It’s the start of a new year. Time to make resolutions and get your house in order. A fresh start. You’re energized, and likely expect 2021 to be much better than the year just past.
In the midst of all this energy for planning and organizing, have you given thought, real thought, to whether you’re going to contribute to the ExxonMobil Savings Plan (EMSP)? And if so, how much and in what investment options?
Or are you coasting along, allowing inertia and previous decisions to make your choices for you?
We’re big believers in NOT coasting along, NOT allowing inertia to make your decisions. Here are some thoughts we’ll offer, encouraging you to think about what you ought to do.
To Contribute or Not To Contribute – That’s a Good Question
For as long as ExxonMobil suspends the match, the incentive to contribute (to get those match dollars) isn’t as great as in the past. So, where do you put your money? A first decision is whether you’re going to contribute at all.
There may be good reasons for either answer.
Don’t contribute if:
- You have debt with an interest rate higher than what you might earn by investing in the EMSP. (Pay off the debt!)
- You don’t have an emergency fund set aside that equals three to six months of your ongoing expenses. (Put that money in a savings account, even if you don’t make much interest. The point is not to make money—it’s to have the peace of mind that you have an emergency fund should you need it.)
- You want to diversify your savings. Build an investment account of after-tax money for retirement, to fund your kids’ college education, or for another important goal. (An outside investment account offers flexibility you can’t get with the EMSP. You can invest, for example, in emerging market stocks. You can access the money whenever you want.)
Do contribute if:
- You want to reduce your taxable income in 2021 by up to $19,500 (or $26,000 if you’re 50 or older this year). (Contributions to the Before-Tax Account are pre-tax dollars. Those dollars aren’t included in your taxable income.)
- You want to contribute to the Roth 401(k) account to generate tax-free savings when you retire. (Instead of contributing to the Before-Tax Account, contribute to the Roth 401(k) Account and you’re building up assets for an eventual Roth IRA—tax-free growth and tax-free distributions! But those contributions are after-tax dollars.)
- You have low-cost ExxonMobil stock and envision using it to bridge living expenses between retirement and age 59-1/2. Or you plan to use it for charitable giving. Or you want to hold on to it in a taxable account following your retirement. (Contribute after-tax dollars to the After-Tax Account, and those dollars offset what otherwise is ordinary income when you take those low-cost shares of XOM stock into your taxable investment account at retirement.)
If You Are Going to Contribute, How to Invest Those Contributions?
It wouldn’t be right to prescribe how you should invest without a discussion about your risk tolerance, time horizon, other assets, and individual goals. But we have some general thoughts about factors participants in the EMSP should take into consideration as they decide how to invest their dollars.
Your Time Horizon
For most participants in the EMSP, the dollars in their account will support retirement expenses. You may be years away from retirement. Even after retirement, those dollars may be needed for 30 or even 40 years. In other words, you have time on your side.
You can weather the inevitable ups and downs of the stock market in return for generally higher rates of return than what are available from Bond Units or Common Assets. Consider investing in equities (Equity Units, International Equity Units, Extended Market Units, or ExxonMobil stock).
Don’t Depend on Familiarity
There’s a well-known tendency among non-professional investors to invest in what’s familiar. In the context of the EMSP, that means investing in ExxonMobil stock and in the US stock market (Equity Units and to a lesser degree, Extended Market Units). But familiarity is not in itself a sign of a good investment. Nor is unfamiliarity necessarily a disqualification. Consider the investment prospects of what you’re investing in, not just whether it’s a familiar name.
Remember That Pension Benefit
Don’t forget your ExxonMobil Pension Plan benefit and Social Security. Those are promised payments, available as a lump sum and/or as a monthly annuity in the case of the pension, and as a life-long annuity in the case of Social Security. Factor in that “fixed income” component of your portfolio as you consider how to invest your EMSP. You may not need to be as conservative as you might otherwise be, given the availability of the pension benefit at retirement.
Don’t let inertia drive your personal finances. Take time to think through your objectives and the appropriate means of trying to achieve them. Get help if you need it. If you’re within ten years of retirement, we’re available to discuss your personal situation. Check out our other ExxonMobil blogs, learn more about how we help ExxonMobil professionals, or book a complimentary, no-obligation consultation. Let’s talk.
Disclaimer: The information provided here is general and intended as educational in nature. It is not intended nor should it be considered as tax, accounting, or legal advice. Investec Wealth Strategies and its advisors do not provide tax, accounting, or legal advice. We recommend you seek the counsel of your attorney, accountant or other qualified tax advisor concerning your situation. Information about the ExxonMobil Savings Plan is believed to be accurate, but no guarantees can be made, as Plan details are subject to change by the Plan sponsor. The author is not an employee of ExxonMobil and his views are his own.