Traditional financial planning offers practical tools for rank-and-file employees; however, it simply doesn’t capture the full breadth of complex financial situations and compensation benefits a credit union executive has to manage in the C-suite. For example, beyond a standard 401(k), executives may also have a 457(b), 457(f), or split-dollar plan with different income distribution timings and tax consequences that traditional financial education doesn’t address. With a general lack of financial education available for executives, credit union leaders often can’t realize the full impact of their benefits suite without professional, strategic financial planning. 

Paul Lloyd, CFP®, a wealth planning specialist with ACT Advisors, joined colleague Doug English, CFP®, on “C.U. on the Show” to discuss how credit union executives can make the most of their benefits and retirement income through financial planning and optimizing their existing resources. Paul has over 17 years of experience in financial services and helps ACT clients craft personal strategic financial plans. He also leads the research and analysis compiled in ACT white papers, including the latest, “The 125% Credit Union Executive.” 

Same Executive, Same Benefits, 25% More Resources Through Planning

“The 125% Credit Union Executive” describes how financial planning is one of the least expensive executive benefits a credit union can offer while also being one of the most effective in significantly increasing their financial outcomes—by as much as 25%. Doug and Paul discuss the case study included within the white paper and several examples of how conventional financial wisdom does not necessarily apply to executive benefits and compensation, focusing on three concepts: income timing, risk allocation, and income tax planning. 

Conventional vs. Executive Financial Planning

One of the examples they talk about includes the risks of taking 457(b) withdrawals over time rather than in a lump sum. For one, the credit union technically owns the account, and the executive could be at risk for forfeiture by not taking those assets in a lump sum. 

Additionally, conventional wisdom tells us to spread tax impact over several years. For example, executives would likely pay taxes at the top rate in the first year of their retirement with a lump-sum distribution. However, with the use of lower-taxed accounts such as a split-dollar or personal savings, they could be at a significantly lower tax rate—possibly even single digits or zero—in the subsequent years. In doing so, executives could position themselves for further tax planning opportunities, such as Roth conversions and qualifying for low-cost private health insurance, ultimately putting them ahead financially.

Another example involves allocating risk, particularly in a 401(k). Traditional financial education advises to decrease risk in a 401(k) to avoid high volatility as one approaches retirement. However, with multiple retirement income sources, executives may not need to use 401(k) assets for several years, giving them plenty of time to increase their earnings with a more aggressive risk allocation. In other words, executives should consider allocating their risk based on the projected consumption timing of that income rather than their retirement date.

Benefits to the Credit Union 

When credit unions offer financial planning to their executives, they help them realize the full potential of their benefits and replace obscurity with tangibility. It can also be a point of difference when recruiting and retaining top talent in the current labor market, abating concerns related to early CEO retirements and The Great Resignation phenomenon. With the ability to view their comprehensive financial picture and understand income distribution and consumption timings, executives can feel more confident leading their organization, for as long as possible, without worrying about their personal finances.

Listen to the full podcast, which delves further into the case study and provides measurable data and insight. The white paper is also available for download at

Audio Transcription (pulled from the podcast)

Doug  00:00

Returning to the show today is special guest Paul Lloyd. Paul is a CFP® at ACT Advisors, where he focuses on developing financial plans for credit union executives. Paul has been doing some substantial analysis of planning strategies for credit union leaders and he joins me today to share his latest research. Paul, welcome back to the show. Now I know you’ve been working on your latest research paper on the 125% executive. Tell our listeners, what does that mean?

Paul  00:30

In this paper, we’re proving that we can increase financial outcomes for credit union executives, which is measured by median terminal asset value, by as much as 25% by simply optimizing the use of their existing resources.

Doug  00:44

Wow, Paul, those were some of the geekiest words we have ever heard on this podcast. I think you said you’re going to increase the amount of money they have at the end of their lives by 25%. And you’re going to use some fancy financial planning software to do that. Is that right? 

Paul  00:59

Yeah, that’s what I said in a nutshell.

Doug  01:02

Awesome. Well, tell me more about that. Take us through how that works. And why did credit union executives need that in the first place?

Paul  01:09

Okay, well, most financial education content is really built more for the rank-and-file employee who’s able to save enough for retirement through traditional means. But once people move into the executive suite, we find that there are just not enough tools out there to address the needs that they have with their enhanced benefits packages. Over the lifecycle of the credit union executives, we see 401(k)s, 457(b)s, collateral assignment split-dollar plans, stay-put bonuses, each of those have different timings, tax consequences, etc. that we need to consider that just isn’t addressed by most traditional education out there.

Doug  01:46

All right. Well, that makes sense, right? Most folks do not have 457(b)s and collateral assignment plans. So of course traditional education is not going to address that. So, tell us a bit more about how you can improve the outcomes by 25%? What does that mean? 

Paul  02:03

Through the use of a case study, we examine three basic issues, which are income timing, risk allocation, and income tax planning. And through these three concepts we show how you can piece your benefits together in a way that’s different than what you might have always heard from traditional financial education in a way that improves your outcomes substantially over your lifetime.

Doug  02:24

Well, walk us through what you did. You said income timing first. 

Paul  02:29

Income timing, yeah, that’s the first one. We’ll take them one by one here. First one is income timing. And that’s centered mainly around the withdrawal of 457(b) assets, since 457(b)s are one of the most common benefits that we see out there in addition to the traditional 401(k). If you were to follow most conventional wisdom there, an executive would typically say, well, that’s an entirely taxable account. So I think I’ll take that out over some period of time, maybe 5 years, 10 years, and spread that tax liability out over time. But we see a lot of these on a regular basis. And one of the major concerns is that the 457(b) plan, even if it’s funded by the employee, is technically an asset of the credit union. So it’s at risk of forfeiture. So many executives want to take that money out as quickly as possible. In our case study, we’ve compared taking it out over a period of time, for instance, 10 years, versus taking it all in one lump sum after retirement, as we see a lot of executives do. 

Doug  03:30

Hmm. So they take it down in one lump sum because they’re worried about substantial risk of forfeiture. And I heard that too. So that makes sense. But are you saying that there are other reasons to take it in one lump sum? Tell us more about that.

Paul  03:44

What we see with a lot of executives is if you take that tax hit immediately after retirement by taking out the 457(b) plan, it sets up a number of years between retirement and age 72 when you have to start taking out money from your 401(k) in which they can live on a combination of their tax-free split-dollar plan and personal savings. So this results in many years where they have unusually low effective tax rates,

Doug  04:11

I’m used to seeing credit union leaders in the 30% plus tax bracket very consistently. So when you say unusually low, what are we talking about?

Paul  04:22

In many cases, we’re talking about single-digit effective tax rates. Many of these executives are going from 27, 28, 30% effective tax rates in their last few working years, all the way down to in some cases zero.

Doug  04:36

Wow. If they follow traditional thinking, you’ve got your 457(b) and you take it out over 10 years, you’re going to be paying let’s call it a medium rate of tax over 10 years, but you’ll never peak up into the big high tax bracket. So your data is showing that going and paying at the top rate in one year and then paying almost no taxes the additional years, they’re going to come out ahead.

Paul  05:03

That’s correct. And it also sets up a couple of other important tax planning strategies. The first one is healthcare. One of the biggest concerns for any retiree if they’re retiring before age 65, when they qualify for Medicare, is the cost of private health insurance. So in the example that we use, the executive retires at 62, they take the 457(b) income the next year at 63. And then they have a couple of years there where they have to find their own health insurance through the private exchange. So since they have very little taxable income, in those years they’re able to qualify for premium assistance tax credits for purchase of healthcare through the Obamacare exchange. Instead of seeing insurance rates in the neighborhood of 25 to $26,000 a year for a couple, they’re able to qualify for tax credits that lower the cost to only about $1,400 a year. So that’s a massive savings for those two years. 

Doug  06:00

Per year, $26,000 a year in health insurance costs. I know that’s what we’re used to seeing here is around $1,100 per person per month, right? You’re going to get their after-tax credit cost down to maybe $100 a month from $1,100 a month. Is that what I’m hearing?

Paul  06:21

That’s right, people always kind of look at us like we’re crazy a little bit with that. For many executives who’ve been highly compensated for a number of years, they think that’s unrealistic to pay that little for health insurance through the exchange, but it’s a situation we can create through proper timing of the income, and also something that’s made possible by the tax-free nature of that split-dollar income.

Doug  06:42

Yeah, well, I know that the split-dollar plan has the biggest impact on someone’s financial analysis of anything that we’ve ever seen. But this idea of taking the 457(b) in one lump sum so it ends up in a lower overall amount of taxes. Is that right? 


That’s correct. 


So low overall taxes, and then it potentially is up to them to qualify for super low health insurance through the Obamacare tax credits. Is there anything else?

Paul  07:12

The other tax planning opportunity we look at is Roth conversions. The two years that they’re qualifying for tax credits for health insurance, they have to be very careful about how much income they recognize, either through 401(k) withdrawals or recognition of income from their personal savings. But after age 65, when they’re on Medicare, they still have it until age 72, while they still have super low effective tax rates. So these are prime opportunities for Roth conversions, which would be converting traditional pre-tax 401(k) savings over into a Roth. That way, they can recognize the income and lower rates that they would have a few years down the road. And then they’re also reducing the size of their pre-tax account that is subject to RMD at age 72.

Doug  07:57

In the example, which our listeners can see in our blog, at On our blog, you can see the example that Paul has been referencing. So this person ends up with a 457(b) balance of $100,000. It looks like is going to get a collateral assignment plan of $100,000 a year in income and has a $150,000 rollover IRA. How much did this person end up converting in their Roth? Do you have that in the data?

Paul  08:31

Between ages 65 and 72, they converted a total of $140,000 from 401(k) to Roth during those years.

Doug  08:39

Okay, so a reasonable amount, not a humongous amount. And they did that because they had those single-digit tax opportunities, and they got past 65. So they were past 65. And now they got Medicare for their health insurance. They don’t have to worry about the Obamacare income limits anymore. But when they do these Roth conversions, they still have to watch out for Social Security taxation, right? Assuming most executives are probably paying tax on 85% of their Social Security anyways, then these Roth conversions are a way for them to reduce their future required minimum distributions by taking them at a low tax right now. And I know in your example, which again, our listeners can see and not just hear, we project that this executive is paying no more than 3% effective income tax rate between age 64 and age 71. And those required minimums kick in and they go up to a 12% plus bracket for the rest of their life. So the difference between those things, that’s the Roth conversion opportunity. You could say, take that 3% bracket up to 10; well, you’re still saving money. So let’s move on to the next subject. I think after the income planning was about risk allocation. Talk me through that. 

Paul  10:00

Perhaps this is the most important factor that we look at. Most traditional education or financial wisdom would tell you that as you’re approaching your retirement, you should gradually taper down the risk levels in your retirement accounts. You don’t want to have those high levels of volatility when you’re getting close to consuming the money. But the examples that we present show that the executive does not need to take any withdrawals from the 401(k) at age 62 all the way until they turn 72 and start having to take the money out through required minimum distributions. So that’s a 10-year timeframe. And that’s way more than enough time for the executive to keep a higher risk level in their 401(k). Instead of backing off from, say, an 80/20 mix of stocks and bonds for retirement, we have this executive continuing that aggressive stance all the way through age 70, when they’re getting close to the RMD age.

Doug  10:52

Let’s talk about the example. And then we’ve had a previous podcast on this subject. In our example here, we’ve got the executive retiring in the year 2036. So if this person went out and did what most people do, if you listen to our podcast on target date funds in 401(k)s, you know that I think it’s something like 85 cents on each dollar that goes into a 401(k) goes into a target date fund. And that makes sense, right? Because they’re easy, and they’re done for you. And they automatically get more conservative generally. So they make a lot of sense. However, if this credit union executive picks a 2035 target date fund, that fund is built around the assumption that she’s going to retire and begin spending the money in the year 2035. So I assume that means she’s probably going to have a middle road level of risk in that target date fund. Right? And so, what you just said is that she’s not actually going to consume any of the money until not 2035, but 2045. And then even then, the amount that you’re projecting her to consume is very modest, that she could be substantially more risky, like maybe even twice as much risk as would be in the target date fund for 2035. Is that right, Paul?

Paul  12:20

That’s right. Really, what we’re saying here is that the date in which you plan to consume the money or start consuming the money should drive that risk allocation more than your retirement date. The traditional thinking is looking at the date I’m retiring and not really drilling down to when am I actually going to start using the money,

Doug  12:39

That’s a huge takeaway. So time, the risk you take in your assets, along with the consumption of those assets, not a different thing, which is your retirement date. So if you don’t consume the assets for a long period of time, and even then, very nominally, then your risk should be very different than traditional education would say for your retirement date. We’ve talked all about the benefits to the credit union executive from this 25% more money they get at the end of their life as a result of doing this detailed planning. What about the credit union? You know, the credit union, as we know, is genuinely paying for this kind of work for executives in the $500 million plus credit union space. So what’s the benefit to the credit union of doing this kind of thing? 

Paul  13:35

First of all, I think one of the biggest impacts to the credit union is that engaging in this process of optimizing a financial plan can help the executive fully realize the potential of their benefits package. Credit unions spin hundreds of thousands of dollars every year to fund collateral assignment split-dollar plans, 457(b) and (f) plans. But financial planning is perhaps the cheapest benefit that they could pay for for the executive and make the most impact. For instance, a financial planning subscription service costs about $6,000 a year. As we’re showing through our plan here, it’s able to maximize the benefits that the credit union executive has, improving their outcomes by 25%. So that’s a lot of bang for your buck there. And it also helps these benefits become a little more tangible to the executive and brings them a certain peace of mind that helps them focus on leading their credit union versus worrying about their own financial plan. 

Doug  14:28

Yeah, I know and seeing the work that you’ve done in this area, that the tangibility is really big, because in your planning, you show the executive that in the year when he retires and, in our example, in 2036, in 2037, she’s going to need to get $144,000 out of the plan in order to live. And where’s that money going to come from? It’s going to come from the money that came out of the 457(b) that you paid tax on and the money that is in there is going to cover her for the next three years of her living expenses. So that tells you that the money that she got from the 457(b) should be invested in a really conservative way, right? Because we know she’s going to consume that in this period of time and is just being in the stock market with the money that is going to be consumed back quick. That just doesn’t make sense. But you offset that loss of potential earnings by taking much more risk in the 401(k) because we know that money is not going to be needed for a decade or more. So I think that’s the kind of tangibility you’re talking about. One of our clients refers to that as her runway, she wants to know where is her income coming from for the next five years, and she wants that to be in pretty conservative positions, because she just doesn’t want to have to worry about where I’m going to be able to pay for my groceries for the next several years. But when you do that kind of specific planning, all the executives understand exactly where it’s going to come. Instead of just sort of funding this account that’s growing and growing and growing, you’re funding this account that you can tell exactly when it is you’re going to consume it and use it to pay for your trips or to pay for your whatever it is, the lifestyle choices that you would like to make. All right, Paul, thanks very much for being on the podcast again today. Thanks for your information and all your research. We are going to post this research paper available for download at under a credit union executive, and also on our blog. Thanks everyone for joining us on “CU on the Show.” 

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