While in the middle of your career and possibly raising a family—likely in your 30s, 40s or 50s—it can be challenging to plan for the day full-time employment is an option rather than a requirement. Nevertheless, it is important to keep in mind that the decisions you make during your pre-retirement years directly affect when you can retire and the lifestyle you will enjoy in those years.
The closer you get to your desired retirement date, the less of your overall net worth you should have concentrated in the stock of your employer. Your company stock is likely a significant portion of your overall investment portfolio, and thus your retirement plan. And the more volatile that stock is, the tougher it becomes to incorporate those shares into a retirement income plan.
You should not view your restricted stock units (RSUs) the same as other stocks or mutual funds. Unlike other stocks, you cannot sell or trade RSUs on the open market. And, unlike other forms of equity compensation, you will not receive the underlying shares of stock until vesting is complete.
For those who receive RSUs as part of their total compensation package every year, a key element to a solid retirement plan is understanding what will happen to your shares and unvested grants once you leave the company.
There is, however, no definitive answer for what happens to RSUs when you retire. Equity grants almost always have vesting provisions that are usually based on your continued employment at the company that granted them to you. However, this ultimately depends on factors such as the company’s internal policies and the type of RSUs you hold. Understanding how RSUs work and knowing what to expect can help you make the best decision for your situation.
Here’s what you need to know:
- Unvested RSUs will likely be forfeited back to the company once you retire. However, depending on the terms of the RSU agreement, there may be some exceptions.
- Some companies include provisions for a “normal” retirement age in their stock plan agreement that allows vesting to either accelerate or continue under its normal schedule after retirement.
- Depending on the policies of a privately held company, employees may be required to either keep or sell any vested RSUs. Private company shares do not have a secondary market to trade in, making them less liquid than shares of a public company.
- Employees may be required to wait until the next window period to sell vested RSUs that are subject to a blackout period.
The stock plan agreement you signed prior to receiving the RSU grant will detail when or whether vesting either continues or stops. Retirement is considered a special termination of service under some stock plan agreements, and those companies generally treat retirement more favorably than they would an employee leaving to work for a competitor.
It is important to closely review your stock plan agreement for the rules that govern a “normal” retirement prior to selecting a retirement date. The plan may also include provisions for an “early” retirement, although this is less common.
If you hold unvested RSUs and are seriously considering retirement, it is important to discuss your plans with your employer before making it official. They can inform you of any exceptions to the terms of your RSU agreement and help keep you from making any irreversible mistakes with your shares.