How to Decide How Much Company Stock Is Too Much When Retirement Is 10 to 15 Years Away

At 41, half of Svetlana's net worth rides on one chip stock

Svetlana, a 41-year-old product director at a chip designer, holds $400,000 of shares she exercised more than a year ago. She also has vested incentive stock options (ISOs) with about $600,000 of spread, which is the gap between today's share price and what she pays to buy them. Together that is $1 million of a $2 million family net worth, so 50 percent sits in one ticker. Her husband Pavel, 43, teaches high-school music and has about $150,000 in a 403(b) invested in broad funds.

They want to stop full-time work around 55, which is 14 years out. That leaves time for compounding and for the catch-up years, when savers over 50 can put in extra. The question here is how much of that $1 million is too much, and in what order Svetlana brings it down. The size of this year's ISO exercise and its alternative minimum tax (AMT) are covered on the ISO exercise planning page; this article is about the size of the stake.

Is a fifth the right line for someone 14 years from retirement?

Yes, a fifth is a workable line at 14 years out: if one stock is more than 20 percent of your net worth, cutting it comes before choosing funds. Under 10 percent rarely needs action. Between 10 and 20 percent, you trim a little with each vest and keep the shortcut in view.

Count everything that moves with the share price. Modera Wealth Management starts the tally with these four items, and puts unvested RSUs on a separate line because they aren't yours yet.

Losses compound against you. A 30 percent drop needs about a 43 percent gain to get back, and a 50 percent drop needs a 100 percent gain. At 41 there's time to recover. At 52 there often isn't.

Options magnify the hit. Say Svetlana's total exercise cost is $100,000. If the share price falls 40 percent, her shares' value goes from $700,000 to $420,000, and the spread drops from $600,000 to $320,000, a fall of about 47 percent. Plain shares lose 40; options lose more.

What counts toward the fifth

Why losses compound against you

• Exercised shares you own
• Spread on vested options
• ESPP shares
• Company stock inside the 401(k)

A 40 percent drop costs Svetlana $400,000, or five years of saving

For illustration (hypothetical): Svetlana, 41, counts only her own stake. She holds $400,000 of shares exercised over a year ago plus $600,000 of spread on vested ISOs, so $1 million of a $2 million family net worth, or 50 percent. A fifth would be $400,000. The family saves about $80,000 annually, so every $80,000 lost equals one year of saving.

The answer flips at the 35 percent row, where the loss passes $250,000 and refilling takes more than three years of saving. The loss column grows in step with the share, but the years-to-refill column turns one bad year into five.

At a fifth, a 40 percent fall costs her $160,000. At half, it costs $400,000. Same drop, two and a half times the damage.

Now add time. The $400,000 loss, compounded at an assumed 5 percent a year, is about $792,000 less by age 55 ($400,000 × 1.98 over 14 years). Losing the same amount at 52 takes away less future growth, about $63,000 by 55, but it leaves only three years to refill the hole.

The catch-up years help, though only modestly. The IRS limit for 2026 lets a 401(k) saver at 50 add $8,000 on top of the $24,500 deferral, for $32,500 in total. Even at that maximum, $400,000 takes more than 12 years to refill from saving alone. Any stock, including a broad fund, can lose value, and that includes the money originally invested.

Svetlana chose to sell the long-held $400,000 over the next two windows into a broad index fund in a taxable account. She'll trim the ISOs over three years. You can run your own numbers in the calculator on this site.

The four rows on her $2 million

What the lost $400,000 does by 55

Does Pavel's 403(b) change how much is too much?

No, Pavel's 403(b) makes the family sturdier but doesn't lift the line above a fifth. His teaching paycheck doesn't move with the chip stock, which helps. If Svetlana died, Pavel would generally inherit the shares with a basis reset to market value. At $2 million they're far below the IRS estate exclusion of $15,000,000 per person for 2026, so the sell-down is about retirement and the children's college years.

From the January Form 3921 to December 31: the dates that set her pace

January comes first. The IRS Form 3921 for last year's ISO exercises arrives by January 31, along with the W-2. Svetlana pulls the grant date, exercise date and exercise price for each lot from it. The grant and exercise dates decide which shares are long-term, and the exercise price sets her cost basis.

Trading windows usually open a day or two after each quarterly earnings release and close weeks before quarter end. Mid-April is both the filing deadline and the due date for the first quarterly estimate. If Svetlana sells in spring, she parks part of the proceeds in cash to cover that payment.

Lot by lot, an ISO share qualifies once it has been held more than one year from exercise and two years from grant. Shares held one year or less are taxed at ordinary rates when sold. Fall open enrollment sets next year's 401(k) deferral, and December 31 is the last trade date that counts for this tax year.

• January 31: Form 3921 and W-2
• After earnings: window opens
• Mid-April: tax deadline, estimated payment
• Fall: set next year's deferral
• December 31: last trade for this year

Two families at 20 percent, two different answers

Take a hypothetical couple, 52 and 50, who both work at the same company. They have $1.5 million of net worth with 20 percent, or $300,000, in company stock, and they plan to retire at 60. A 40 percent drop costs $120,000 and may hit both paychecks at the same time. They should aim nearer 10 percent.

A second hypothetical family: she's 46 and he's a nurse with a steady salary. They have $3 million of net worth, 20 percent in stock ($600,000), and also plan to retire at 60. They can stay near a fifth and trim with each vest.

The difference is job risk and time. A shared employer doubles the exposure, and fewer years to retirement leave less room to refill a loss. The fifth is a shortcut, not a law. It doesn't count job risk, and it doesn't decide how many ISOs to exercise or how much AMT is acceptable; at Modera Wealth Management that belongs to the ISO review.

Is Svetlana on the pre-clearance list before the next window opens?

Ask the stock plan administrator three things. Are you on the pre-clearance list? When does the next window open and close? Is a Rule 10b5-1 plan allowed (the SEC rule for pre-set trades), and how long is its cooling-off period? One answer should worry you. If you're a designated insider and windows have closed early before, only a 10b5-1 plan set up now keeps the sell-down moving.

Three paths for $600,000 above the line, and why Svetlana took three years

The three paths compare on the same things: the tax bill, the loss if the stock falls 40 percent while she waits, and the effort. Option one sells everything above $400,000 now. Option two sells over three years. Option three holds until every ISO share qualifies. Modera Wealth Management works out the tax bill of each lot before suggesting any sale.

Her order of moves follows from the table. She starts with the $400,000 of shares exercised more than a year ago, because any gain on them is already taxed at long-term rates.

Asset location matters here. The sale proceeds land in the taxable account, so they go into a broad stock index fund there. Bond funds belong in the 401(k) or Pavel's 403(b), where switching funds creates no current tax.

Putting off the first sale until after the next vest or earnings report, quarter after quarter, is a mistake of timing. Svetlana's $600,000 above a fifth, held another year, loses $240,000 in a 40 percent drop. Waiting can't save more tax than that: even a 37-point rate gap on a $600,000 gain is only $222,000.

First moves, in order

• Count the stake, spread included
• Sell $400,000 of long-held shares
• Exercise and sell ISOs over three years
• Raise 401(k) deferral to $24,500

Modera Wealth Management starts with the grant summary and the cost basis

Modera Wealth Management would first ask for the equity plan's grant summary, last year's Form 3921 and the taxable account's cost-basis report. From those it works out what fraction of the household's wealth rides on the employer's share price. Next it would look at what sits in the 401(k) and 403(b), so the proceeds from any sale have a planned place before a share is sold.