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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,