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Chevron 401(k) Changes: Unpacking Your New Funds

As a retired Chevron employee and financial advisor, I’m constantly keeping my finger on the pulse of what’s happening at the company. Last month, Chevron sent a letter to employees announcing that, as of June 1, the funds in their retirement plans will be changing. 

Given these updates, I wanted to take the time to make sure my Chevron connections understand what’s happening — and what it could mean for your portfolio.

What’s changing?

The gist is this: on June 1, 2023, your Fidelity NetBenefits account will reflect new investment choices. In many cases, your money will be automatically allocated to new funds. For example, If you’re currently in a Vanguard Target Retirement Date Fund, this will map to a BlackRock LifePath® Index Fund. All in all, the 16 existing investment choices will be funneled down into just 11 choices. This applies to both the Employee Savings Investment Plan (ESIP) and Deferred Compensation Plan (DCP).  

In my opinion, the most impactful change is the consolidation of three equity funds — Vanguard 500 Index, Vanguard Large Cap Value Index, and Vanguard PRIMECAP — into just one equity fund, the “Equity Index.” This is tricky, because for many people, it made sense to hold a pure S&P 500 fund such as the Vanguard 500 Index. Pure S&P 500 funds allow you to “own” the largest 500 companies in the US, compared to the “Equity Index,” which is more of a mix. 

We are currently investigating this and the other new funds to understand exactly what they entail and how they will interact with the rest of your portfolio.

What should you do?

This fund consolidation is neither good nor bad; however, it does mean that you should talk to an advisor about the impact it will have on your portfolio. The new funds have different risk and return profiles, expense ratios, and diversification characteristics than the old funds, and they’re not necessarily a direct map. It’s critical that you confirm your new funds still support your future retirement goals. 

No matter your age or retirement goals, it’s always a good practice to review your 401(k) plan on a regular basis and make sure it still aligns with your needs. The updates to the Chevron 401(k) plans are a good reminder to take a close look at yours and make any necessary changes.

If you don’t already have an advisor or are looking for a new one, I’m also happy to speak with you (no charge) about your portfolio. I’ve been helping Chevron colleagues and clients for more than 40 years and am an expert on the company’s employee benefits package. I’m available to answer any questions you have about the upcoming changes. 

Feel free to give me a call at 714-876-6200 or book time with me if you’d like to chat. I hope to hear from you and am here to help!

Len Hanson

Wealth Advisor, Warren Street Wealth Advisors

Investment Advisor Representative, Warren Street Wealth Advisors, LLC., a Registered Investment Advisor

The information presented here represents opinions and is not meant as personal or actionable advice to any individual, corporation, or other entity. Any investments discussed carry unique risks and should be carefully considered and reviewed by you and your financial professional. Nothing in this document is a solicitation to buy or sell any securities, or an attempt to furnish personal investment advice. Warren Street Wealth Advisors may own securities referenced in this document. Due to the static nature of content, securities held may change over time and current trades may be contrary to outdated publications. Form ADV available upon request 714-876-6200.

Chevron Employees: How to Retire in 2023

As a former Chevron employee and current financial advisor, I know firsthand that planning for retirement can be daunting. You might be asking yourself questions like:

  • How do I anticipate all the different factors that go into retirement?
  • How much money is enough?
  • What if I have an unexpected expense in retirement?

If you’re feeling like 2023 is your year but are afraid to take the plunge, read on. These are the top three considerations I discuss with my Chevron friends and clients when they ask me those questions.

1. Wait until at least age 55.

Every case is different, but in general, it’s best to wait until at least age 55 to retire. Every year you wait increases the likelihood you won’t run out of money. 

Talk to your advisor about scenario planning (more on that in the next point) to figure out what age makes sense for your specific situation. And remember, there are always exceptions to this advice if it’s a matter of your health or other serious issues.

2. Determine your post-retirement budget.

When you picture your life in retirement, what does it look like? Are you jet-setting the world with your spouse, or enjoying a quiet life at home with your grandkids? Working a part-time job to stay busy, or finally pursuing your hobbies and passions full-time? Upgrading to the big truck you always had your eye on, or getting every last mile out of your current ride?

These are important considerations, as they’ll impact the amount of money you’ll need in retirement. If you think you’ll have similar cash flow needs in retirement as now, that’s important to know. Or, if you anticipate boosting your spending on vacations, supporting other family members, etc., that also needs to be taken into account. Once you have determined your budget needs pre- and post-retirement, your advisor can help you put together a strategy around your paychecks, how much to save in the plan, and what number you need to hit to retire.

3. Do scenario planning.

We offer free scenario planning, called a Monte Carlo analysis, to help clients measure whether they could retire successfully. This simulation runs thousands of different scenarios based on your personal financial data. Then, it analyzes your “probability of success” in reaching the amount of money you’ll need at your desired retirement age. Best of all, this is a key tool for answering the question, “How much money do I need to retire?”

Whether it’s with Warren Street or another financial advisor, ask your advisor to help you put together a plan that accounts for these different situations, so you can set yourself up for success. As long as you have the relevant information ready to share with us — such as your current assets, expected savings, and time horizon — the analysis process takes no longer than 30 minutes. That’s a short amount of time to invest in your peace of mind!

Many Chevron employees are looking to retire this year, especially given that Chevron stock prices have generally held up. Whether you’re in the “this is my year” camp or still have another five years in you, I’d love to talk with you. Let’s put the numbers together and see what’s possible. I’m here to answer your questions and help you run the numbers, but the final decision is always yours.

Len Hanson

Wealth Advisor, Warren Street Wealth Advisors

Investment Advisor Representative, Warren Street Wealth Advisors, LLC., a Registered Investment Advisor

The information presented here represents opinions and is not meant as personal or actionable advice to any individual, corporation, or other entity. Any investments discussed carry unique risks and should be carefully considered and reviewed by you and your financial professional. Nothing in this document is a solicitation to buy or sell any securities, or an attempt to furnish personal investment advice. Warren Street Wealth Advisors may own securities referenced in this document. Due to the static nature of content, securities held may change over time and current trades may be contrary to outdated publications. Form ADV available upon request 714-876-6200.

Update: Should I Sell Some of My Chevron Stock?

With Chevron’s (CVX) stock price hovering around $185 (as of 11/22/22), I’ve been actively calling my clients to vet their interest in selling stock to diversify their portfolios.

It’s worth noting that we’re not talking about Employee Stock Ownership Plan (ESOP) shares, which are tax advantaged. Those are generally advisable to hold onto long-term. 

But when it comes to shares of common stock, this might be the time to sell — or at least take a little off the top. It’s tempting from a psychological standpoint — i.e., recency bias — to want to stick around and see how long the stock price climbs. But you have to be willing to ask yourself the “what ifs:”

  • What if the war in Ukraine ends? 
  • What if Chevron shares go back to $100 as a result of oil prices dropping?
  • How would I feel if I held out thinking the price was going to hit $200, and it drops back to $100? 

In this blog post, we’ll unpack these questions, as well as share considerations for your decision.

How Will You Feel?

One of the most important questions to ask yourself is how you’ll feel in these what-if scenarios. Sure, Chevron’s stock price could keep going up and make you more money when you sell. But what if it doesn’t? What if the war ends and it drops to $100 overnight? Will you still be able to retire when you want to? 

We all tend to have a very short memory span. It wasn’t that long ago that the global economy was going haywire due to Covid. Chevron stock was at $59 a share, because oil wasn’t worth anything. People weren’t traveling, and there was no place to store the oil. 

If another wave of Covid hit or the war in the Ukraine ended — where would Chevron be? If the stock price plummeted back below $100, you might be kicking yourself. Or, worse, you may have to work several more years than you planned before retirement. 

What Do You Fear?

If you’re confident that you could still retire on time, even if Chevron stock went back to $100, that’s fine. But most people would rather diversify now than risk having to work another five years.  

Even if you’re confident that Chevron’s stock price will stay elevated, think about Apple and Amazon. As strong as those tech giants are, their stocks have taken big hits over the years. If employees had all their retirement savings invested in those companies, any one of those stock hits could have drastically slashed those employees’ savings and postponed their retirement dates.

Visualize the What-Ifs

If you don’t have a good sense for whether or not you could retire, it might be time to do some scenario planning. Ask your advisor to conduct a Monte Carlo analysis to help you understand different scenarios. Monte Carlo simulations essentially run hundreds of different scenarios to help you understand the probability of successfully reaching your goals (retirement or otherwise) in the midst of unknown variables. 

Another visual that can be helpful is to think of your stock in “chunks” to sell. We can help you put together a plan to sell a certain percentage of your stock over time. That way, you can still capture some of the upside if the stock continues to climb, but also protect yourself if it plummets. 

You don’t necessarily need to sell all your Chevron stock, but it’s a good idea to at least start diversifying. We would recommend putting your money to work in both the stock and bond markets and can recommend a model portfolio for you that suits your needs, timeline, and risk tolerance. Diversification is key to making sure you stay on track with your goals and can retire when you want. 

As you can tell, your decision about whether or not to sell your Chevron stock doesn’t have to be black or white. If you want to explore options, just want to talk through your situation, or would like to run a Monte Carlo simulation to help with scenario planning, we’re here to help in whatever way we can.

If you’d like to chat, please click here to schedule a complimentary consultation with me.

Len Hanson

Wealth Advisor, Warren Street Wealth Advisors

Investment Advisor Representative, Warren Street Wealth Advisors, LLC., a Registered Investment Advisor

The information presented here represents opinions and is not meant as personal or actionable advice to any individual, corporation, or other entity. Any investments discussed carry unique risks and should be carefully considered and reviewed by you and your financial professional. Nothing in this document is a solicitation to buy or sell any securities, or an attempt to furnish personal investment advice. Warren Street Wealth Advisors may own securities referenced in this document. Due to the static nature of content, securities held may change over time and current trades may be contrary to outdated publications. Form ADV available upon request 714-876-6200.

Chevron Employees: Avoid These Common Estate Planning Mistakes

Estate planning is one of the most important things you can do to protect your family and your assets. It ensures that your assets and belongings go exactly where you want them and saves your family an immense amount of stress, pain, and cost. Still, estate planning often becomes an afterthought, something that’s a “long way off” or “not a top priority right now.” 

The good news is that estate planning isn’t as complicated as it sounds. You can establish the key documents you need with much less effort or investment than you might think. In my 33 years of advising Chevron employees, here are the most common mistakes I’ve seen and the steps you can take to avoid them. 

1. Underestimating probate.

Too often, people put off estate planning because they don’t realize the alternative. If you didn’t have key estate documents in place, and something were to happen to you, all of your assets would go to probate. That is basically a simple way of saying the government would decide for you — in a very long, expensive, and public way — what to do with your assets. 

I’ve seen probate negatively impact already grieving families who don’t have the bandwidth or money to deal with the probate process. It makes everything much simpler for your surviving family to have all of your documents in place, so they can focus on things that matter instead of the cost and process of dividing up your assets.

2. Believing estate plans are just for the rich.

Estate planning might sound fancy, but estate plans are not just for the wealthy. The six estate planning documents everyone should have include: 1) Will/trust, 2) Durable power of attorney, 3) Beneficiary designations, 4) Letter of intent, 5) Healthcare power of attorney, and 6) Guardianship designations. Beneficiary and guardianship designations are particularly critical for those with minor children, as they allow you to decide who would look after them. 

A will or trust should be one of the core components of every estate plan, regardless of the amount of assets. These documents ensure that your assets go exactly where you want them. A durable power of attorney sets whom you would want to make decisions for you if you were unable to (otherwise, it would be up to the courts) — and the same principle applies to the healthcare power of attorney. Your letter of intent streamlines asset distribution and can also include wishes for your funeral. Beneficiary and guardianship designations state your wishes for your children and other beneficiaries. 

3. Assuming estate plans are too expensive.

Having your assets go through probate is actually far messier and more expensive than creating an estate plan. How much more expensive? The average cost for probate and attorney fees for a $1MM estate is $46,000. The fee to set up an estate plan, on the other hand, averages just a few thousand dollars. That’s a drop in the bucket compared to probate, not to mention you also save your family time and stress by outlining everything in advance. 

Most importantly, an estate plan leaves nothing to chance or guessing. Estate documents make it exceedingly clear whom you would like to take care of your children, get ownership of your house, inherit your money, etc. You can also detail how inheritance should occur (at specific ages, in specific percentages over time, etc.).

For more detail on how to set up your estate plan, join Warren Street and Hunsberger Dunn for a “Will, Trusts, & Estate Planning Webinar” Sept. 27. We’ll break down how to know if you need a living trust, best practices for creating wills and trusts, and more! Estate planning can seem convoluted, but we’re here for you to help make it as streamlined as possible. 

Have questions about your Chevron retirement plan? Len is an expert in Chevron benefits and would be happy to meet with you. Click here to schedule a complimentary consultation with him. 

Len Hanson

Wealth Advisor, Warren Street Wealth Advisors

Investment Advisor Representative, Warren Street Wealth Advisors, LLC., a Registered Investment Advisor

The information presented here represents opinions and is not meant as personal or actionable advice to any individual, corporation, or other entity. Any investments discussed carry unique risks and should be carefully considered and reviewed by you and your financial professional. Nothing in this document is a solicitation to buy or sell any securities, or an attempt to furnish personal investment advice. Warren Street Wealth Advisors may own securities referenced in this document. Due to the static nature of content, securities held may change over time and current trades may be contrary to outdated publications. Form ADV available upon request 714-876-6200.

Should I Sell My Chevron Stock?

As a Chevron employee-turned-financial-advisor, I’m passionate about helping current employees plan for their retirements. With Chevron stock recently hitting a high of $170.901 (as of 03/10/2022), I’ve been hearing from a number of Chevron employees wondering if this is the time to sell. This is the highest price Chevron stock has hit in 10 years, and as the old adage goes, “Buy low, sell high!” Still, there are other considerations for Chevron employees, such as portfolio diversification and ESOP shares. 

While no one has a crystal ball to know what the market will do, here’s a summary of what I’ve been sharing with my clients to help them make an informed decision on whether or not to sell their Chevron stock.

1. Remember the value of diversification. 

When I first meet my Chevron clients, many are 100% invested in Chevron stock. Almost immediately, I will advise clients to consider the value of diversifying their portfolio. 

While Chevron has had a very good run as of late thanks to the political and economic factors beyond the company’s control, the stock has underperformed the S&P 500 (an index of 500 stocks) over the last 10 years, returning an annual 8% compared to the S&P 500’s 14.6% yearly return (data as of 4/01/2022)1

Had you diversified into one of the most simple indices like the S&P 500, you would have gained an additional 6% per year. While you probably don’t want to switch to being invested only in the S&P 500, you do want to recognize that it is possible to both reduce single stock risk and potentially increase or at least stabilize your investment return at the same time. 

2. Consider how global factors impact timing. 

But the stock’s up 40%1 this year (data as of 4/01/2022)!

That’s true, but it can also introduce recency bias into our decisions. The war in Ukraine has contributed to high oil prices, which is a primary reason Chevron stock recently shot up to $170.90 (as of 03/10/2022). We’ve seen oil prices skyrocket in the past, and more often than not they will make their way back down as political tensions ease, supply increases, and demand levels.

To remove the impact of the war (and for simplicity’s sake), let’s look at 10 year returns on 12/31/2021 (just three months ago). Chevron’s 10 year return significantly underperformed the S&P 500 at an annual 5% return compared to 16%, respectively1. The stock has certainly surged in 2022, but we encourage you to look past recency bias. 

If you’ve been considering diversifying or selling Chevron stock for a while now but haven’t gotten around to it yet, now is a great time to talk to your advisor to see if it makes sense for you.

3. Do NOT sell your ESOP shares. 

While ESOP shares are not a benefit for new employees, most employees who were hired over ten years ago most likely still have them. These shares are eligible for a special tax treatment that may be able to save you a significant amount in taxes. This tax treatment is known as Net Unrealized Appreciation, or NUA. In order to take advantage of this strategy, you must maintain the ESOP shares until your retirement date and follow a specific procedure in distributing your retirement assets. Talk to your advisor for a more detailed explanation.

It’s impossible to predict the market, but the best we can do is make informed decisions when given the opportunity. Hopefully, you’ve found this summary helpful — but please be sure to speak with a financial advisor before making a decision to sell. If you have any questions, feel free to reach out to me using this link here!

Len Hanson

Wealth Advisor, Warren Street Wealth Advisors

Investment Advisor Representative, Warren Street Wealth Advisors, LLC., a Registered Investment Advisor

The information presented here represents opinions and is not meant as personal or actionable advice to any individual, corporation, or other entity. Any investments discussed carry unique risks and should be carefully considered and reviewed by you and your financial professional. Nothing in this document is a solicitation to buy or sell any securities, or an attempt to furnish personal investment advice. Warren Street Wealth Advisors may own securities referenced in this document. Due to the static nature of content, securities held may change over time and current trades may be contrary to outdated publications. Form ADV available upon request 714-876-6200.

Footnotes:

  1. Data from YCharts

Could I Retire Early from Chevron?

As a financial planner whose client base is largely made up of Chevron employees and retirees, I can’t tell you how many times I’ve gotten questions about early retirement in the last year. It seems people are enjoying the freedom of working remotely and are interested in at least exploring — if not executing on — their early retirement options. 

This is an exciting prospect but a very serious decision, so I thought it would be helpful to lay out the key considerations to help my clients and other Chevron employees weigh their options. Review the points below to help you understand your choices, and feel free to reach out to me by clicking here if you would like to discuss further!

1. Review the “Rule of 55.”

Start by giving serious thought to your current age, spouse’s age if applicable, and your target retirement age. In general, 55 is the “golden age” for Chevron employees to retire early. We refer to it as the “Rule of 55.” If you leave before that, you’ll have to leverage Rule 72(T), which isn’t advisable, as it locks you into an extremely strict distribution plan. It’s also important to note that the Rule of 55 applies only to you as the Chevron employee, not your spouse (unless his or her company offers a similar plan).

2. Weigh your pension options.

For most clients, age 50-55 is a major accumulation phase — and Chevron clients are no different. Plus, the pension for Chevron employees starts really ramping up when you turn 50. The longer you stick with the company (in general), the more you accrue these pension benefits.

3. Know where your medical benefits stand.

From day one on the job at Chevron, you start accruing eligibility for retiree medical benefits. When deciding on your retirement timing, you must consider how much you have built up — for instance, when I turned 55, I was 97% eligible for retiree medical retirement benefits. But if someone retires before 50, they receive no medical retirement benefits at all. 

In Summary

No matter when you decide to retire, it’s important to find an advisor you trust, so you can be transparent and open in your financial situation and goals. While these are important considerations, there is no hard and fast rule that says you have to retire at a certain age, life stage, or on anyone’s timeline but your own. 

Take me, for instance — I could have stayed eight months longer at Chevron for slightly higher retirement benefits, but I chose to focus on pursuing my passion of helping people at Warren Street instead. My goal with clients is to lay out the options so you can make an informed decision, knowing that ultimately the choice of when to retire is no one’s but your own.

If you’re interested in speaking further about your retirement options at Chevron and what your personal timing might look like, feel free to schedule a no-cost consultation with me at the link here

Len Hanson

Wealth Advisor, Warren Street Wealth Advisors

Investment Advisor Representative, Warren Street Wealth Advisors, LLC., a Registered Investment Advisor

The information presented here represents opinions and is not meant as personal or actionable advice to any individual, corporation, or other entity. Any investments discussed carry unique risks and should be carefully considered and reviewed by you and your financial professional. Nothing in this document is a solicitation to buy or sell any securities, or an attempt to furnish personal investment advice. Warren Street Wealth Advisors may own securities referenced in this document. Due to the static nature of content, securities held may change over time and current trades may be contrary to outdated publications. Form ADV available upon request 714-876-6200.

How Interest Rates Impact Your Chevron Pension

Rising interest rates have been a hot topic in the financial press, and many of my clients are wondering what the impact will be on their Chevron pension — specifically, their lump sum. 

As a retired Chevron employee, I understand these concerns firsthand! I monitored rates extraordinarily closely myself until I retired five years ago. The lump sum option is a great one for many people, but it is massively influenced by interest rates. Even a single percentage change in interest rates can dramatically impact your lump sum number via an inverse relationship. That is to say, as interest rates increase, your lump sum lessens. And as interest rates decrease, your lump sum grows. 

This gives you the potential to walk away with a large lump sum when you retire, but it also comes with the risk and emotional drain of fluctuating interest rates. One of my clients, for example, saw his lump sum drop from $1,080,000 to $1,040,000 in a 30-day period. Changes like that can be hard to swallow, and it’s particularly disconcerting when you don’t know how long these rate spikes will last. 

At Warren Street, we follow the tier 3 rates (the IRS segment Chevron uses to calculate your lump sum) extremely closely, so we can help you run projections for your specific case. Everyone’s situation is different, so I encourage you to give me a call if you are nervous at all, regardless of your current lump sum or retirement time horizon. However, in general:

  • If you’re thinking about retiring in the next 12-24 months or so, it might be a good time. Let’s run the numbers and see.
  • If you’re looking at two to five years or more for retirement, these interest rate spikes may not affect you. When they go back down, your lump sum will rise back up. Age and service credits will also help make up the difference from any interest rate changes.

If you’re finding yourself talking to your friends, coworkers, spouse, or others about this topic, give me a call — I will help you run the numbers so you can make an informed decision. The question of, “Do I have enough?” is never an easy one, and I’m here to help you understand all your options with data-driven insights so you can make the best choice for your family.

Feel free to contact me if you have any questions,