Expense Account Withdrawal
from
May/June 2006
by Carol Vinzant
The next time you plan a vacation around an official meeting
in Bermuda, play a round at Gleneagles, or sprawl out in first class to
Tokyo, consider this: Many directors and executives are so accustomed
to expense-account living that they don’t calculate correctly how much
they’ll need to maintain their lifestyle in retirement.
According to Lee Eisenberg’s bestselling book,
The Number: A Completely Different Way to Think About the Rest of Your Life
(Free Press, 2006), dependence on an expense account can vastly affect
how much you’ll really need after you start to cut back on business
commitments. “Throughout my research for
The Number
,
financial advisers and major-league money managers told me repeatedly
that senior executives and directors routinely underestimate the
lifestyle value of perfectly legal and justifiable perks,” Eisenberg
says. “When those advisers point out how much it would cost to maintain
these indulgences with real money, their clients typically go silent
for a moment or two.” For example, suppose you lean on your expense
account to the tune of $50,000 a year, which isn’t that unusual for top
executives and board members. When you’re paying the tab, that $50,000
takes on a new look. If you’re relying on capital to cover it, it’s
about what a conservatively invested $1 million would generate in
interest.
The postbubble years have seen many scandals
involving high-on-the-hog expense-account living, of course—notably
Tyco’s picking up much of the $2 million tab for Mrs. Dennis
Kozlowski’s birthday celebration on Sardinia. In some cases,
controversial spending has spilled into retirement perks. Jack Welch’s
ex-wife revealed in her divorce case against the former GE chairman
that the company had agreed to an extraordinarily generous goodbye
package for him, including maintenance on a $15 million apartment in
New York City that GE paid for, along with such additional perks as the
use of a company jet and company sports tickets to enjoy into dotage.
Welch subsequently bought the apartment from GE and canceled many of
the promised benefits.
Nate Wenner, a financial consultant at Wipfli Hewins Investment
Advisors in St. Paul, Minnesota, and a spokesman for the Financial
Planning Association of Minnesota, says the write-offs many board
members and executives will miss will be those on the border between
business and personal, such as dining out with fellow directors and
their spouses and even getting refunded high-speed Internet access at
home. Once Wenner’s clients have a clear picture of what they’re
spending—whether they ultimately pick up the tab or the company does—he
helps them figure out what they’re ready to live without when they
retire, what they’re willing to spend their own money on, and what it
will cost them.
Eisenberg says that despite talk about being frugal, executives at many
companies will find something to miss once their expense account
retires. “Even though upper-management ranks may be leaner these days,”
he says, “I get the sense that those who continue to occupy them
haven’t suffered much de-perkification.”
