Harley-Davidson is a fantastic brand, especially here in Milwaukee. Because of Harley-Davidson’s big presence in our area, ever since 2019, more people who used to work at Harley-Davidson have asked Keil Financial Partners to become their financial advisor than from any other company.
We’re now getting more and more people coming to us for help with their retirement and severance packages, which has led us to learn new things about the company and how some of their benefits and retirement packages work.
Today, we’re sharing a few things we’ve noticed about planning for retirement or taking a severance package from Harley-Davidson, so that when the time comes, these employees can do it with the greatest amount of success as possible. We’ve also compiled a retirement checklist for Harley-Davidson employees, which you can find here.
5 Key Retirement & Severance Items To Review
To start off, there are five overall areas we recommend looking at when you’re a Harley-Davidson employee preparing for retirement or your severance.
- Your Pension
- Do you take the monthly amount or do you take the lump sum?
- When do you start it?
- Your Health Insurance
- Are you going to take it on COBRA or do you need to find another policy?
- Your Stock Plans
- What do you do with your stock options or stocks inside your 401(k)?
- Your 401(k)
- Do you keep your 401(k) with the company or do you do a rollover?
- Your Social Security
- When should you start your social security?
- How will your decisions with social security impact your overall plan?
When it comes to your pension, health insurance, stock plans, 401(k), or social security, none of the decisions you make can be made in a vacuum. Instead, you should be taking each piece of the puzzle and put it together in a way that makes sense for your future, and makes your retirement puzzle a little brighter.
Read on to find out more considerations for each piece of your retirement puzzle!
Your Harley-Davidson Pension
It’s important to understand that your pension is specific to you and your circumstances. Pensions can be different for everyone. That’s why you need to figure out your own pension, and how it relates to you. At most companies the pension could be different based on when you were hired, and when you left the company!
Your pension could be calculated and paid out in many different ways. When you leave Harley-Davidson, or any place you’re working and have a pension, make sure you run all the different scenarios. That way, you can see what happens if you retire one month to the next, or at a certain age, and how your pension is affected. This will help you make a good decision when you actually choose to retire.
This will also help you decide when to take your pension. Many people think that they need to start their pension right when they retire, but that’s not true. You do not have to take your pension the day you leave a company.
Instead, by running the numbers, you can figure out at what age it’s the best time to take your pension so you can maximize your lump sum and monthly payout.
Until you’ve done the math and plugged it in, you don’t know what you’re dealing with. You could be missing out on tens of thousands, or even hundreds of thousands of dollars over your lifetime. When you run the numbers, you can also take the time to coordinate when you take your pension with all the other parts of your financial pictures, like social security and your 401(k).
Another big thing to remember around your pension is to complete your pension forms before you want the pension to start. Your pension won’t automatically start. Instead, you need to fill out a form to get your pension to start.
Your Severance and Retirement Package Can Affect Your Taxes
When you get a severance or retirement package, these packages could drastically change your tax situation for the year.
For retirement, if you retire at the end of the year and they pay out all your sick leave and vacation at once, you might have a higher income year in the year that you retired than the year before!
With severance, depending on how much they pay out (which depends on your position and how long you’ve been at the company), you could also get the biggest taxable year of your life.
Don’t wait until April when your taxes are due to find out that you’re getting a huge tax year. Instead, figure out if your taxable income year is going to be higher or lower than normal.
If it’s higher than normal, then we can work to find some ways to decrease that taxable income. On the other hand, if you find out that you have a lower tax situation, then you might have an opportunity to pay taxes on purpose, at a lower tax bracket, to help avoid potentially higher taxes later on.
Your Compensation Plans
If you’re someone who is at a management level or higher, you might have a deferred compensation plan. Most people, when they get deferred compensation, think more about taking money out of their income today to save on taxes today. But at some point in time, you’re going to get that money back.
Depending on how you sign up for your deferred compensation, and the different rules that are out there, you might get paid out a lot of money right away — and that could be a huge tax situation.
You could get a similar situation if you’re getting severance, where you might all of the sudden have your deferred compensation paid out. Imagine if you’ve lost your job, and your income, but you get a big deferred comp payment that year and your taxes end up being more than you expected!
That’s why you need to project out your taxes for the year when you’re getting deferred compensation.
If your compensation is paid out over time, like over a five-year span, it’s also important to think about what happened in the last five years. The market dropped quite a bit at the end of 2018, and again in the spring of 2020. If you’re retiring soon and are planning on living on this deferred compensation, do you want to rely on the market for that money?
We always want you to match the risk of your account with when you’re going to use it. Short term money deserves shorter-term investments. Longer term money deserves longer term investments.
You probably spent your working years saving through deferred compensation and investing like it’s long term, but when you retire, or have a severance that future may have just arrived!
If you will be relying on this money, you might want to look into the investments available and move to a more conservative positioning. Why? Because if your compensation is going to pay out to you soon and you’re going to be using it, you might not want to rely on the stock market too much.
When you hit retirement or get a severance package, you also have to think about your 401(k). Sometimes, when you get a severance package, you can get the urge to pull out your 401(k) just to stick it to the company a little bit. However, we want you to think twice before rolling over your 401(k) to an IRA.
One reason why people do this rollover is because they think that the rules on a 401(k) and an IRA are exactly the same — but they’re not. While you have to wait until age 59 ½ until you can take money out of your traditional IRA without a 10% penalty, with a 401(k), that age is 55.
So if you leave your company at 55 or older, you can take money from the 401(k) without the penalty. However, if you’re 55 years old and are leaving your company and your advisor tells you to roll over your 401(k) to a traditional IRA, you now have a 10% penalty until you reach 59 ½ and may have just taken money that was penalty-free and locked yourself up for another 4 to 4 ½ years with that potential penalty.
Make Your Severance and Retirement a Success
As you can see from everything we outlined, when it comes to retiring or taking that severance package, there are things that can go right and things that can go wrong — and there’s a lot more to it than just filling out a form and telling your boss you’re going to retire.
You only get one shot at retirement, and one shot at taking that severance. There’s no room for mistakes. That’s why we believe you should find someone like us to work with, someone who focuses on retirement and has helped other Harley-Davidson employees retire or deal with those severance packages.
If you’d like help with your retirement or severance packages, you can find out how to get in touch on our contact page. Be sure to also find our exclusive retirement checklist, just for Harley-Davidson employees, here!
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