Let Me Clarify
Building proper financial habits are best started early on in your career. Whether it’s saving enough to capture your company match, ensuring you have adequate insurance coverage, or making the most of the additional benefits that your company offers, it is important to gather as much information as you can and to take the time needed to understand your options.
Let me clarify.
Employer benefits have become more competitive throughout the years and are continuing to evolve. I have seen everything from traditional company match setups and education funding assistance programs to $0 health plan premiums and even “baby bonding bucks” for new parents.
As you might assume, company benefits can vary widely, depending on your role and your employer. I want to take a few minutes to talk about some of the more common benefits you might have available.
Company Match - One of the most common questions that we get asked is “how much should I be saving?” When it comes to employer-sponsored accounts, my suggestion it to at least start with a goal of contributing enough to capture your full company match. Regardless of how you are invested within your account (an equally important, but separate conversation), it is important to take advantage of what’s basically “free” money.
Keep in mind that company matches are not always as straightforward as “we will match 100% of contributions up to 5%.” It is common for matches to be structured as “100% of the first 3%, plus 50% of the next 4%”, for example. In this case, you would have to contribute 7% to receive a match of 5% from your employer.
You may also want to investigate when the match is calculated. What I mean by this is whether your match is based on how much you contribute monthly versus if your employer simply waits until the end of the year to determine if you have contributed enough and then puts the matching contribution into your plan. This might seem like it is getting into the weeds, but it makes a big difference if you are someone who prefers to make the majority of your own contributions from something like a year-end bonus.
I use the company matching amount as a starting point for how much to save, but it is not a bad idea to contribute more if you can do so. I have yet to meet anyone who tells me that they wish they didn’t save as much as they did for retirement. And if you are early on in your career, you have the added benefit of time on your side, which is a major component to financial success down the road.
Evaluating Insurance Options - Many companies offer medical, dental, life, and disability insurance. Available options can include the premiums that you pay to have the insurance and the amount you pay out of pocket for services, and some medical plans may also provide additional opportunities through HSAs (Health Savings Accounts) or FSAs (Flexible Spending Accounts). Access to these accounts depends on the specific health plan you choose, but can include employer contributions, healthy living incentives, tax savings, and even additional investment benefits.
When it comes to life and disability insurance, the common misconception is that you do not need this type of coverage when you are young and healthy. In reality, that is when you may need it the most! Some of the main reasons for life insurance include covering outstanding debt or providing for young children. If something happened to you tomorrow, would your surviving loved ones be able to continue to pay the mortgage and provide for your children? If the answer to that question raises some concerns, then you might want to look into what your company offers; especially while you are young (premiums are cheaper) and healthy (when you won’t be denied the coverage that you need).
Similarly, disability insurance is extremely important throughout your career. Disability has a greater impact on your future earnings if it occurs when you are young and are expecting to work and save for the next 30+ years, as opposed to when you are knocking on the door for retirement. In some cases, this should be the very first financial decision to make, especially if your employment is the main source of income and savings for your family.
Insurance may not be the most exciting topic to think about, but I encourage you to take the time to gather every bit of information you can about these offerings and to talk through them with someone to guide you in the right direction.
Company Stock - One final item that I want to briefly touch on is Employee Stock Purchase Programs. These can be great opportunities for additional savings and might even provide discounts on the stock purchase price, but you want to avoid putting all your eggs in one basket. It might sound counterintuitive to the idea of saving as much as you can but contributing too much to company stock brings increased risk. Of course, you want to support the company you work for and I assume you want it to do well, however, your income, insurance, and other benefits are already tied to its success. Further, the more you have tied up in one individual company (even if it was not the company you work for) means that bad PR, poor financial decisions, decreasing sales, etc. of one single company will affect a larger portion of your savings and your ability to achieve your financial goals. This is why, as a rule of thumb, the financial industry recommends holding no more that 5-6% of your net worth in one single company.
In today’s world, the trend seems to be moving in the direction of providing competitive packages to attract and retain better talent. Every employer has different benefits that they offer, so perhaps the most important part is to gather all the information that you can. Armed with that information, achieving financial success can be a little bit easier when taking advantage of the benefits you are offered.
As we embark on this clarifying journey together, I encourage you to submit any ideas, topics, or questions to firstname.lastname@example.org. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendation for any individual. “Let Me Clarify” is a weekly blog containing Chad Baxter’s insights and thoughts about a variety of topics. To learn more about Chad, click here
All performance referenced is historical and no guarantee of future results. All investing involves risk including loss of principal. No strategy assures success or protects against loss. This information is not intended to be a substitute for individualized legal advice. Please consult your legal advisor regarding your specific situation. Clarify Wealth Management and LPL Financial do not provide legal advice or services. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All investing involves risk including loss of principal. No strategy assures success or protects against loss. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk. Rebalancing a portfolio may cause investors to incur tax liabilities and/or transaction costs and does not assure a profit or protect against a loss.