February 2026 - EverPar Advisors

Retiring in 5 Years or Less? How to Build an Action Plan to Retire with Confidence

By Ken Petrashek,CFP®, EverPar Advisors

I start almost every discovery meeting with pre-retirees the same way. I ask them: what does retirement mean to you?

The question catches people off guard sometimes. They’re expecting to talk about numbers and accounts and investment returns. But I’ve learned over the years that the most important question isn’t “how much do you have saved?”

The most important question is “what are you actually retiring to?”

Here’s what I typically see. Someone comes in and they’ve done everything right. They’ve saved consistently. They’ve built up $800,000, or $1.2 million, or whatever their number is. They’ve read the articles that say they need $1.5 million to retire comfortably. And they’re anxious.

The textbook definition of retirement is that you quit working at your company and you live off your pension or 401(k) or some combination of the two. But that’s not how most people think about it anymore.

Most people in their 50s and early 60s don’t want to fully retire. They want to downshift. They want to change gears. They’ve been doing the same thing for most of their career, and they’ve saved some money, and now they’re asking: when can I shift?

That’s a fundamentally different question than “when can I stop working entirely?”

I have clients who retire from their corporate job but keep consulting. I have clients who leave full-time work but pick up adjunct teaching, or serve on boards, or start something completely new. I have clients who do truly retire in the traditional sense.

The point is, you need to define what retirement actually looks like for you before you can plan for it.

And that definition changes everything about how we approach the numbers.

What the research shows

The anxiety around retirement timing is real, and it’s pervasive.

According to the Employee Benefit Research Institute, 70% of workers with more than $500,000 in retirement savings still express significant anxiety about retirement timing.* Even people who have saved substantial amounts feel uncertain.

*Source: Employee Benefit Research Institute, Retirement Confidence Survey

Northwestern Mutual found that Americans believe they need $1.26 million to retire comfortably.** That number has fluctuated over the years, but the larger point is this: people are fixated on hitting a specific savings target, and they’re stressed about whether they’ll get there.

**Source: Northwestern Mutual, Planning & Progress Study 2025

J.P. Morgan research shows that 6 in 10 retirees experience spending fluctuations of 20% or more during their first three years of retirement. Half of retirees between ages 75 and 80 continue to experience year-to-year spending volatility.***

***Source: J.P. Morgan Asset Management, Guide to Retirement

This data tells us something important. Having a number in your account doesn’t mean you’re ready to retire. Knowing your “number” and psychological readiness are two different things.

And your spending in retirement is going to change in ways you probably haven’t fully anticipated.

So if you’re five years out, here’s what we need to work through.

1. Clarify what retirement actually looks like

I talked about this at the start, but it’s worth drilling down on because everything else flows from this.

Will you actually retire, or are you downshifting?

Are you planning to stop earning income entirely? Or are you thinking about moving to part-time work, consulting, or something less demanding?

There’s no right answer here. But the answer changes your income planning, your Social Security strategy, and your withdrawal approach.

If you’re going to keep earning $40,000 or $50,000 a year doing consulting work or part-time teaching, that’s $40,000 or $50,000 you don’t need to withdraw from your portfolio. That changes the math significantly.

A lot of the people I work with, especially those in their 50s, realize they don’t actually want to stop working. They just want to stop doing what they’ve been doing. That’s a critical distinction.

Housing: staying or moving?

Are you staying in your current home? Downsizing? Moving to a different state?

If you’re considering a move, you need to understand the cost-of-living comparison. Some people assume they’ll save money by moving somewhere cheaper, but they don’t always factor in things like higher property taxes, healthcare costs, or the reality that they end up traveling back to see family more often than they planned.

And if you’re thinking about downsizing, when does that happen? Is it something you do right as you retire, or is it a few years down the road?

These lifestyle questions can have financial consequences.

How will you fill your time?

This one is harder for people to think about, but it matters.

If your identity and your sense of purpose have been wrapped up in your work for the last 30 years, what replaces that when you retire?

I’m not a therapist, so I’m not going to tell you how to solve this. But I will tell you that the clients I work with who have the smoothest transitions are the ones who’ve thought this through. They have hobbies. They volunteer, and they have projects. They know what they’re going to do with their time.

The ones who struggle are the ones who retire because they think they should, or because they hit some magic age, but they haven’t really figured out what they’re retiring to.

Have you gone through comprehensive financial planning?

If you haven’t worked with a CFP® professional to build out a real plan, now is the time.

That plan should show you how all the pieces fit together. Your investments, your Social Security strategy, your tax situation, your estate documents, your insurance needs. How does it all work?

Here at EverPar Advisors, we have a coordinated team of planners & investment specialists that can help you map it all out.

2. Understand your expenses

Most people have a reasonable sense of what they spend now. But retirement spending is different.

What will your debt service look like?

Are you going into retirement with a mortgage? Student loans? Car payments?

For a lot of people, the house is the biggest remaining debt. And the question is: does it make sense to pay that off before you retire, or do you carry it into retirement?

The answer has changed over the years. Five or seven years ago, when interest rates were 2.5%, I told people: don’t pay off your house. If you can afford the mortgage payment, keep it. It’s cheap money. You’ve got this big chunk of capital that you can save, invest, and live off instead of tying it up in home equity.

Today, if somebody financed a house in the last couple of years and they’re paying 6% or 7%, that’s expensive money. That changes the calculation.

There’s no universal rule. It depends on your interest rate, your cash flow needs, and your overall financial situation.

How will your spending change?

You’re going to have more time in retirement. What does that mean for your spending?

Maybe you’re planning to travel more. Maybe you’re picking up new hobbies. Maybe you’re helping your kids financially in ways you weren’t before.

On the flip side, maybe you’re spending less on commuting, work clothes, or going out to lunch every day.

The research shows that spending is volatile in the early years of retirement. Some people spend more than they expected. Some people spend less. It’s hard to predict.

But you should at least think through what your spending might look like. Don’t just assume it’ll be 80% of what you’re spending now. That rule of thumb doesn’t always hold.

Have you planned for healthcare costs?

This is where people consistently underestimate.

In 2026, Medicare Part B premiums are $202.90 per month. That’s up 11.6% from 2025. Medicare Part D has a $2,100 out-of-pocket maximum.*

*Source: Centers for Medicare & Medicaid Services

According to HealthView Services, the average 65-year-old couple will spend $955,411 on lifetime healthcare costs. That includes premiums, deductibles, copays, vision, hearing, and dental. First-year costs average $17,003 and rise to $55,513 by age 85.**

**Source: HealthView Services, 2025 Retirement Healthcare Costs Data Report

Healthcare inflation is running at about 5.8%, while Social Security’s cost-of-living adjustment for 2026 is 2.8%. Healthcare costs are rising faster than your Social Security benefits will keep pace with.

If you’re retiring before 65, you need a plan for health insurance. Are you buying coverage on the ACA marketplace? Do you have retiree coverage from your employer? Can you get on your spouse’s plan?

Silver-level ACA plans can run $800 to $1,200 per month, depending on where you live and your income level. That’s $10,000 to $15,000 a year just for health insurance before you retire on Medicare.

And if you need long-term care down the road, those costs are substantial. A private nursing home room averages $11,294 per month. Assisted living is $6,313 per month.***

***Source: Genworth Cost of Care Survey 2026

You don’t have to solve all of this right now. But you need to understand the scale of these costs and factor them into your planning.

3. Understand your income sources

When the paycheck stops, where does the money come from?

Your withdrawal strategy

If you have a combination of IRA money, Roth money, and taxable accounts, there’s a right way and a wrong way to withdraw.

It depends on what resources you have and what your goals are.

The SECURE Act changed a lot of this. There was a time earlier in my career when we were telling people: don’t withdraw from your IRA. Let that be the last bucket you tap. Take money from your taxable accounts first, avoid triggering taxes on the IRA for as long as you can.

Now, for people with heirs, that advice has flipped. If you’ve got non-qualified accounts that will get a step-up in basis when you die, it often makes more sense to spend down the IRA money during your lifetime. You pass the taxable accounts to your kids with the step-up, and they avoid the capital gains tax.

Beyond the account structure, there’s also the type of investments you own. Some investments pay interest and dividends. Some are focused on growth.

When you’re in the accumulation phase, you’re saving so you can live off it someday. When you’re in the distribution phase, you’re living off those savings. The investment strategy should change between those two phases.

In a perfect world, you want to generate enough interest and dividends from your portfolio that you never have to sell shares to produce income. If you can do that, you’re never going to run out of money, because you’re not even touching the principal.

That’s not always realistic. But the point is, we want to think about how your portfolio is structured to produce the income you need.

Social Security

Here’s my philosophy: if you can delay Social Security, delay it.

When you delay, you increase your monthly benefit. And when you increase your benefit, you decrease how much you need to withdraw from your portfolio.

That’s important for two reasons.

First, obviously, a higher Social Security check gives you more guaranteed income. That’s valuable.

Second, and this is something people don’t always think about: you can’t pass your Social Security benefits to your kids. But you can pass your investment accounts. So if you take Social Security earlier and live off that income, you’re preserving more of your portfolio for the next generation.

Now, that advice assumes you have heirs you want to leave money to. If you don’t have kids, or if you’re not concerned about leaving an inheritance, the calculation might be different. You might decide to take Social Security at 62 or 65 and start enjoying it.

There’s no one right answer. But you need to coordinate your Social Security claiming strategy with your overall tax plan and your withdrawal strategy.

Pensions

If you’re leaving a job with a pension, you need to understand your settlement options.

Do you take a lump sum or an annuity? If you take the annuity, what happens to your spouse when you die? Do you have survivor benefits?

There’s also the question of early withdrawal penalties. If you’re under 59½, you generally pay a 10% penalty on distributions from retirement accounts. But there are exceptions.

One exception that’s relevant for many of the public safety folks I work with through the Trade Priorities & Accountabilities Act of 2025: if you’re in law enforcement and you have a defined benefit pension with a DROP fund, you can avoid that penalty if you leave the money in the DROP account or in a qualified retirement account. If you roll it to an IRA, you lose that public safety status and you’re subject to the 10% penalty if you withdraw before 59½.

I’ve had to fix this for people who got bad advice from someone who didn’t understand the rules. They were told they could roll it to an IRA and still avoid the penalty. That’s not true.

So if you have a pension, especially if you’re in public safety, make sure you understand the rules.

Required Minimum Distributions (RMDs)

RMDs begin at age 73 under current law. That’s going to increase to age 75 in 2033.

If you don’t take your RMD, the penalty is 25% of the amount you should have withdrawn. That’s down from 50% before the SECURE 2.0 Act, but it’s still substantial.

The strategy here is to plan ahead. If you’re 67 or 68 and you’re not taking distributions yet, this is a great time to think about Roth conversions or other strategies to reduce the size of your IRA before RMDs kick in.

Health Savings Accounts (HSAs)

If you have an HSA, this is one of the best accounts you can own.

You get a tax deduction when you contribute. The money grows tax-deferred. And if you use it for qualified medical expenses, it comes out tax-free.

That’s a triple tax advantage. No other account offers that.

If you’re still working and you’re on a high-deductible health plan, maximize your HSA contributions. And if you can afford to pay your medical expenses out-of-pocket and let the HSA grow, even better. You’re building a tax-free pool of money for healthcare costs in retirement.

4. Optimize your investment strategy

As you get closer to retirement, your investment strategy should evolve.

What types of investments do you own?

Are your investments focused on growth, or are they producing income through interest and dividends?

When you’re 10 or 15 years from retirement, you can take more risk. You’ve got time to ride out market downturns. But when you’re three or five years out, you need to start thinking about stability.

The research shows that many people stay too aggressive as they approach retirement. Morningstar warns about this. U.S. stocks have returned about 15% annualized over the past decade, and that’s created some complacency. But sequence of returns risk is real. If the market drops 30% in the first two years of your retirement and you’re withdrawing money, that can permanently damage your portfolio’s ability to recover.

The recommendation from most advisors is to de-risk five to ten years of spending needs. That means you’ve got five to ten years’ worth of expenses in more stable investments, cash, bonds, income-producing assets, so you’re not forced to sell stocks at the worst possible time.

Will your risk tolerance change?

Your risk tolerance should change as you move from the accumulation phase to the distribution phase.

When you’re accumulating, you’re adding money to the portfolio. Market downturns are buying opportunities. You’re dollar-cost averaging into cheaper prices.

When you’re in the distribution phase, you’re taking money out. Market downturns hurt more, because you’re selling shares at depressed prices to fund your spending.

Your portfolio structure needs to reflect this fundamental shift.

Do you have concentrated stock positions?

If you have a large position in a single stock, maybe from company stock options or a stock that’s appreciated significantly, you need a plan to diversify.

We recently published a whole separate article on how to diversify out of concentrated stock positions, but the short version is: concentrated positions create unnecessary risk. And the longer you wait to address it, the harder it gets.

If you’re five years from retirement and you’ve got 40% or 50% of your net worth in a single stock, we need to start working on that now.

Would a Roth conversion strategy make sense?

Roth conversions can be powerful, but they’re not right for everyone.

The benefit of a Roth conversion is that you pay taxes now at your current rate, and then the money grows tax-free. You don’t pay taxes on the growth, and you don’t pay taxes when you withdraw it in retirement.

The challenge is that conversions work best when you have time. The more years the money sits in the Roth, the more valuable the strategy becomes.

In retirement, there’s a window where Roth conversions can make sense. You’ve lost your earned income, so you’ve got a gap in your tax bracket. If you’re in your early 60s and you’re not taking Social Security yet, and your RMDs haven’t started, you might have a few years where your taxable income is relatively low. That’s a great time to do conversions.

But here’s the double-edged sword. Conversions usually work better the earlier you do them. But when you’re working, any conversion you do bumps you into a higher tax bracket because you’ve still got earned income.

I tell clients: we always want to have the conversation about Roth conversions. But I find myself recommending against it more often than I recommend for it.

The times when it makes sense are when you have a low-income year, a tax-loss harvesting opportunity, or a long time horizon.

If you do convert, you need to coordinate with your Medicare strategy, because conversions affect your income two years later, and that impacts your Medicare premiums (IRMAA thresholds).

Stock options and restricted stock units (RSUs)

If you’re an executive with stock options, RSUs, or other equity compensation, you need to understand your timelines.

The question I ask clients is: how much longer do you want to stay?

I’ve worked with a number of executives over the years. One of them comes to mind when writing this article. She’s a CFO and her company just kept dangling more stock options in front of her. They wanted her to stay 5-7 years longer than she was planning.

The problem is that the compensation is attractive. It’s the golden handcuffs. But it’s also stressful. Being a CFO of a public company is demanding. At some point, you have to decide whether the additional compensation is worth the additional years of stress.

If you’re five years out and your company is offering you another round of options that vest over the next five years, you need to decide if that aligns with your retirement timeline.

The risk is that you keep accepting the carrot on the stick, and you end up working longer than you actually want to.

So think through your timeline. If the options vest before your planned retirement date, great. If they don’t, be clear-eyed about whether you’re willing to delay retirement to capture that compensation.

Your five-year timeline

If you’re five years out from retirement, here’s a roadmap.

5 years out

This is when you do comprehensive financial planning. It’s time to move away from estimates & ideas and embrace a real, detailed plan.

You need a realistic assessment of your resources. You need to understand your retirement budget. And you need to evaluate major life decisions, like whether you’re moving, downsizing, or staying put.

This is also the time to review any concentrated stock positions and start thinking about diversification strategies.

3 to 4 years out

Review your Social Security strategy. When are you planning to claim? How does that coordinate with your spouse’s benefit?

Start making tax and portfolio adjustments. If Roth conversions make sense, this is when you begin. If you need to rebalance toward more conservative investments, start that process.

Finalize your Medicare strategy. Understand the enrollment windows. Understand IRMAA and how your income affects your premiums.

1 to 2 years out

Finalize your withdrawal strategy and income plan. Which accounts are you pulling from first? What’s the sequencing?

Complete your healthcare plan shopping. If you’re retiring before 65, where are you getting insurance? If you’re 65 or older, what Medicare plans are you choosing?

Review and update your estate plan. Make sure your beneficiaries are correct. Make sure your will and powers of attorney are up to date.

This is also when you coordinate your Social Security claiming with your overall tax strategy.

1 year out or retirement year

Maximize your final-year retirement contributions. If you’re still working, max out your 401(k), your IRA, your HSA.

Complete any consolidation or rollover planning. If you’ve got multiple old 401(k)s sitting around, get those consolidated.

Handle all your employer retirement paperwork. Pension elections, final benefits, all of that.

And plan for your insurance transitions. When does your group health insurance end? When does your individual coverage begin? Make sure there’s no gap.

Final thoughts & your next steps

Retirement planning is about getting to a certain dollar amount yes, but it’s also about understanding what retirement means to you.

It’s about understanding what retirement means to you. It’s about knowing your expenses and your income sources. It’s about making sure your investment strategy matches your stage of life.

And it’s about having a plan that accounts for all the variables, taxes, healthcare, Social Security, withdrawal sequencing, and coordinates them in a way that actually works.

If you’re five years out, you have time to get this right. But you need to start now.

Because the cost of not planning is almost always higher than the cost of planning.

Schedule a foundation session with EverPar advisors by clicking this link.

All information has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. There is no representation or warranty as to the current accuracy, reliability, or completeness of, nor liability for, decisions based on such information and it should not be relied on as such.

The views expressed in this commentary are subject to change based on market and other conditions. This commentary may contain certain statements that may be deemed forward looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. Any projections, market outlooks, or estimates are based upon certain assumptions and should not be construed as indicative of actual events that will occur.

The information provided is for educational and informational purposes only and does not constitute investment advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does not take into account any investor’s particular investment objectives, strategies, tax status or investment horizon. You should consult your attorney or tax advisor.

For many individuals, delaying Social Security can increase lifetime benefits, particularly for those in good health with longevity expectations. However, the optimal strategy depends on individual circumstances.

The information in this material is not intended as tax advice. Please consult your tax professional(s) for specific information regarding your individual situation.

EverPar Advisors LLC (“EverPar”) is a registered investment advisor. Advisory services are only offered to clients or prospective clients where EverPar and its representatives are properly licensed or exempt from licensure.

All information has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. There is no representation or warranty as to the current accuracy, reliability, or completeness of, nor liability for, decisions based on such information and it should not be relied on as such.

Past performance shown is not indicative of future results, which could differ substantially.

Diversification does not ensure a profit or guarantee against loss.

Generally, among asset classes, stocks are more volatile than bonds or short-term instruments. Government bonds and corporate bonds have more moderate short-term price fluctuations than stocks, but provide lower potential long-term returns. U.S. Treasury Bills maintain a stable value if held to maturity, but returns are generally only slightly above the inflation rate.

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The information in this material is not intended as tax or legal advice. Please consult legal or tax professionals for specific information regarding your individual situation.

Concentrated Stock Positions: Tax-Efficient Strategies to Diversify Beyond Traditional Markets

The same investment that built your wealth can also threaten it. Learn how to systematically diversify a concentrated stock position while minimizing taxes, whether you’re an executive with vested options, sitting on a big stock winner, or holding inherited shares.

By Michael Christian, EverPar Advisors

Over the years, I’ve had many conversations that start with a version of the same story. A potential client comes in, and they’ve done well. Really well. Maybe they’ve been with their company for 15 years, and those stock options they received early on have vested and appreciated significantly. Or they bought shares of a company 20 years ago, and it turned out to be one of the big winners. Or they inherited a position from a parent or grandparent.

The details vary, but the core is the same: a single stock now represents 40%, 50%, sometimes even 70% of their net worth.

The paradox about concentrated positions is this: the same investment that built your wealth can also threaten it. You’re sitting on significant gains, which is fantastic. But you also have most of your eggs in one basket, and that creates real risk.

And then there’s the tax issue. When you’re looking at a position with millions of dollars in embedded capital gains, the idea of selling and triggering a massive tax bill can feel paralyzing. I get it. Nobody wants to write a check to the IRS for hundreds of thousands of dollars, or more.

Here’s what I’ve learned: the cost of inaction often exceeds the cost of taking action. The research bears this out. There’s roughly $1 trillion in concentrated stock held by U.S. investors right now.* And when you look at stocks that have suffered what we’d call catastrophic losses (a 50% peak-to-trough drop), nearly 40% of them never fully recovered.**

*Source: BlackRock, “Diversify concentrated stock with long/short” – https://www.blackrock.com/us/financial-professionals/insights/diversify-with-long-short

**Source: Morgan Stanley Wealth Management, “Diversify Concentrated Stock Positions: A Guide” – https://www.morganstanley.com/articles/diversify-risks-concentrated-positions

That’s the risk you’re taking by staying concentrated.

There are sophisticated, tax-efficient strategies to diversify over time. You don’t have to choose between paying massive taxes today or staying dangerously concentrated. There’s a middle path, and that’s what I want to walk through with you.

3 ways concentrated positions develop:

In my experience, concentrated stock positions really show up in three distinct ways. Each one has its own nuances, but they all share the same fundamental challenge: significant capital gains stand between you and diversification.

Scenario 1: Executive Compensation

The first way is through executive compensation packages. You receive restricted shares or stock options as part of your comp plan. These are awarded to you and then vest over time.

What I see with the executives we work with is that they often have large embedded gains in these positions, and understandably so. They’re intricately involved in the success of their company. They know the business inside and out. They’re bullish on the stock because they’re helping drive the results.

So there’s often some reluctance to sell. I understand that completely.

At the same time, these executives also appreciate and understand that this is a concentrated position. They recognize that they have a lot of non-systematic risk (company-specific risk) sitting in a single stock. They’re open to a systematic plan to reduce that position over time. They just want to do it in a way that makes sense and minimizes the tax hit.

The tax consequences here are primarily long-term capital gains. And that’s where we can put together some real strategies (see section below).

Scenario 2: Positions That Have Taken Off

The second scenario is simply positions that have had fantastic runs.

We have clients that have owned NVIDIA, Google, Microsoft, or Amazon. Over the last 20 years or so, these stocks have just crushed it. Incredible performance.

But now you’re sitting on a position that’s become 30%, 40%, 50% of your portfolio. And when you look at how elevated prices have become in what people call the MAG-7 or MAG-10 (the mega-cap tech stocks) or the hyperscalers, it raises the question: how do we start to reduce some of that risk?

You made a great investment. You held on to it. You were rewarded for that patience. But at a certain point, you need to think about portfolio construction and diversification, not just individual stock performance.

Scenario 3: Inherited Stock Positions

The third way concentrated positions develop is through inheritance.

This could be stock you received when you were young, or stock that’s held in a trust. Maybe it didn’t get a step-up in basis when it was transferred, or maybe you’ve just held it for an extremely long time.

I have a client with some industrial stock positions that have been held for 40 years. The cost basis in these positions is under a dollar per share. Under a dollar.

Now, these particular stocks have actually underperformed the market over time. They’re not technology-related, so they haven’t seen the same kind of growth we’ve seen in tech. But even though they’ve underperformed, they still have massive embedded capital gains.

So you’ve got this situation where you’re sitting on a position that’s not performing particularly well, but you still have all this tax liability if you sell. That’s frustrating.

The Common Thread

In all three of these scenarios, the challenge is the same. You have a concentrated position. You understand the risk. And you have significant capital gains taxes standing between where you are now and where you want to be: properly diversified.

The question is: how do you get from here to there in the most tax-efficient way possible?

That’s what we’re going to walk through.

Why concentration risk matters (and why people often stay concentrated anyway)

If you’re holding a concentrated stock position, you’re taking on significantly more risk than you would with a diversified portfolio.

When you own a single stock, you’re exposed to what we call non-systematic risk. This is risk that’s specific to that one company. A leadership change. A lawsuit. A product failure. A competitor that comes out of nowhere. Regulatory changes. Any number of things that can impact that specific business.

A single stock position also has much more volatility than a diversified portfolio. The swings are bigger. Your net worth can fluctuate dramatically based on factors that are often outside your control.

Even with these clear risks, smart, successful people often stay concentrated. I’ve seen the same patterns.

First, there’s the tax issue. When you’re looking at a massive capital gains bill, the pain feels immediate and real. The risk of staying concentrated feels theoretical and distant. That’s human nature.

Second, if you’re an executive, there’s often a sense of company loyalty. You believe in the business. You’re part of building it. Selling can feel like you’re betting against your own team.

Third, there’s emotional attachment. This stock has done well for you. It’s part of your success story. There’s a reluctance to let go of something that’s been so good to you.

And fourth, there’s recency bias. The stock has performed well recently, so it feels like it will continue to perform well. We tend to project recent performance into the future, even though we know intellectually that’s not how markets work.

I get all of this. These are real psychological hurdles.

But I tell clients, we’re not trying to time the market. We’re not saying the stock is going to tank tomorrow. What we’re saying is that the cost of staying concentrated can be much higher than the cost of diversifying and paying the taxes.

We can’t predict what direction any individual stock will move. But we can manage risk. And that’s really what this is about.

Tax-efficient diversification strategies

Strategy 1a: Direct Indexing and Building Your “Tax Loss Bank”

This is the foundation of what we do.

With direct indexing, instead of buying an S&P 500 index fund, we build a separately managed account that owns individual stocks. We’re essentially replicating the index at the individual stock level. So you still get broad market exposure, but you own the actual stocks.

The advantage here is significant. When you own individual stocks, you can harvest losses at the individual stock level.

Here’s a simple example. Let’s say you have a $100,000 concentrated stock position that you want to diversify out of. If you just sell it outright, you’re going to trigger capital gains taxes on that entire gain. But if we build a direct indexing portfolio, we can start harvesting losses from the individual stocks in that portfolio when they decline.

We call this building a “tax loss bank.” You’re accumulating capital losses that you can use to offset gains.

So we might harvest $20,000 in losses in year one from the direct indexing portfolio. Now we can sell $20,000 of your concentrated position, and those losses offset those gains. You’ve just diversified $20,000 without paying taxes on it.

We do this systematically, year after year. We model that we can harvest, on average, about 2-5% of portfolio value annually in losses*. Some years it’s more, some years it’s less. It depends on market conditions. But over time, this strategy allows us to transition from a concentrated position to a diversified portfolio in a very tax-efficient way.

*This loss harvesting approach is designed to generate meaningful tax benefits over time. Invesco’s Enhanced Tax-Optimized Large Cap Equity SMA, which employs systematic tax optimization techniques including long/short extensions, demonstrates the potential value of sophisticated tax management. Their strategy targets tax alpha of 3-4% annualized over the life of the account and has achieved tax alpha of 8.59% for the year ending December 31, 2025, and 8.41% annualized over three years (Source: Invesco Enhanced Tax-Optimized Large Cap Equity SMA – Update, December 2025). Tax alpha represents the performance enhancement from tax management strategies.

We also build what we call a “capital budget.” We might say, okay, based on what we’re harvesting and your overall tax situation, we can sell $100,000 of your concentrated stock this year. Then we do the same thing next year. And the year after that.

This isn’t a one-year process. We’re typically looking at something like 7 to 10 years for a full transition. But that’s actually a good thing, because we’re being systematic and disciplined. We’re not trying to time anything.

One more important point: when we build your direct indexing portfolio, we can exclude stocks and sectors where you’re already overweight.

Let’s say you work in technology and you have a concentrated position in a tech stock. We don’t want to buy more tech stocks in your diversified portfolio. That would just be reconcentrating. So we can exclude the entire technology sector from your index, or we can exclude specific companies. We’re building the portfolio around your existing holdings.

Strategy 1b: The 130/30 Strategy (For Enhanced Loss Harvesting)

Now, there’s an enhanced version of direct indexing that we use for some clients. It’s called a 130/30 strategy.

In a standard direct indexing portfolio, you’re 100% long in stocks. You own stocks, that’s it. With a 130/30, we’re using some leverage. We go 130% long and 30% short, which nets out to 100% equity exposure. You’re not increasing your market risk, you’re just using leverage to create additional opportunities.

This approach solves two important problems.

First, it prevents what I call “portfolio perfection.” With a long-only direct indexing strategy, over time, you harvest all the losses and you’re left with a portfolio that’s entirely capital gains. After 10 years, every stock is sitting on a gain. You have nothing left to harvest. With a 130/30, you’re constantly creating new positions that can generate losses. You always have tools available.

Second, a 130/30 can harvest losses in any market environment. In a long-only portfolio, you need stocks to go down to harvest losses. With a 130/30, you can harvest losses when stocks go up (from the short side) and when stocks go down (from the long side).

We use a 130/30 specifically. Some firms are getting more aggressive with 150/50 strategies or even 2-to-1 leverage. We don’t usually do that.

The reason comes down to costs and risk management. There’s a cost to leverage, and when markets get really volatile, sometimes the algorithms that run these strategies can start to break down. You can end up with tracking error. Things don’t work the way they’re supposed to.

We want to be prudent with leverage. A 130/30 can give us the benefits I just described, but it keeps the leverage manageable. We’re being thoughtful about the trade-offs.

Strategy 2: Donor-Advised Funds (A Strategy We Use A Lot)

If you have any charitable inclinations at all, donor-advised funds can be incredibly powerful. We use this strategy a lot with our clients.

Let’s say you normally give $10,000 a year to charity. Instead of giving $10,000 this year, $10,000 next year, and so on, you give $50,000 all at once to a donor-advised fund. That’s five years’ worth of giving, all in one year.

The benefit is substantial. You get a big tax deduction in the year you make that contribution.

If you contribute cash, you can deduct up to 60% of your adjusted gross income.* If you contribute appreciated stock, you can deduct up to 30% of your AGI.* If it’s a combination of cash and stock, you can deduct up to 50%.*

*Source: IRS Publication 526 and Fidelity Wealth Management, “5 Ways to Diversify Concentrated Positions” – https://www.fidelity.com/learning-center/wealth-management-insights/diversify-concentrated-positions

We call this a “bundling strategy.” You’re bundling multiple years of charitable giving into one year to maximize your tax reduction.

The beauty of a donor-advised fund is you don’t have to decide immediately where that money goes. You make the contribution, you get the tax deduction right away, but then you can recommend grants to charities over time. This year, next year, five years from now. There are very minimal requirements for how much you have to distribute each year (usually something like $50 depending on which custodian you use).

Most of our clients use their custodian’s donor-advised fund. That could be Schwab, Fidelity, whoever you’re working with. You can name the fund whatever you want, and you have complete flexibility in terms of when and where the grants go.

This is particularly valuable if you have a high-income year. Maybe you just sold a business, or you had an unusually large bonus. That’s a perfect time to make a large contribution to a donor-advised fund and offset some of that income.

And if you contribute appreciated stock instead of cash, you avoid paying capital gains on that stock. So you’re reducing your concentrated position, getting a tax deduction, and avoiding capital gains tax. That’s a triple benefit.

Strategy 3: Charitable Remainder Trusts (For Larger Charitable Goals)

If you have significant charitable intent and you want an income stream, a charitable remainder trust might make sense.

This is more complex than a donor-advised fund, so it’s not for everyone. But here’s how it works.

You make an irrevocable donation of your appreciated stock to a charitable trust. The trust then sells the stock tax-free and reinvests the proceeds. You receive an income stream from the trust for the rest of your life (or for a set period of years). When you pass away, whatever’s left in the trust goes to the charities you’ve designated.

You get an immediate charitable tax deduction when you set up the trust. The trust avoids capital gains when it sells the stock. And you get income for life.

An important consideration: once you set up a charitable remainder trust, it’s irrevocable. You can’t change your mind. And the remainder goes to charity, so this is more than just leaving assets to your heirs. You are combining charitable giving with income generation and tax efficiency.

Why True Diversification Requires Private Markets

When we’re helping a client diversify out of a concentrated position, we’re definitely thinking about reducing risk. But we’re also thinking about where to reallocate those assets. That’s where private markets come into the picture.

Private investments aren’t a direct strategy for managing concentrated stock positions. But they are tangentially related.

Our Investment Philosophy

At EverPar Advisors, we believe that public markets are efficient for the most part. It’s hard to consistently beat the market through stock picking or market timing. We’re not trying to do that.

But we also believe there’s still a lot of inefficiency on the private side. Private investments are an integral part of any well-constructed investment portfolio. They’re not an add-on or a nice-to-have. They’re fundamental to true diversification.

So when we’re diversifying you out of a concentrated public stock position, part of our allocation strategy includes exposure to private markets. We want to give you equity-like returns, but we want those returns to come from different sources that aren’t correlated one-to-one with the public stock market.

The Problem with Traditional 60/40 Portfolios

For decades, the traditional diversification strategy was a 60/40 portfolio: 60% stocks and 40% bonds. The idea was that when stocks went down, bonds would go up (or at least hold steady), providing balance.

That relationship has changed. The correlation between stocks and bonds has increased significantly in recent years.* We’ve seen periods where both stocks and bonds declined at the same time. The traditional diversification benefit has weakened.

*Source: Vanguard Research, “The stock/bond correlation: Increasing amid inflation” – https://www.nl.vanguard/content/dam/intl/europe/documents/en/the-stock-bond-correlation-eu-en-pro.pdf

There’s also another issue. The S&P 500 has become increasingly concentrated in mega-cap technology stocks. If you’re diversifying from a tech stock by buying an S&P 500 index fund, you may still have significant technology exposure. You haven’t really diversified as much as you think you have.

What Private Markets Offer

A statistic to consider: approximately 87% of companies with revenues exceeding $100 million are privately held.* When you limit yourself to public markets, you’re only accessing about 13% of the available opportunity set.

Apollo Academy, “Public Markets Are a Small Part of the Overall Economy” (Source: S&P Capital IQ). URL: https://www.apolloacademy.com/wp-content/uploads/2024/05/PublicMarketsAreASmallPartOfTheEconomy-051924_v2.pdf

Private markets offer several benefits that are particularly relevant when you’re diversifying away from concentrated positions.

First, private investments have different return drivers. Returns come from operational improvements, strategic growth initiatives, and value creation at the company level. They’re not driven by daily market sentiment or what’s happening with interest rates this week. That gives you true diversification in how your returns are generated.

Second, private investments historically have shown low correlation to public equity markets. When public markets go through tough periods, private investments often demonstrate more muted responses. We saw this during the Great Financial Crisis and again during the COVID-19 pandemic.* Private equity showed much smaller declines than public equities.

Institutional Investor, “Private Equity’s Resilience During Major Crises: a 25-Year Analysis”

URL: https://www.institutionalinvestor.com/article/2em6vqamr74gtjccgxczk/innovation/private-equitys-resilience-during-major-crises-a-25-year-analysis

Third, private investments are valued infrequently. That creates a smoothing effect. You’re not seeing daily price fluctuations. For long-term investors, this can actually reduce the emotional volatility of watching your portfolio.

The Additional Tax Benefit of Using Private Investments

Here’s something that often gets overlooked in these conversations: there’s an additional tax benefit to combining direct indexing with private investments.

We can’t control when an underlying manager in a private equity fund buys and sells companies or makes distributions. Those managers are making decisions based on their strategy, not your tax situation. Sometimes those sales generate taxable long-term capital gains.

The “tax loss bank” we’re building with the direct indexing strategy can be used to offset not just the gains from selling your concentrated stock, but also the gains generated by your private investment managers.

That’s additional value. You’re getting more benefit from the tax-loss harvesting than you would if you were only investing in public markets.

The EverPar Difference: A Team-Based Approach

When I think about how we handle concentrated stock positions at EverPar, what really differentiates us is our team-based approach. It’s fundamental to how we operate.

The reality is that managing a concentrated stock position effectively requires expertise in multiple areas. You need investment expertise to build the right portfolio. You need tax and financial planning expertise to optimize the strategy and coordinate with your overall financial picture. And you need responsiveness to adjust as circumstances change.

When you work with EverPar, you’re working with a team. I focus on the overall relationship and investment strategy. Courtney, our director of planning, brings tax expertise and financial planning depth. She’s been a CFO of a private company, so she understands complex financial situations. David leads our investment team and brings deep expertise in portfolio construction and private markets.

We’re bringing the best of planning and investment together to craft strategies that work for your specific situation.

A Hypothetical Example

Let me give you a hypothetical scenario to show how this comes together.

Imagine an executive with an $8 million position in company stock. That’s 60% of their net worth. They have approximately $7 million in embedded gains. They’re 52 years old, still working at the company, and they have strong charitable intentions.

Here’s how we might structure a strategy:

Years 1-2: We establish a systematic selling plan. Because they’re still at the company, we’re working within trading windows. We’re not trying to time anything. We might do quarterly sales during open windows. We begin funding a direct indexing account with the proceeds, and we exclude the technology sector since they’re already concentrated there. They make a $50,000 contribution to a donor-advised fund using the bundling strategy, which provides a meaningful tax deduction.

Years 3-5: As we build the tax loss bank through the direct indexing portfolio, we use those harvested losses to offset gains from selling more of the concentrated stock. We’re allocating the proceeds across multiple buckets: 45% stays in public equities through the direct indexing strategy, 30% goes into private equity and private credit for true diversification and non-correlated returns, and 25% goes into fixed income for stability.

Years 6-10: We continue the systematic approach. By the end of this period, the concentrated position has been reduced to about 15% of the portfolio. That’s still meaningful exposure to the company if they want to maintain that, but the risk level is completely different. The portfolio is now truly diversified across different asset classes, different return drivers, and different time horizons.

Throughout this entire process, we’re evaluating annually. We assess what tools we have available this year, how much we can harvest in losses, what the optimal amount to sell is, and whether there are any changes in the client’s situation that we need to account for.

That’s the team-based approach in action. It’s about sustained, coordinated effort over multiple years.

Your next steps: from concentration to confidence:

If there’s one thing I want you to take away from this article, it’s this: concentration may have built your wealth, but diversification protects it.

The three scenarios I described at the beginning (executive compensation, positions that have taken off, and inherited stock) all share the same fundamental challenge. You have significant wealth tied to a single stock, and you have significant tax consequences if you try to diversify. That tension keeps a lot of people stuck.

But you don’t have to stay stuck.

The systematic approach we’ve walked through here provides a path forward. Build your tax loss bank through direct indexing. Allocate into truly different investments, including private markets. Leverage charitable strategies if you’re philanthropically inclined. And work with a team that brings expertise in both planning and investments.

The key is that we’re not trying to time the market. We’re putting a plan in place and sticking to it. We’re making consistent progress year after year, regardless of what’s happening in the markets in any given month or quarter.

I’ve worked with enough clients through this process to know that it works. You go from having 60% or 70% of your net worth concentrated in a single stock to having a properly diversified portfolio with exposure across public equities, private investments, and fixed income. Your risk profile changes dramatically. Your sleep at night improves.

And you’ve done it in a tax-efficient way that minimizes the pain of the transition.

One final thought. The best time to put a diversification plan in place was probably yesterday. The second-best time is today. Markets are unpredictable. Company-specific events are unpredictable. What we can control is having a plan and executing on it systematically.

If you’re in one of these three situations (executive compensation, a position that’s appreciated significantly, or inherited stock), I’d welcome a conversation. We can evaluate your specific circumstances, look at what tools are available, and put together a systematic plan that makes sense for you.

That’s what we do. And we’ve been doing it for decades.