5 Ways Employee Stock Ownership and Equity-Sharing Plans Can Help You Retire in Your 40s
Written by
Laura Beck
Edited by
Amen Oyiboke
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Imagine retiring in your 40s. That might sound like a pipe dream. But it is an achievable goal. It can be done if you’re ambitious enough, and if you use the right financial strategies. Employee stock ownership and equity-sharing plans are some of the tools you can use to make it happen.
These are a kind of compensation your employer might offer. And if you understand these benefits and how to use them right, you can make early retirement a reality.
Here are five ways your employee stock ownership can help you retire early.
Understanding Your Company Stock Options
Company stock comes in different forms. You might receive stock options, restricted stock units, or shares through an employee stock purchase plan. Each type has its own rules about when and how you can use them. Take time to learn exactly what your company offers.
Some plans require you to stay with the company for a certain time. Others let you access the value more quickly. Understand how your specific plan works so you know how it can fit into your retirement goals.
Sharing Company Growth
If you own stock in the same company you work for, it means you’re sharing in your company’s growth. As an employee-shareholder, you own a portion of the company, when the company prospers, so does your investment. This means that the company isn’t paying you through your salary alone, but also through the company’s performance in the market.
“If the company stock performs well, the employee-owner may accumulate significant wealth to help them retire early,” said Paula Nangle, president and senior wealth advisor at Marshall Financial.
For example, if you get stock options or shares as part of your compensation, and the company’s stock price goes up over time, the value of your shares goes up, too. This can potentially grow a lot faster than traditional investments, too–especially if you’re working for a high-growth company.
This means you can save and invest for retirement much more aggressively than someone relying on just their salary.
Earning Dividends
Owning company stock can mean you earn income in the form of dividends. If your company pays dividends, you’ll receive regular payments just by holding onto your shares. You can reinvest this to purchase more stock, or you can invest elsewhere to diversify your portfolio.
Income from dividends can potentially become a big part of your overall wealth. This can bring you closer to early retirement, and with less effort on your part.
Growing Your Money Over Time
With equity compensation, your money can really grow if you give it time. A small stock option grant could eventually become worth a lot more. And if your company is successful, the value of its stock can increase quickly. This is especially true if you’re there during the company’s early growth.
If you’re trying to retire in your 40s, growth like this can make all the difference. You’re doing more than just saving money, you’re letting your employee benefits work for you.
Cutting Your Personal Investment Costs
If you’re smart, you can invest for retirement with less money out of your pocket. Instead of using your after-tax income to buy stocks, you get the potential investment growth directly from work. This could mean saving thousands in your fees and taxes.
“In an Employee Stock Ownership Plan (ESOP), the company contributes shares of the company stock into an account for the benefit of the employee at no cost to the employee,” said Nangle. “The shares of stock can add significantly to an employee-owner’s net worth and help them plan and save for retirement.”
If you’re planning to retire early, this is one of the most efficient strategies you can use. You can build a strong investment portfolio without spending much of your own money at all.
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