By Mike Gibbons, RICP®
Retirement plans within the pharmaceutical industry are often bewildering to navigate. The unique nature of the industry allows for potentially lucrative benefits but also special challenges to professionals who are not familiar with the details. At Gibbons Financial Group, we’ve guided pharmaceutical and biotech professionals through this maze to help them understand and make the best choices for their own objectives.
The employer-sponsored retirement plan is a core component of a solid overall financial plan. Here are some guidelines to optimize the choices within the plan to meet retirement goals.
Select Appropriate Investment Options
Pharmaceutical industry professionals should carefully consider the choices available in the menu of investments within the plan. Two crucial aspects are time horizon and risk tolerance. Especially as retirement approaches (e.g., within five years), it’s important to consider whether a more conservative and balanced approach to the allocation may be prudent. In addition, most pre-retirees find themselves less tolerant of the volatility in financial markets, fearing a significant loss in the value of their portfolios that they’ve painstakingly built up over the years.
Another area to watch includes being overweight in sectors and in specific company stock. Pharmaceutical companies are a key component in the U.S. market, so many large-company funds and pharma-specific sector funds may overlap considerably in pharma holdings, thereby resulting in high concentrations of specific companies. If the plan allows for employer stock or restricted stock units (RSUs), having too much of one’s own company stock in the plan could usher in additional risk.
Maximize Employer Contributions
Employer contributions are another critical benefit to understand. Many plans offer a match contribution as a percentage of salary as long as the employee also contributes via regular payroll deductions. This can significantly boost retirement savings. A good rule of thumb for pharmaceutical professionals is to contribute at least enough to maximize the employer contributions each year. Not doing so is leaving money on the table.
Be Mindful of the Vesting Period
“Vesting” refers to the time period in which an employee stays with the company before the employer contributions made to their retirement plan account fully belong to the employee. Vesting schedules often start with a small percentage with the first year of services and gradually increase over the years until “fully vested” status is reached. As an example, in a five-year vesting schedule, the employee would retain just 20% of employer contributions to their retirement account if they left the company after the first year. This would rise to 40% after the second year, and after the fifth year, the employee would retain 100% of employer contributions if they left the company thereafter.
The pharmaceutical industry is a dynamic, ever-changing industry and due to its uniqueness where research projects could suddenly change or end, it’s critical to be aware of vesting schedules if a job change or opportunity arises.
Portability: Know What You Can Take With You
Along with vesting, understanding the portability of your retirement benefits and plan accounts is an important element in the pharmaceutical world. Individuals should assess and understand the mechanisms and possible restrictions of moving retirement assets when career transitions or changes occur.
These include the ability to “roll over” retirement accounts to another employer plan or to one’s own IRA. Many plans restrict the ability of participants to immediately get access to their retirement accounts. Recent proposals by the U.S. Dept of Labor are exploring the concept of “auto-portability.” It’s important to understand what this means for retirement benefits during job transitions, including any fees involved.
What’s the Cost? Understand the Fees and Expenses
Costs matter. Higher investment choice expenses and fees to the participant-employee mean less money to grow for retirement. Be sure to evaluate fees and expenses and carefully consider whether higher-expense investment choices are worth the extra cost. Investments such as “index funds” often have very low internal costs and are designed to “match the market,” so consider whether these types of portfolio choices can help lower overall costs and help meet investment objectives.
Many pharmaceutical industry retirement plans often offer a wide array of investment choices and features that can appear confusing. We’ve helped many professionals with such choices, especially for those who work for Abbott Laboratories or AbbVie. If you could use a financial partner in your corner, feel free to contact our office today by calling 224-419-5550 or emailing me at Mike@gibbonsfinancialgroup.com to schedule a complimentary consultation. And be sure to join our free webinar, Retiring Early From Pharma.
About Mike
Michael J. Gibbons is founder and president of Gibbons Financial Group, an independent advisory firm providing custom-tailored financial planning and investment management services to pharmaceutical and healthcare professionals and their families. Mike has over 25 years of experience and spends a significant portion of his day working with pre-retirees and retirees, focusing on asset management, Social Security and pension planning, as well as retirement income preparation.
Mike has degrees in both business and psychology from Lake Forest College and currently holds his Retirement Income Certified Professional (RICP®) designation from the American College. Mike was named a Five Star Wealth Manager for 2016 and 2018* Mike is heavily involved in his community, having served on the Village of Gurnee Police Pension Board as a Community Volunteer and the St. Patrick’s Parish Financial Board. When he’s not working or volunteering, Mike loves playing golf and spending his time with his wife and children. To learn more about Mike and how he can help you, connect with him on LinkedIn, visit his website, and register for his free webinar, Retiring Early From Pharma, created specifically for professionals retiring from the pharmaceutical, biotechnology, and healthcare industries.
*Award based on 10 objective criteria associated with providing quality services to clients such as credentials, experience, and assets under management among other factors. Wealth managers do not pay a fee to be considered or placed on the final list of 2016/2018 Five Star Wealth Managers.
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.
All investing includes risks, including fluctuating prices and loss of principal.