By Chris Heisten, CRPC®, CFP®, CSRIC®
The oil and gas industry is an essential part of the global economy, providing energy to millions of people around the world. While the work they do is vital, employees in the oil and gas industry often face unique financial planning challenges.
At Heisten Financial, we have spent years serving the Alaska oil industry, and we know what it takes to help oil workers reach financial independence. Here are the top 5 financial planning challenges oil and gas employees face and how we can help you overcome them.
Challenge #1: Early Retirement
Slope workers spend half their adult lives on the slope, spending weeks at a time away from their loved ones doing physically challenging work. Because of this, many workers in the sector aspire to retire early and enjoy their golden years while they are still healthy and active. Early retirement requires careful financial planning and diligent saving. Workers need to consider the costs associated with early retirement, factoring in potential healthcare costs, inflation, and how long they will need to support themselves before eligibility for Social Security and Medicare begins.
At Heisten Financial, we want to give you back the time away from your loved ones through our bridge to early retirement strategy. By working with us, we can help you set yourself up for a comfortable and fulfilling retirement—whether you retire early or not.
Challenge #2: Too Much Cash On Hand
Because of the demanding nature of the job, oil and gas workers are typically compensated with high salaries, and it’s not uncommon to see employees with over six figures sitting in cash. The typical rule of thumb for cash on hand is only 3-6 months’ worth of expenses; yet many oil and gas employees keep five times this amount sitting around collecting dust.
Though you may think it’s safe to hold cash, it can actually cost you in the long run since you are missing out on investment opportunities that can help your funds keep pace with inflation. Instead, consider putting excess cash to work for you through a diversified investment portfolio. By investing your extra savings, it’s possible to create an income stream and maximize your long-term financial growth and stability.
Challenge #3: Overfunding Pre-Tax Retirement Accounts
Lastly, many oil and gas employees overfund pre-tax retirement accounts and miss out on the benefits of tax diversification. Many times, oil workers will heavily rely on pre-tax retirement accounts, such as traditional 401(k) plans, to save for retirement and don’t spend much time thinking about other contribution types (like Roth accounts).
While traditional accounts certainly offer valuable tax benefits, they can also create a lack of tax diversification in retirement. Without any after-tax retirement accounts, such as a Roth 401(k) or Roth IRA, employees may be limited in their ability to manage their taxable income in retirement. By utilizing Roth retirement accounts, you can create a stream of income that’s entirely tax-free in retirement, which can be particularly useful for oil workers who expect to face high taxes in early retirement. We run scenarios to help our clients assess the pros and cons of pre-tax accounts versus after-tax accounts. We can even illustrate the benefits of a hybrid approach to retirement savings, and we help oil and gas employees determine their optimal mix of savings to maximize retirement readiness and tax diversification.
Challenge #4: Family Estate Planning & Risk Management
Oftentimes, oil and gas employees are the sole breadwinner for their families. This makes proper estate planning and risk management crucial for the financial stability of your loved ones.
Estate planning helps to distribute your assets to the right people in the event you pass away prematurely. You’ll want to have a properly drafted will or trust on file, designate beneficiaries for your retirement accounts, and minimize estate taxes as much as possible.
On the insurance side of things, life insurance and disability insurance are crucial. What will happen to your loved ones if you become severely injured, incapacitated, or pass away? Will they have enough to make ends meet? This is a very real concern due to the higher risks you face in your line of work. By taking a proactive approach to estate planning and insurance planning, employees in the oil and gas industry can make sure their financial interests are safeguarded and their loved ones are taken care of, even in the face of unexpected circumstances.
Challenge #5: Divorce
One of the most significant financial planning challenges for employees in the oil and gas industry is navigating the financial implications of a divorce. Unfortunately, divorce rates in this industry can be higher than average due to the long and demanding hours. Being away for two weeks at a time can cause rifts in relationships that ultimately lead to divorce.
Divorce settlements can be complex, and dividing assets like retirement accounts and stock options can be particularly challenging. Employees going through a divorce should work closely with their financial advisors and legal professionals to understand the financial implications of their divorce and adjust their financial plans accordingly.
Start Planning Today
The oil and gas industry offers high salaries, but with great rewards come great challenges. Employees in this industry face a unique set of financial hurdles that can make planning for the future difficult. But with proper planning and the guidance of financial professionals, oil and gas workers can overcome these challenges and build a strong financial future.
Don’t let financial stress dampen your success. Tackle these challenges head-on and pave the way for a prosperous future! Partner with us to establish a customized financial strategy by emailing firstname.lastname@example.org or calling 907.222.6270. Or schedule a complimentary assessment today!
Chris Heisten is the President and Founder of Heisten Financial LLC, a fee-based boutique financial planning firm focusing on giving clients back their time so they can spend it doing what’s most important to them. Acting as a true fiduciary for his clients, Chris aims to solve their financial pain points and move them toward financial freedom. In the financial industry since 2007, Chris partners with business owners and oil workers on their journey through life, striving to instill calmness and a sense of direction as he simplifies the complex. He loves nothing more than seeing clients experience relief when they achieve what they thought was impossible.
Chris graduated from the University of Maine, where he played hockey on a scholarship, and retired from professional hockey in 2007. In the community, he remains engaged serving as a youth hockey coach. Chris holds the CERTIFIED FINANCIAL PLANNER™, Chartered Retirement Planning Counselor℠, and Chartered SRI Counselor™ designations. Outside of the office, he enjoys trying new food and wine, reading, traveling, playing golf and hockey, fat tire biking, and donating to local charities. His passions include being a husband and dad, lake life with the family, watching his son and daughter play sports, and spending time with his wife. To learn more about Chris, connect with him on LinkedIn.