You know the drill—every year the same difficult, complicated decisions about your Deferred Compensation must be made. How will you receive it? Over how many years? Averaged out or all at once? And once you make this decision, you are stuck with it. What we see most often is the decision being delayed until the last possible minute and often being ignored all together, pushed off until the next year or worse, making an eenie meenie miney mo guess. This lack of planning could inflict a cost compounded by the effect of lost future growth. To not dump your deferred comp, we recommend using these three steps to help guide your decision. First, take the time to pick a reasonable long term investment. Second, lay out a timeline of all past and projected elections and keep your eye on the tax. Third, don’t isolate this decision. When you are striving for the best possible outcome, you have to look at everything.

If you’re spending hours combing the Wall Street Journal and polling your friends for the best performing investment in the last 12 months you could be guilty of step number one, putting too much time into investment research. Mistakes two and three are where you need to spend most of your time. Sure, investment selection matters. But when you are dealing with long term investment decisions, it doesn’t need to be rocket science. Set your risk horizon in synch with your time horizon and start focusing on the big picture. You are really best served with a fix it and forget about it investment strategy.

Once you have your investment selection, take a step back and look at the big picture. It is a huge mistake to not review all of your past elections and look at them over time creating a rolling thunder of income and wealth for the future and not just creating an Endowment Fund for Uncle Sam. Having them all start at once and last over a short period of time, could just delay tax until you’re at a higher rate. Ouch! The real benefit of this view is treating the income management like tax management. The biggest reason to consider deferring your compensation should center on tax arguments. You need to know what it would cost you now and then estimate what your future income is going to look like. Many people mistake tax deferral for tax savings. It isn’t. Don’t make an election now that could cost you in the future.

Now onto the third step. Don’t look at the deferred Comp. Look everywhere else. Any good savings plan has an even better spending plan attached. Have you looked at Stock Options? Restricted Stock Options? Your spouse’s income and benefits package? Any election you are making without rolling up your sleeves and digging through this and more could end poorly. You need to make sure you have a plan that looks at your whole financial picture. This is going to require a dive into not just your investments, but your cash flow, your estate plan, your tax return and more. This is a great time to consult to a financial professional who can help you see the whole picture and make sure a deferred compensation election makes sense for your specific needs.

People are leaving money on the table by making bad choices with their deferred compensation. These plans are complicated and you make your permanent election once per year. Talk about pressure. It is difficult. There are a lot of factors to consider when you are making that election. The biggest mistakes you can make are focusing too much on investment returns, not reviewing past elections, ignoring taxes and not looking at the big picture. Follow these three steps to come out with the best path forward.

The opinions expressed in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investments may be appropriate for you, consult your financial advisor prior to investing. Securities offered through LPL Financial, member FINRA/SIPC. Investment advice offered through Leonard Rickey Investment Advisors, P.L.L.C, a registered investment advisor and separate entity from LPL Financial.