Michael A Scarpati is the CEO of RetireUS, a fintech platform disrupting today’s financial planning with a better path to financial freedom.
Many business executives believe they can achieve financial freedom by simply picking the right investments or hiring a savvy financial advisor. However, this overlooks a critical truth: Investing alone doesn’t solve financial complexities. You need a system.
A financial system is more than a portfolio. It integrates all aspects of one’s financial life, aligns short-term decisions with long-term goals and adapts as circumstances change. It can help ensure executives maximize their equity compensation, deferred compensation and retirement benefits while working to reduce tax inefficiencies and avoiding liquidity issues in retirement.
As a result, a well-structured financial system could help executives improve decision making, reduce financial stress and ensure long-term stability. This allows leaders to focus on growing their careers and companies rather than worrying about their financial future.
Why Your Approach Is Everything
The way executives approach their financial goals shapes their success. There are three main frameworks: time-based, goal-based and systems-based. The framework you choose can significantly impact the sustainability of your results. Time-based and goal-based approaches may yield short-term gains, but a systems-based approach can deliver long-term success by adapting to changes and challenges.
To illustrate, let’s consider something as simple as cleaning your house.
Time-Based
This approach relies on deadlines as the primary metric for success.
Example: Clean the house before the end of the week.
Result: You wait until the last minute to clean the entire place, but the mess returns because the underlying causes of clutter remain. Because you’re focused only on the deadline, there’s no lasting improvement.
Goal-Based
This approach sets objectives over time.
Example: Clean each room once a week.
Result: This approach yields more consistent results but fails to address the lifestyle habits that are causing the mess. It requires big spurts of effort each week, which can become unsustainable over time.
Systems-Based
This approach creates simple, intentional, repeatable processes that, when completed together, can result in achieving the goal and sustaining results.
Example: Create a daily and weekly process for cleaning, tidying, organizing and addressing clutter before it builds.
Result: Small, manageable tasks become habits, making it easier to maintain a clean house. Proactive, consistent actions create long-term stability and reduce effort in the long run.
Applying Each Framework To Executives
To see the impact of these approaches in regard to a leader’s finances, let’s consider the hypothetical story of a business executive named “Sarah”: At 50 years old, Sarah has $1.5 million saved and wants to retire at 65 with $200,000 in annual income. Social Security will provide $50,000 per year at age 65, leaving her to self-fund the remaining $150,000 annually.
Time-Based Approach
Sarah invests her $1.5 million into a 2040 target-date fund because it aligns with her planned retirement date. As an extremely busy business leader, this is the most convenient. However, the fund doesn’t account for how much she actually needs to save and withdraw to meet her retirement income goal.
Result: Sarah retires at 65 without knowing if she has enough saved to sustain $150,000 per year in withdrawals. Because her strategy was based on time and not financial sufficiency, she depleted her savings too fast and was forced to return to work.
Goal-Based Approach
Sarah does some research and sees statistics that most senior executives retire with at least a few million dollars in savings. She decides to set a $3 million savings goal by 2040, believing this will be enough for retirement.
Result: Sarah achieved her $3 million target but didn’t adjust the goal over time to account for inflation or rising healthcare costs. By age 85, her savings had depleted and forced her to rely on her family for supplemental income.
Systems-Based Approach
Sarah builds a comprehensive financial system with simple and intentional processes that result in achieving her retirement goal. Here’s how:
1. She quantifies her future retirement shortfall ($150,000 annually).
2. She reverse engineers her retirement savings goal by dividing $150,000 by a 4% withdrawal rate, which equals $3.75 million.
3. She sets a return target based on her current nest egg, annualized savings of $29,300 and retirement goal. With $1.5 million saved, Sarah determines she needs a 5% annual return to reach her goal.
4. She develops an investment strategy with her financial advisor to minimize risk while targeting a 5% return.
5. She repeats this process semi-annually to adjust her plan for inflation, market changes and new goals.
Result: Sarah retires at 65 with confidence, and her system begins producing $200,000 in retirement income, allowing her to sustain her lifestyle without fear of outliving her wealth.
How Business Leaders Can Get Started
For business executives, financial planning can be challenging due to complex compensation structures. Unlike traditional employees, executives often must navigate tax implications, liquidity challenges and investment risks tied to their employer’s financial performance. Without a structured financial system, wealth can become overly concentrated, exposed to volatility and inefficiently taxed.
To ensure long-term financial security, assess your financial approach: Are you calculating your retirement goal annually and factoring in taxes, inflation and healthcare costs? Do you have a structured process to sell company stock? Are you harmonizing deferred compensation, executive retirement plans and tax-advantaged accounts? Have you run scenario analyses to stress-test your investment strategy?
If you answered “no” to any of these, you may be relying on fragmented decisions rather than a structured financial system.
A Systems-Based Approach To Executive Compensation
Business executives are accustomed to structured financial planning within their companies, but many fail to apply that same discipline to their personal wealth. Here are some best practices to integrate executive compensation into a sustainable financial system:
• Consider scheduling restricted stock unit sales and stock option exercises to systematically reduce concentration risk.
• Evaluate how to balance equity compensation with outside investments to avoid over-reliance on company stock.
• Invest cash bonuses strategically rather than treating them as windfalls.
• Model future retirement income and tax liabilities before making deferred compensation elections.
By shifting to a systems-based strategy, business executives can take control of their financial future. A well-structured system removes uncertainty, optimizes every dollar earned and adapts as circumstances change.
Stop chasing returns. Start building systems.
The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation. McAdam LLC dba RetireUS is an SEC-registered investment adviser. For more information, please visit www.adviserinfo.sec.gov. For full disclosure information, please visit www.retire.us/disclosures.
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