Key Planning Decisions For Microsoft Employees
Working for Microsoft comes with a range of benefits, but it also comes with some financial planning implications; competitive salary, multiple bonus types and stock awards to name a few.
Although a wide-ranging compensation package is received by employees, many are too busy to examine how to get the most out of their benefits and end up falling foul of tax traps and pitfalls.
With a little bit of planning these costly mistakes can be avoided.
I’ve put together a list of 5 key questions that all Microsoft employees consider;
- What’s the best way to minimise the tax burden?
- What’s the best way to manage risk?
- How should you invest?
- How much is enough?
- Should you work with an adviser?
1.What’s The Best Way To Minimise Your Tax Burden?
Tax, left unchecked can be a major drag on building your wealth. It’s likely that tax is your biggest expense, so what are some of the strategies that can help minimise the burden?
Optimising your pension contributions while ensuring you do not breach your Annual Allowance can make a huge difference to your growing net worth and financial future.
The use of tax-advantaged investment accounts allows your money to work harder for you without a ‘tax drag’. Although investment performance isn’t something you can control, you can avoid unnecessary tax holdings.
A large part of your compensation package is probably MS stock. These restricted stock units are normally awarded at the start of your employment.
Both the Employee Stock Purchase Plan (ESPP) & Stock Plans need to be carefully managed to ensure you do not receive a large Capital Gains tax charge or your dividend income is taxed in-efficiently.
2.What’s the best way to manage risk?
The opportunity to achieve your financial goals is high. Based on your career trajectory things should be okay. But what if they aren’t? What should you be looking at?
Your financial safety net
There are two major events in life that although unforeseeable, can result in financial
catastrophe: premature death and long-term illness. If you’re highly dependent on future earnings I would recommend protecting them as, without this, your financial planning is built on sand. This is why ensuring you have chosen the right benefit level is crucial to ensure you and your family have financial security and peace of mind.
The question of how much risk you should take depends on how comfortable you are with
uncertainty, your need for returns and your ability to absorb negative outcomes. Of course, not taking enough risk with your investments can be just as risky, if your not making your money work hard enough for you, you won’t achieve your long-term objectives.
If you choose your Microsoft benefits wisely, there are packages that incorporate a wide selection of investment options and a financial safety net. It’s important to get the right balance for you.
3. How Should You Invest?
As your wealth grows, so too does the importance of making smart investment decisions. You have the ability to grow your wealth at a rapid rate, so what should you consider when investing?
Whether it’s your pension, ISA, or any other investment: the most important determinant of how fast you can grow your money is how you allocate it between stocks and bonds.
There is a clear trade-off: allocating more of your portfolio to riskier assets increases your long-term expected returns, but it also increases the volatility of those returns and the range of potential outcomes.
How much of your current and future financial wealth is tied up in Microsoft?
Most Microsoft employees have benefited greatly from their concentrated position. However, they also recognise that it makes sense to spread their wealth and put more eggs in different baskets. Having a plan to gradually diversify is a very important part of risk management.
4. How Much Is Enough?
How much money do you need to become financially independent – you work all these hours but what exactly is it for?
Your retirement income plan
Knowing when you’ll become financially independent and when work becomes optional, will give you confidence and clarity.
A retirement income plan isn’t about retiring as soon as possible, it’s about having the option to continue working, without the pressure, which often makes work a lot more enjoyable!
Planning for your future
A financial plan encompasses your future spending, income and available capital. It helps you understand whether or not you are ‘on track’ for the future you’re working so hard for.
These simple questions make it easier to start mapping out your financial future:
- What are the big milestones you want to achieve in the next 5 years?
- When is the earliest you could retire and maintain the lifestyle you want?
- What are the 3 actions you can take now to improve your finances in the future?
- Do you have a framework for making smart, financial decisions that benefit you over the long-term?
What’s your ‘number’?
Your number = the amount of money you need to provide the income you want for the rest of your life. Everyone has a number, whether they know it or not.
To find out your number I suggest using financial planning software. This can be used to model your family’s net worth from now until the end of your life, including your expected income, regular outgoings, one-off expenses and investments.
With prudent assumptions, it can help provide a visual representation of your financial future, as well as helping you answer big questions like:
- Can I afford to pay for my children to go to private school / University?
- What house can we afford?
- What if we plan on downsizing?
- How much can we spend if we retire X years earlier?”
5. Should You Work With An Adviser?
Do you have the time, interest, expertise and desire to do this yourself, or should you partner with a financial professional?
If you really enjoy personal finance & reading through HMRC tax manuals on Sundays then I would encourage you to do that. Cover each area of this guide & create your own financial plan.
Work with a professional
If you feel your time would be better spent focusing on your career and family, then finding the right adviser is crucial. A good adviser that understands your unique situation will deliver value above & beyond their cost. Ultimately, helping you get a handle on every area of your finances.
What makes working with Frazer James Different?
We are award-winning independent financial advisers who have experience working with Microsoft employees to maximise their financial potential. We can provide you with comprehensive advice on your Microsoft benefits, acting as a sounding board for all your big financial decisions.
Microsoft Financial Consultation
We are currently offering a relaxed, initial consultation with one of our professional advisers. With no cost and no commitment, this meeting is to get to know each other & find out whether we would be the right advisers for you.
All the best,
James Mackay, Independent Financial Adviser in Bristol
Financial Advisor Bristol and Pension Advisor Clifton
About us: Frazer James Financial Advisers is a financial advisor, based in Clifton, Bristol. As an independent financial adviser, we’re able to provide independent and unbiased financial advice. We provide independent financial advice, pension advice, investment advice, inheritance tax planning and insurance advice.
Frazer James Financial Advisers is located at Square Works, 17 – 18 Berkeley Square, Bristol, BS8 1HB.
This article provides information about investing, but not personal advice. If you’re not sure which investments are right for you, please request advice.
Remember that investments can go up and down in value, you may get back less than you put in.