By Randy Neuman
In this time of corporate downsizing and restructuring, many people find themselves pursuing a new career. Embarking on a new career should inspire a revision of your existing financial plan including your risk management, future income, eventual age of retirement, and standard of living.
In addition to this revision of future retirement considerations, don’t ignore your current employee benefits package. Employee benefits and “perks” can account for more than a third of the total compensation your new employer has to offer and should be an important consideration in your overall financial plan.
It is important to understand how to get the most benefit from the options available through your new employer. Of course, working with the human resources department to gain a full grasp of all that is available is your best option. Here are a few tips to get the most out of this relationship and maximize your benefits.
Let’s begin with risk management. The risks of life are: you can become ill, disabled, you can die, your property can be damaged, someone can sue you, and a very real risk — you can spend some time and a lot of money in a long-term care facility. Employee benefits often offer solutions to some of these risks.
Let’s begin with health insurance. Be sure to coordinate health benefits offered by your new employer with your existing health coverage. Let’s say that you are covered under your spouse’s plan and the coverage is adequate. If this is the case, you don’t need coverage through your new employer. It would be a waste of money, more than likely your money, to have duplicate coverage. However, there may be circumstances where it would make sense to have duplicate coverage for a short period of time should your spouse be leaving their job shortly.
The next risk on the list is disability. Disability is much more likely than death. Unfortunately, it is often overlooked. Disability is more expensive than dying. If you die, you’re mourned, you’re missed, but you are buried along with your expenses. If you are disabled, your income ceases, but your expenses don’t. So, do not scrimp on disability insurance. If your company offers it, take it. If they do not offer it, get yourself an individual policy.
Following the list, many companies offer life insurance benefits. Often, they will give you your salary or a multiple of it. Additionally, they may sell you higher levels of coverage. Group term life insurance is pretty cheap; therefore, calculate what you need and compare the cost to buying a policy yourself.
Employers, in most cases, don’t provide solutions to all of your risks. They don’t routinely provide property and casualty insurance or liability coverage. However, some employers do offer group long-term care insurance. This is definitely worth a look, but make sure you compare it to individual policies.In my experience, an individual policy, in most cases, provides better coverage for less money than do group policies.
Now, let’s look at a benefit that is provided by many employers — retirement plans. In days of yore, employees worked for one company until age 65 at which time they were given a party, a gold watch and a pension. Pension plans are retirement plans fully paid for by the employer. These plans have gone the way of the Phoenix, and I don’t think that they will reappear. However, there is still a wide array of company plans available: 401(k), 403(b), 457 plans, profit sharing, cash balance plans, et. al.
Retirement plans are “qualified” by the Internal Revenue Service and have three basic elements. 1) You receive an income tax deduction when you make a contribution to these plans. This is a good thing. 2) Earnings within the plans are tax-deferred until you make a withdrawal. This is also a good thing. Withdrawals from these plans are taxable. Well, what did you expect? However, most people find themselves in a lower tax bracket when they are retired and withdrawing from their pension plans; therefore, the tax bite is less painful.
Additionally, many employers provide a matching contribution within their plans. So, if you contribute 10 % of your salary, they will match perhaps 3 %. Let’s look at some numbers. If you make $100,000 annually and you put 10 % of your salary ($10,000) into the plan, your cost is $6,500 (assuming that you are in the 35 % tax bracket). But hold on a minute, because your employer made a $3,000 contribution, it cost you $6,500 to put $13,000 into your retirement plan.
If you are 30 years old now and you retire at age 65, that $13,000 contribution earning an annual interest rate of 6 % will be worth $1,448,752. Do I have your attention?*
Find out about other benefit options your employer provides such as child care, paid vacations and holidays, extended leave policies, education reimbursement, and employee discount packages. Every little bit helps.
Lastly, be sure to periodically review, at minimum annually, your benefits and adjust your participation to changes in your family and life style. Make sure they still meet your long-term concerns and goals.
* This illustration is not indicative of any security’s performance and is based on information believed reliable. Future performance cannot be guaranteed and investment yields will fluctuate with market conditions.
Please consult your financial advisor if you have any questions about these examples and how they relate to your own financial situation before implementation.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for the individual. Randy Neumann, CFP® is a registered representative with and securities and insurance offered through LPL Financial. Member FINRA/ SIPC. He can be reached at 600 East Crescent Avenue, Suite 104, Upper Saddle River, NJ 07458, 201-291-9000.