Nervous. When I started this firm, I was very apprehensive about going all-in on a niche. The idea that I would put myself out to the public as being for one small group of people (Oil & Gas/Chem) professionals terrified me. After all, if I’m for that small group, doesn’t that mean I’m shutting myself out for every other potential client?

Well, for starters, there is no guarantee that any particular business plan strategy/idea/etc. will work. Oddly enough, as you’ll read in this article, that’s a common theme with financial planning in this niche. Uncertainty. We don’t know exactly what will happen to your employer’s stock that you own too much of. We don’t know where future tax rates will be. We don’t know what ups and downs the industry will experience over the next decade. Add to that all of the uncertainty that every investor faces in or outside O&G. We don’t know what will happen with estate tax law. No idea what the S&P will return over the next decade. Not sure whether small caps, value, emerging markets, or any other crevice of the market will outperform all the others. Not to mention, we have no idea what life curveballs will be thrown to each of the families we serve!

Ultimately, the reason I focus sharply on families coming from large Oil & Gas/Petrochemical companies is because of the unique financial planning challenges they face. My background afforded me a wealth of experience in planning for families from this industry that face these issues. I’ll summarize them and dive deeper into each one:

-Enormous tax bracket arbitrage opportunity from age 60-70 Finding your tax equilibrium rate is critical after age 60. Note: If you are 10+ years from that age, you still need to know this, and there are things you can do now that will help you down the road.

-Equity compensation: Two factors here. The obvious issue is how to measure how much of your employer stock is safe to own. The second issue is the tax considerations.

-NUA Distribution Opportunity: I’ll include it in the above section, but you must get this right. So, I reserved a bold title for it.

-Volatility in the industry. Incomes are higher than most other industries. Benefits are way higher. But, oil is volatile.

-Additional insurance, estate planning, etc. items

Data: How do O&G benefits stack up to others?

Let’s compare the typical industry benefits with the rest of America. Here are some interesting 401(k) stats from the Bureau of Labor for you:

  • -Almost half of all companies offer no match (!!)

  • -Only 10% match more than 6%

  • -The median 401(k) match is about 3%

  • -The vast majority of companies have a vesting schedule. So, if you leave your company before vested, you forfeit some of their match.

  • -IF  a company offers a match, the most standard is 50% of your contribution up to 6% (read: 3%)

Compare that to the typical Oil & Gas or Petrochemical company here in Houston. Remember, we have to add any pension, PWA, etc. contributions as well. When we do this, it’s standard for Energy companies to contribute more than 10% of your salary into a pre-tax retirement vehicle(s). Some companies get close to 20%!

That is five times more than most professionals in other industries! But it’s also based on your income, which is higher than incomes in most other industries. Result: you are putting in drastically more money every single year into pre-tax retirement vehicles than the average American.

Let’s run a simple example. Pretend that we have a 30-year-old who hasn’t saved a dime yet. Let’s say she makes $100,000/year and contributes 10% to her pre-tax retirement plan. Let’s pretend the company puts in 15% (whether it’s 401(K), pension, PWA, etc.) So, she starts saving a total of $25,000 every year. If this amount increases by 3% each year as her income increases, check out what happens 30 years later.

Earning 6%/year, she will have about $2.9 Million

Earning 8%/year, she will have over $4 Million

What if you make a lot more than $100,000? What if both spouses work? What if you invest in a globally diversified equity portfolio (little or no bonds) and see 10% annual returns? You’ll have more.

But what if she worked in a different industry and still saved 10%, but her company only put in 3%? You guessed it. She would have way less as she approaches age 60.

Enormous tax bracket arbitrage opportunity from age 60-70

Because of the dynamic above, most people get to retirement with a very unbalanced asset mix. The heavy majority is in their 401(k) and pension. There are some after-tax assets (could be stock, a brokerage account, or cash in checking/savings). How about Roth money? Typically, that’s the smallest bucket.

Here’s a picture of your tax situation from age 60-80. Or, if you’re really wanting to watch me talk for five minutes, click here!


Let’s pretend you retire at 65. So, you were earning an excellent income at the end of your career. But right after you retire, your income dropped substantially. You lived off of Social Security and some cash/stock that you had saved. You didn’t touch your 401(k) or pension yet (or maybe you took small distributions as needed). So, those kept growing until age 72, when the IRS forces you to take taxable distributions. As you can see, you were paying a lot of income tax, then from 65-72, didn’t pay much, and you’re back to paying a lot of income tax at age 72.

This is a big mistake. Instead of enjoying those low tax years from 65-72, you need plan around long-term taxes. This is a combination of analyzing your NUA distribution opportunity, capital gains in your stock positions, and Roth conversions (moving part of your pre-tax assets to a Roth IRA). Take a look at the video I linked above. Even more simple, take a look at the picture below.


Potential Oil & Gas asset growth


One of the biggest ways I can help your financial life is properly executing this transition during the 10-15 years before age 72. We’re simply moving assets from the red to the green. Even if we have to deplete the after-tax bucket, it’s worth it to get as much growing tax-free in a Roth IRA as possible. Note: Having enough after-tax saved before retirement to do this is a big asset. My job is to find the right amount each year for the maximum benefit. Do too much? You’ll end up paying high taxes when you shouldn’t have. Do too little? You’ll end paying more taxes than you should. Properly planning this decade can be worth millions of dollars to you and your family in the coming decades. Or, not planning can send millions of dollars to Uncle Sam.

-Equity compensation:

Being paid with, and investing in, your employer’s stock is common. How you handle this dynamic plays an important role in your financial life.

How much of your stock employer’s stock is too much?

Let’s look at some pretty wild facts.

  • Since the inception of the S&P 500 in 1957 (500 largest US companies), almost 90% of the original 500 companies have fallen out of the index.

  • The average number of years that a company stays in the S&P 500 has fallen dramatically, now at an average of 18 years.

  • We just finished an unbelievably good 2019. Still, over 10% of the companies in the S&P 500 were down!

  • Had you invested $1M into the Vanguard Energy Fund ten years ago, you would have a little more than $1.1M today.

  • Had you invested $1M into an S&P 500 index fund ten years ago, you’d have almost $4M today.

I have a lot more, but I figure I should get back to the point. I have no idea what any particular stock will do this year, next year, or any year. Not to toot my own horn, but I’m a CFP® professional with experience being the lead advisor on $350 Million in client assets. No one knows. Absolutely no one knows what stock, sector, mutual fund, ETF, or anything will outperform-not even the highest-paid analyst at Goldman Sachs.

What we do know is there is a lot of danger in missing out on the equity gains that a broadly diversified portfolio can bring.

Having 40% of your money in XOM might be amazing for the next ten years. Or, it could be like the last ten and largely underperform. It could also be like GE and plummet, despite being widely regarded as one of the safest stocks in the world. We don’t know.

We don’t know whether your concentrated stock position will work out really well or poorly. If it turns out to be Amazon, you will do far better than a diversified portfolio. The problem is no one knows what the “Amazon” of the future will be. Trying to guess puts you at enormous odds to miss out on the small percentage of stocks that outperform. Owning a broadly diversified low-cost portfolio guarantees you won’t miss out on those stocks, because you will own every stock.

One other issue-your employer stock has significant tax considerations both now and in the future. You could have RSU’s, RSO’s, ISO’s, NQSO’s-or something more strange like an 83(b) election, phantom stock, or stock inside of your 401k eligible for an NUA distribution.

The timing and tax treatment of receiving your employer stock may impact other decisions that year. For example, what if you have a significant amount of stock coming this year in way that increases your taxable income, and you don’t expect it to happen next year? You may want to bunch your charitable contributions all into this year to offset the higher tax.

This also has significant ramifications as you approach retirement. What if you’re currently sitting on a large portion of your employer stock? If taxes were no issue at all, common sense says sell the stock and diversify it. But it’s not that easy. If you’re sitting on a huge portion of XOM or CVX (or any company) inside of your 401k and you have a really low cost basis, we want to do everything we can to wait for your NUA distribution. Or, maybe you own a significant stock position in an after-tax brokerage account. We want to navigate the four different capital gains brackets (0%, 15%, 18.8%, and 23.8%) over multiple years to do what’s in your best interests. And as you can imagine, what’s in your best interests is delicate when we are balancing both an investment problem (too much in one stock) and a tax problem. Other factors to consider here: how to diversify out of concentrated stock positions during prime years for Roth conversions, and this is a big one: what if tax law changes and capital gains are taxed the same as income? You can find my interview with InvestmentNews on the topic here.

Volatility in the industry.

Moving on, the next issue professionals in the sector face is volatility. Out of the ~10ish industries in the market, Energy is known throughout Wall Street for being at the top of the volatility charts. The obvious takeaway on this subject is to prepare yourself with an emergency fund for a potential downturn. That is certainly accurate, and it’s not to be taken lightly. Having six months of expenses saved, even though a severance of some sort may help, is undoubtedly wise.

In addition to doing everything you can to prepare for job uncertainty, think of potential insurance needs. In addition to property & casualty insurance, make sure you have enough coverage in the following:

  • Life Insurance: You may need 5-10x your income. Buy term. Be very wary about whole life insurance. Spending hundreds in a policy that may be in the red for the first decade, and has dramatically underperformed the market long-term, can hinder your wealth creation ability.

  • Disability Insurance: Having an “own occ” policy that covers your needs if something happens can be a tremendous safeguard.

  • Umbrella Insurance: You may be able to talk to whoever has your home and auto about this.

Covering your insurance needs through your employer can be ok, but you must be mindful of your health. Quick example: I was diagnosed with Non-Hodgkins Lymphoma a couple of years ago. Wasn’t expecting it (especially with our third child being two weeks old when we found out!). Treatment went very well, but I’m now uninsurable. So, I needed to evaluate my workplace policies and continue them from my previous employer.

For some of you, the possibility certainly exists that your current employer will not be your employer in ten years. Plan accordingly.

-Additional income planning, estate planning, etc. items

In addition to the three areas that O&G faces more than others (tax bracket arbitrage in your 60’s, equity comp, and volatility), those have to merge with the financial planning considerations that everyone faces.

Estate Planning: You can read my article on the topic here.

Income Planning in Retirement: This will be a big topic I want to write more on in the coming months. Income Planning answers the question: How do I invest, and how much can I take out from my nest egg each month to ensure that I don’t run out of money in 10-20 years?

Retirement Planning/College Planning: What and who are you saving for? What decisions and steps can you take today to put yourself in the best possible chance of reaching financial freedom at the age, and in the manner, you’re hoping to reach it.

Investment Mix: I’ve put out a fair amount of content on the site and plan to expand it. Simply put, what’s a good portfolio? What’s a bad portfolio? Should your portfolio change over time? How do you build a portfolio tailored to your needs and goals?

helping oil & gas professionals pay less taxes & retire comfortably

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