It’s no secret that the traditional plan to work until you’re 65 isn’t the norm at Nike. The more common sequence is working your way up the ladder until your mid 50’s, at which point you realize you’re the oldest person in the room. What if you could make work optional in your 50’s and retire at the end of your Nike career? With the right planning, discipline and partner to hold you accountable, this goal is attainable. We’ve created and worked this plan for several of your colleagues and here’s our advice for you.

Use The Bucket Approach

The first step in putting your plan together is getting organized with your financial assets. You have your 401(k), ESPP, Stock Options, RSU’s, LTIP etc. Do you have a coordinated strategy on how and when to use these assets from both a risk management and tax perspective? We like to categorize assets into short, intermediate and long-term buckets which enables us to determine how much risk we should be taking and where. Here’s an easy way to think of this: short-term bucket = capital preservation, intermediate-term bucket = moderate risk and the long-term bucket = growth. For example, your 401(k) is ideally the last asset you touch so we’re comfortable taking a higher level of disciplined stock market risk there. On the other hand, deferred compensation that’s paying out in a year or two should be in a risk off, stable value investment. As you receive distributions from your LTIP, exercise stock options and sell ESPP shares, it’s important to know which bucket the funds are going into and why. Once this strategy is established, you will have a solid understanding of how you’re invested and the goal of each portfolio. It will also help you weather market downturns and drops in Nike’s share price because you know your short-term money is protected and will be there when you need it. Do you know how much to fund in each bucket and which to draw from each year? We can help.

Understand Your Stock Options, RSU’s, ESPP, LTIP & Deferred Compensation

Each one of these investment plans has a purpose with distinct advantages and disadvantages. Understanding how to utilize them to their highest potential will lead to superior results compared to winging it.

Stock Options

• Pros- Pay nothing to acquire them, leverage is applied to gains (or declines) in Nike’s share price.
• Cons- Taxed at ordinary income rates upon exercise, 10-year expiration date, concentrated risk in Nike stock.

Restricted Stock Units (RSU’s)

• Pros- Pay nothing to acquire them, there is no exercise price they have value as soon as they vest, accumulate dividends prior to vesting.
• Cons- Very little control over tax timing as they are taxed at ordinary income rates upon vesting, concentrated risk in Nike stock.

Employee Stock Purchase Plan (ESPP)

• Pros- Buy Nike shares at a discount, can hold indefinitely until an opportune time to sell.
• Disadvantages- Your own money is at risk, concentrated risk in Nike stock.

Long Term Incentive Plan (LTIP)

• Pros- Additional Nike shares granted with the amount tied to Nike’s financial performance.
• Cons- Taxed at ordinary income rates, payout is unpredictable- between 0% - 200% of target.

Deferred Compensation Plan (DCP)

• Pros- Allows you to put money away tax-free above and beyond your 401(k) contributions, the funds grow tax-free until they are withdrawn.
• Cons- Contributions and distributions are highly inflexible. Limited access to your money in the plan outside of your predetermined distribution elections. Your money in the plan is subject to Nike’s general creditors meaning that if Nike goes bankrupt, you are at risk of losing some, or all your investment. We highly recommend you speak with an advisor who’s knowledgeable about the DCP prior to opting in.

Tie It All Together

When it comes to getting the most out of your Nike financial benefit plans, there are three goals to keep in mind- tax efficiency, reducing concentrated risk in Nike and depositing the proceeds into the correct “bucket.” The situation we want to avoid is being forced to delay retirement because of too much exposure to Nike’s share price or the stock market in general. With that in mind, we’d recommend the following framework for making these decisions.

For this example, let’s say you’re 50 years old and planning to retire at 55. In our first step, we want to build cash reserves for retirement spending. This can be done via a combination of stock option and ESPP share sales. If you have any options nearing their 10-year expiration, this is the first place to look. These sales can be made over the course of the next two years to fully fund your “short-term bucket”. Have you considered how much cash is appropriate heading into retirement?

In the next step we want to build up assets in the deferred compensation plan. An ideal way to fund the plan is deferring a percentage of your salary, allowing you to delay paying taxes on this income. It’s highly likely that your tax rate will be lower after leaving Nike when you begin taking distributions from the plan. The DCP requires that you pick a distribution election. We want to spread these distributions out over the course of your 50’s and early 60’s to serve as your “pay check” prior to tapping your retirement accounts and social security. If you retire at 55 with your short-term bucket full as recommended above, we want the DCP to refill your cash bucket each year until age 65. Your DCP investments should reflect a conservative or moderate portfolio. Have you developed a clear strategy for the timing of your DCP distributions and the investment allocations?

With our short-term and intermediate needs covered, we can invest the remaining funds for use in 10+ years which would constitute your long-term bucket. This would include diversifying out of your ESPP shares and stock options and reinvesting the funds into a growth-oriented, diversified portfolio. By following a clear strategy, you’re able to reduce your concentrated risk in Nike and invest in other areas of the market with potentially higher returns. How are you prepared to take advantage of a declining stock price or an improving stock price? Will you be able to time it? We’ve helped many Nike employees just like you not leave chips on the table.

Throughout the course of retirement, it’s key to consistently transition assets from your long and intermediate-term buckets to refill your short-term cash bucket. By following this disciplined approach, you won’t find yourself in a position where the market dictates your retirement spending or lifestyle. Hopefully this paper helps you conceptualize your own retirement strategy and the best practices to go along with it. Let’s discuss the specifics of your retirement strategy today.