Keisling company. And Peter, I'll just add and then turn you back over to continue, but the companies, if they are doing what they're doing, and we're just going to have a lot of technical terms in this episode, but they are doing repurchase studies, which is the company's financial obligations on when people are going to retire so that the company is not caught off guard. 10 or 15 employees suddenly are retiring within a brief period of time. But part of the repurchase obligation is an awareness of the diversification options. So it's not like, you know, we would expect in an ESOP company that does their job. Being a well run ESOP, I mean, the ESOP side of things that they are going to have accounted at least for the possibility of diversification, you know, et cetera, et cetera. So, you know, the recommendation, you know, as you point out is that the employee owners make the decisions that are best for themselves and their household. Absolutely.

Peter Newman Those repurchase obligations, we'll see companies, cause I've heard about this and I've sat in on sessions at conferences. They, the CFO or the treasurer will plan for that repurchase obligation along with whoever helps them do the study and there's professional firms that help do those studies, but they will plan for either we can fund the obligations. If the, if all the participants who can, who can diversify and sell shares back at 55, they will plan for that out of operating cash or regular cash flow that year, or they'll set aside money. They'll have a sinking fund where they set aside money in anticipation of making good on those obligations, because ultimately the, the, the participant by a department of labor and IRS regulations has that option and can exercise. That option, beginning at age 55 with 10 years of participation. And Bret, you mentioned something earlier about taxes, so maybe I should talk just a little bit about what happens if you do elect to diversify with your taxes. So, while you're working and your money is in your tax deferred ESOP account and you're getting shares and they grow in value, you as an employee owner don't have a tax liability or a tax obligation on those shares while they're growing, while they're granted to you, while they're in that account. At our age 55 example, if you sell back 500, 000 of shares and you don't want to pay the tax and you want to continue to build your nest egg for retirement and use my diversification example, have a garden of stocks rather than a single stock, you could, for example, roll your 500, 000 into an individual retirement account. And when you move it to an individual retirement account, that is still a tax deferred vehicle. You would not actually pay a tax on that money, even if you don't retire until 67. From age 55 to 67, it could grow for another 12 years. And then you would only pay a tax on that 500, 000 and the growth on that 500, 000 when you pull it out at some age for retirement. Most folks will wait until age 60, 62, 67. A lot of people will wait until that because it's when Social Security kicks in and they want to pull some from their IRA and Social Security. But again, you can continue to tax defer and build your nest egg for retirement. On the contrary, or the flip side, if you say, Hey, I really need some cash now. And I'll give a couple of examples of why that might happen. Maybe you are trying to start a family and, you know, you have trouble getting pregnant and you have to pay for really expensive in vitro fertilization. Like, this is a dream. It's really important to us. The putting aside for the future, is today and having the money today and I'm balancing those two things. It's more important to have the money today for this lifelong goal of starting a family. I've talked to other participants where the lifelong goal is, Hey, I love my job and I love my employee owners, but my wife wants to start a business. So I'm going to take some money at age 55 or 56. I'm going to pay the tax penalty and I'm going to help her meet her dream and start this business. So there's different reasons why, it's not always economic, but just keep in mind if you, you know, sell back shares, you get a check for 500, 000, you're going to pay regular income tax on that as well as a 10 percent tax penalty, it doesn't mean you shouldn't do it, you just need to be aware of the economics.

Bret Keisling And it becomes a very expensive way to get your money potentially, and you just have to work out the plan. I don't want to go too far afield here, but is there any difference, you know, a big thing that came up during COVID, and in the couple of years since are hardship withdrawals. Does that enter into play here at all, or can you just touch upon that on how that might change things a little bit?

Peter Newman Excellent question, Bret. Many 401k plans, which is typically where an employee puts money in an account for a tax deferred retirement vehicle, and many but not all companies will match some of those employee contributions, oftentimes 401k plans have hardship withdrawal provisions. Where if you need money, it's either a loan or a withdrawal. We, we do see that. I have not seen that with employee stock ownership plans. It doesn't mean they don't exist. I have seen employee stock ownership plans. I was just on a call with a company two weeks ago where they have, you know, different demographics of employees, people in their twenties and thirties, people in their forties and fifties, people near retirement. Where the ESOP's doing very well, it's building a lot of assets because, but what's happened here in the U. S. is student loans have gotten more expensive, cost of getting started buying a house or renting an apartment has gotten expensive in a lot of cities. So just day to day pressures have really increased on people. So we have started to see ESOP plans rewriting their plan document in conjunction with a consultant and their attorney, to allow for not a hardship withdrawal, but an early diversification or early distribution or some type of a dividend payout. Dividends are not super common in the ESOP world, and I've seen one or two plans where if the company does well, they'll actually pay you out a dividend. So, there are different there is definitely awareness in the ESOP space, especially ones that are doing well, that employees might need access to some funds earlier than a milestone at age 55. Because if you're 30 and you're trying to buy a house, Age 55 doesn't help you a lot. That makes

Bret Keisling a lot of sense, and thank you for clarifying that. I am thinking, I don't know, and I'm sure you can imagine, I had an awful lot of clients in my time as a trustee. I don't recall dividends even coming up as an issue. But just as I'm thinking through it, and I'm not sure that it's a, great idea, and I was on the conservative side of being a trustee, you know, I was not the guy who would be looking over the cliff saying, Oh, we can try this. But that said you know, if a company is absolutely flush with cash and they you know, are fulfilling all of their obligations, not just now, but in the foreseeable future. And they chose to do a cash dividend. I guess I'm saying, I don't think that it would be prohibited, and that's just very interesting. I hadn't heard that really come up before in the ESOP space.

Peter Newman Yeah, and I haven't seen it too often, but I've seen it in a couple. And what's interesting about the dividend is when it's paid out, you have the option to roll it back into shares in your tax deferred account. Or you can actually take the check. A true dividend, you don't actually get the tax penalty. As long as the plan is set up correctly, you don't have the tax hickey. So it's really interesting to see that that that is an option. Again, not very often do I see it, but it is. I have seen it in at least one ESOP and I know the second one that's considering it. And these are companies that are doing well, they're profitable and they have the excess cash to, to meet the dividend and they're trying to get money into the hands of their participants prior to that, you know, beginning age 55 or age, you know, 60, these different milestones we talked about. I, I do think that one other point to make is that reasons not to diversify, say at age 55 or even at age 60. Perhaps you started at this employee owned company a little later in your career. Maybe you've got a lot of money in a 401k from a prior employer, but the ESOP might be a smaller percentage of your overall nest egg and you think the company is doing well and you're willing to keep, you know, having that, that concentrated activity, even though You're eligible for Maybe you track the U. S. stock market and your company's outperforming the market. You might say, you know what, I'm going to keep leaving this money in here and I'm going to let it grow until 60 or 65. and not take any diversifications and I'll wait till I start taking retirement distributions. There's some mechanics around that where actually your first payout might be a distribution, I'm sorry, a diversification and a distribution starts after that, but generally if your ESOP's a very small part of your total nest egg, even if you're eligible to diversify, you might not. Reasons to diversify maybe the ESOP is a big part of your wealth. I've seen this where someone has You know, 6, 000, 000 in their ESOP account and 300, 000 in their 401k account, they get to age 55. They're like, heck yeah, even though this has done phenomenally well, I've gotten granted a lot of shares, and the company has done super well I want to take some chips off the table. I'm going to sell back a million and a half dollars at age 55 and put that in a U. S. stock fund that has 500 different large companies. That sell, you know, goods and services domestically and, and internationally. There are some other reasons to diversify as well. Perhaps you are planning on retiring before Medicare age. So you might say, I will sell back some shares at age 55 or 60, and I'm going to retire at age 61, but I know I'm going to have increased expenses till I hit Medicare age on health insurance. So I'm actually going to have some money that I've diversified into an IRA, or if I'm after, if I do that at 60, I'm okay paying the tax and move it to a taxable brokerage account, and I've got some liquid funds I can use for health insurance. Or I may say I'm going to wait and delay Social Security. I could take Social Security at 70. Well, we know you get about 8 percent a year more payout on Social Security if you wait. Each year you wait from when you're eligible. So there's some other reasons to diversify too. So this all factors into the planning that your financial planner, whether it's peak wealth planning or someone else you hire, should help you think through these decisions. When you should diversify, why you diversify, and how it interacts with your other financial and lifestyle decision making.

Bret Keisling It would seem to me that if an ESOP is what I'll call the typical ESOP, and by that I mean in this case that they are devoting a certain amount of time and attention to financial literacy to their employees on the business side, and financial literacy for the employees is going to be the topic of your third episode with me. But on the business side, if they're showing projections, if they're showing, you know, at least top level financials and that sort of thing, I imagine that gives the employee owner a better grasp of the company financials in order to make a diversification decision. If they are basing it on the health or strength of the company.

Peter Newman Yeah as you know, Bret, there are, from going to the ESOP Association and the NCEO conferences where I attend, and I often speak at those as well but when you interact with and talk with leadership or employee owners, If there's open book management to some degree, where employee owners are aware of, Hey, this is what drives how we make revenue. This is what drives how much it costs us to deliver our goods or services. And then an employee owner is aware of the top line revenues, the expenses, and they're aware of profitability. They're probably pretty astute that if the company is doing well, Their share price value is probably going to do well, except for variables that can't be controlled, right? Exogenous variables like COVID happy. Again, we can't, we can't necessarily control for it. But if they know that their other employee owners and management and the sales team and the folks cutting expenses on the shop floor are doing a good job, they have an informed view of, yeah, I might keep rolling the, you know, the concentrated wealth building activity with this ESOP. And I think that's really good for folks to recognize and have that knowledge. So by companies practicing open book management, whether they use a great game of business or they use a grit does a profit and cash education. If they're trained and they understand that they're more informed decision makers about diversification, probably as well as other financial life decision making. Because. You know, those translate from one arena to

Bret Keisling the other. That makes a lot of sense. Anything else on the diversification path that we should

Peter Newman be talking about? Yeah, I didn't forget to mention one, one other reason someone might go ahead and, you know, cash a check, and even if they have to pay a penalty perhaps you have really high interest debt, but somehow you accrued got wrecked, and you just got really serious financial pressures, even though you might want to keep building your nest egg, sometimes there are other reasons to just say, you know what, I got to do this diversification thing. And the other thing is you don't have to do all of it, right? You can diversify up to 25%. Keep going back to my example, 2 million ESOP balance. I could diversify 500, 000. While I know there's a tax penalty. Well, I'm only going to diversify 50, 000, so I'm only paying a 5, 000 tax penalty, it's a regular tax. So maybe I wind up with 30, 000 to pay off 15, 000 of high interest debt and put 15, 000 on a car, but I'm not doing my whole half million, right? So there's gradations of decision making you can have. You don't have to do all or nothing, which I think is important. The other item is, you know, I'm rolling to an individual retirement account. Why would someone want to do that? Well, down the road, you can draw from that account for a steady income in retirement. You can often pair an individual retirement account with help from a financial advisor. And some people I've ran into, even though they participate in the 401k at their company, there's a mental bucketing that I see that that happens often. Folks will say, I've got my 401k money and I like my 401k provider, but my company is still somehow involved with my 401k. So I want to put it in an IRA that I control and I manage. Or I control and manage with the help of my financial advisor. And there might be more investment options in the individual retirement account. Not always, but oftentimes there's more options than in a 401k. So there's just some reasons why someone might want to roll over. On the other side, to be balanced, 401k, I already have it set up. I already know what funds there. If I'm happy with it, it's simple. I just move it there. One interesting fact, because I assumed, and you should never assume, that most companies would allow you all three options, IRA, 401k, or get a check. It's not always the case. Some companies say 401k or check. Some say IRA, NCHEC, some say all three, so it's really interesting, and some will say it's all or nothing for one of those elections on the four, some will let you split. I'll take some as a check, I'll put some in the 401k. So, it's very interesting to see the different machinations of what's possible just with something in theory as simple as I'm going to sell some stock back at a diversification

Bret Keisling event. Well, and the reality, Peter, is in the creation of ESOPs, and I was fortunate enough to be involved in the creation of dozens of them there are all kinds of questions that are asked and And generally the professional advisors, the lawyers are going to have thoughtful conversations with the selling shareholders. You know, the plan sponsors, the previous company. And sometimes they're not necessarily well thought out or well investigated. So for example, even at what age you can retire is up to the plan. And that was just a decision that was made when the plan was created. You know, the year dates of. You know, when you your, your term of service begins and that sort of thing, and even the number of hours, although it's kind of standard, can vary a little bit. Is there any reason, I can't think of from a company reason, so help me if there is, if there's something I'm missing, is there any reason why a company would want to restrict from the three options that you discussed? You know, it seems to me if the company is paying out the funds for the diversification, it almost doesn't matter where the check's going. Am I missing something? Honestly,

Peter Newman Bret, I don't think there's a specific reason. I would imagine it was more the advisor they work with or the attorney they work with had some boilerplate language, and that's what wound up in the plan document, because you're correct. At the end of the day, whether you're sending an ACH or an electronic transfer or a check to a 401k provider, an IRA, it's not a problem. Provider or to a participant does that administration is not terribly different for each of those three options. So it's sort of, if I, you know, if I could do a broad stroke swipe of a pen, I would say every plan document should have all three options. And I would even say every participant should be given the option of, even if I could diversify 500, 000 all at once. I might want to say, well, I want to take the check for 250 at half, and I want to put the other half in my IRA. I think having that split option is a really good option and give people more flexibility. I just think that would be a really nice feature. So as I talk to different plan administrators and lawyers, And HR and CFO folks, I should probably like remind them that, hey, giving people more flexibility is a, is a good thing, not a bad thing. I, I think that we've probably covered the diversification topic pretty well. You mentioned earlier distributions and, and, you know, that it could be death, could be termination. The time when I most frequently talk to folks about distributions is when they are going to retire. So, let's give a simple example our person with the 2 million account, to keep the numbers simple, let's assume they're 63 years old and there was no change in the share price, to make the math simple. So they diversified out a million bucks, they've moved it to their IRA, they're 2 million, minus a million, they're 63 years old and they've got a million left. In their ESOP account and their company, for example, let's say, yeah, you can retire at age 63. What I typically see, and this is not always the case is if that's a million dollar balance, we will often see companies say, because they're trying to manage cashflow, if they have a lot of participants retiring, they'll say you can take substantially equally payments. And to make the math simple, over five years. So we'll say a hundred thousand, I'm sorry, a million dollars. So they'll say to the participant, you can take 200, 000 a year as distribution when you leave XYZ company. And that's in addition to the monies you've already diversified earlier. So it gives some steady funds each year. And at that point, when you take those distributions, you have a similar option. You can take it as income, your past 59, 500, so you don't have the tax penalty. You pay regular income tax. Or you can roll it to an IRA or a 401k account. So you still have those options of what to do with the money to put it in a tax deferred account or get a check and spend it. And then that's where you would work on your own or with a financial planner or with a firm like ours. And you would model out how much income do I need from the next 30 or 40 years of my life. What are my goals? And that informs that decision making, as well as looking at the tax impact of whether I spread that money. You know, take it over five years, pay the tax every year, reinvest some in a tax deferred account and, you know, take it over 30 years. So there's some modeling that happens because some people are concerned with, what's my lifetime tax bill? Some people are more concerned with, I want to save as much on taxes as I can today. We try to illuminate that and have those discussions with people and give them advice on the big picture so they can make an informed decision.

Bret Keisling And I love the way that you characterize the difference in consideration, if you will, between the diversification and the distribution. In the diversification, it is asset management, so to speak, you know, how does, how does all of your nest egg, as you say, what are the pieces that fit together? For distributions, it's actually how do you envision the rest of your life? There are certain aspects of both that, that flow over. But the analysis on distribution really is, different. That's a, you're entering a new phase of your life. And, and I imagine the analysis just a little bit different than the diversification

Peter Newman question. That's a really excellent point. I like to tell folks, even if they haven't worked with a financial advisor before is, you know, putting money in accounts and saving that is often a little bit more straightforward when you move to living off all your accumulated assets. Trying to simplify things, make it as reasonably straightforward as possible so you have money for the rest of your life and you have no risk of outliving your money is usually becomes paramount, as well as pairing that with reliable sources of income such as Social Security, or in very specific instances, I don't often recommend these, but sometimes an annuity product makes sense for people where they have guaranteed income that they can't outlive. I come from a different philosophy out of managing money. It's an endowment philosophy where you've got a core of assets, you manage those assets a certain way, and it can have reliable, safe withdrawals, you know, in theory, in perpetuity. But different people have different philosophies on, on managing money. One other thing I, I didn't fail to mention on distributions I think is important to bring up, is we, we spoke a little bit about it before, is your share price could go up or down. Some companies, when you retire, in our leave at 63 example, and you've got a million dollars left in, let's say, in our example, Some companies will freeze you, freeze that million dollars into a cash account. So you'll earn like a bank account or a money market fund return on that. Today that would be 3 or 4 percent. Some companies will say, while you're being paid out that 200, 000 a year, you still participate in stock appreciation, ups, or stock downs. So it's important to just be aware that your company may have a specific way of handling that. One other piece, too, that an HR person who's a friend of mine pointed out to me is when you elect on these forms to get paid out, it can vary dramatically from company to company. Some, you can, company can actually delay your payout till the end of the following plan year from your election. I don't often see that, but if you made an election in, I'm just making up dates, in September of 2022, companies could actually wait to pay you out until like December of 2023. They don't often do that. They often pay out much quicker, but it is really important to ask. Your HR person, or whoever's administrating the plan, Hey, if I return this form and I'm retired, when am I actually going to get my money? Whether it goes into the IRA or a check. Some companies it's weeks, some it's months. It could be more than a year. So that is a thing I honestly just learned in the last couple of months, because the ones I've worked with have been pretty quick. I wasn't aware that there could be such a delay. So it's fascinating what you learn when you work in this space.

Bret Keisling And I guess that, that unlike when we were talking about the three options for diversification, and I said I didn't see any value to the company in restricting them, that they could be more broad. Here I guess it is related to cash flow management of the company, but again if they're doing the repurchase obligation here's where my newer hat as a general advocate for employee owners is, you know, I would hope that people aren't holding that for a full year. And everything that we've talked about you had mentioned with, you know, again, the, three aspects of diversification or, or three potential targets of diversification. Any time that we have made reference to your plan probably says or verify what your plan says, all of that, unless it's specifically covered by law, the plan can be amended by the company. So if people are listening to this, you know, as the employee owner, you can certainly have a conversation about what the plan says, but it's knowing your, plan documents. But for those of you in the C suite, if you're seeing some things and you're going to go back to your plan and find stuff that you don't love, get with your ESOP lawyer, and you can certainly amend your plan as often as necessary to get it where you want it to be. Absolutely.

Peter Newman And Bret, I know we've covered a lot in this episode and I'm super grateful to be on here. We do have a guide that will be written called the Employee Owner's Guide to Diversification in Retirement. It tries to break down all the concepts we've covered today and a couple of more of some illustrations of retirement income forecasts for different balances. And that will be available. I'll give it to you so you can, I guess, put it in the show notes. As well as we can provide, if anyone's interested in learning more about what we do, a website link for a discovery call if you're interested in learning more about people planning.

Bret Keisling That would be absolutely great and I expect that we're going to have, I know your team is working on a variety of things for the show notes and people for all three of your episodes should check out the show notes for each episode and probably what we'll do is just include all of the information in each. Show notes episodes so people can find it. But there are tools available. There are tools that, that you'll provide. There's deeper, services that you can provide. Again, your target client is with 2 million dollar nest egg and up. But the, the helpful guides and whatnot are applicable to anybody. And what we're really saying is take the time, get the information, know your plan, work with a wealth planner or a certified financial planner who can work out the details with you because you can implement it. make almost any range of decisions as long as you have all of the information available to help you make an informed decision.

Peter Newman We like to say be retirement

Bret Keisling ready. Excellent. Peter, anything on diversification or distributions that you would like to add?

Peter Newman No, I think we've done a thorough job covering this. You know, the thing I would add is, you know, do some types of forecasting for your retirement income and budget, have a plan for taxes, understand your social security benefits. Have some type of a plan for health insurance or paying Medicare premiums. You know, year to year, stay abreast of your diversification options, even if you don't, you know, take it in a particular year. Check your statement each year. You know, consider the pros and cons of whether to diversify or roll over your money to an IRA or to spend the cash. I think that sort of sums it up for us.

Bret Keisling Excellent. Well, Peter, I appreciate your expertise. I'm looking forward to the third episode. you have a great way of sharing information that makes some stuff that can be very complicated. You make it very approachable. And for that, I, appreciate you. I appreciate your time, sir. Thank you

Peter Newman very, very much. Enjoyed doing this.

Bret Keisling All right. With that, we're going to wrap up this conversation, part two of my three part episode with Peter Newman of Peak Wealth Planning. I appreciate Peter for coming on the podcast and I appreciate you, of course, for listening. This is Bret Keisling. Be well.

Bitsy McCann We'd love to hear from you. You can find us on Facebook at EO Podcast Network and on Twitter @EsOpPodcast. This podcast has been produced by Bret Keisling for the EO Podcast Network. Original music composed by Max Keisling. Branding and marketing by BitsyPlus Design. And I'm Bitsy McCann.