Which Retirement Plan Benefits Are You Missing Out On?

April 06, 2017

This week, we’re recognizing Employee Benefits Day on April 3rd by writing about ways to appreciate and “benefit from your benefits.” One of the most common benefits that is often underappreciated and underutilized is your employer’s retirement plan. In particular, here are some features that you may not be taking full advantage of if you’re fortunate enough to have them in your plan:

Employer’s match. According to our research, 92% of employees are contributing to their plan but almost a quarter aren’t contributing enough to get the full match from their employer. At the very least, make sure you’re contributing enough to not leaving any of this free money on the table.

Contribution rate escalator. If you can’t afford to save enough to hit your goal, try slowly increasing your contributions by one percentage point each year. This tends to be less than cost of living adjustments so people generally don’t even notice the difference in their paychecks, but after just a few years, they may be saving more than they ever thought they could. A contribution rate escalator can do this for you automatically.

Roth contributions. Unlike pre-tax contributions, you get no tax benefit now, but Roth contributions can grow to be tax-free after 5 years and age 59 ½. This is especially useful if you’re worried about paying higher tax rates in retirement or if you’re planning to retire early since tax-free Roth distributions won’t count against you in calculating the subsidies you would be eligible for if you purchase health insurance through the Affordable Care Act (assuming the subsides are still in place) before becoming eligible for Medicare at age 65. Roth contributions are also more valuable if you max out your contributions since $18k tax-free is more valuable than $18k that’s taxable. (Yes, you could technically invest the tax savings from making pre-tax contributions, but then you’d still have to pay a tax on those earnings too.)

After-tax contributions. If you max out your normal pre-tax and/or Roth contributions, you may be able to make additional after-tax contributions. These aren’t as advantageous since the money goes in after-tax and the earnings are taxed at distribution, but you can convert them into a Roth account to grow tax-free, either while you’re still at your job if the plan allows it or by rolling it into a Roth IRA after you leave. You can also generally withdraw after-tax money while still working at your job (subject to taxes and a 10% penalty on earnings before age 59 1/2).

Asset allocation funds. To simplify your investing, retirement plans will often provide you with fully-diversified asset allocation funds that can be a one-stop shop. Some, called target date funds, even automatically become more conservative as you get closer to the target date so you can simply “set it and forget it.”

Online retirement and investing advice. Some plans provide access to a free online retirement planning and investment tool that can tell you whether you’re on track for retirement and make specific investment recommendations based on your particular risk tolerance and time frame, typically using the lowest cost funds in your plan.

Brokerage window. If you’re looking for an investment not otherwise available in your plan, see if you have a brokerage option that will give you access to thousands of other funds and in some cases, even individual stocks.

Employer stock. While you don’t want to put too much in any one stock (no more than 10-15% of your overall), especially your employer’s, there can be a tax benefit for doing so when you eventually cash out the account. If you transfer the employer stock directly to a brokerage firm in-kind, you can pay a lower capital gains tax on the growth instead of the higher ordinary income tax rate that you would normally owe on distributions.

Retirement plan loans. If you need a loan, borrowing from your retirement plan doesn’t require a credit check and the interest goes back into your own account. However, you miss out on any earnings that money would have received and if you leave your employer, you may owe taxes plus possibly a 10% penalty (if you’re under age 59 ½) on any outstanding balance after 60 days. (Some plans do allow you to continue making loan payments though.) Also, be aware that retirement plan loans are paid back from your paycheck so there’s no possibility of default and you can’t discharge them through bankruptcy.

Financial wellness. Some plans offer free, unbiased financial wellness coaching to help you plan, save and invest for your retirement. This is an important benefit since it can help you take advantage of all the others.

Which of those benefits are you not taking advantage of? See which ones are offered by your plan and start utilizing them. Your future self will thank you.

 

 

 

Why a Lower Paying Job May Still Be Worth More

April 05, 2017

When looking at job opportunities, it can be easy to be wooed by increases in salary. I learned the hard way that it’s not the only thing that matters when I took a new job many years ago for a couple thousand more per year, only to find that my actual take-home pay was lower because my new employer didn’t offer the premium benefits I’d enjoyed at my first job. But how do you know which benefits are better than others?

While you can’t put a price on things like “dress for your day” or bring your dog to work policies, you can figure out how much a lot of benefits are actually worth to you, personally, in actual dollar amounts. I’ll use my own benefits as an example since Financial Finesse is a well-recognized employer of choice. Obviously you’ll have to use your own numbers according to the benefits available to you and who would be covered in your family, but here’s a good framework to start with:

Health insurance – Definitely find out what your premium would be to factor that in, but don’t only look at that, especially if the employer covers your costs like they do at Financial Finesse. Is there a high-deductible option that comes with a health savings account and does the employer make a deposit into that account on your behalf? That’s also part of your compensation. If I were comparing offers, I’d also want to know the maximum I’d be on the hook for with each health plan since coverage levels matter as well. It’s all well and good if your employer covers your premium, but that could seem irrelevant if any costs incurred would require you to spend $5,000 of your own money to hit your deductible before any coverage kicks in.

  • HSA deposit to my account for individual coverage: $1,500 (This also happens to be my deductible. If I had to pay a premium, I would subtract that amount from this to arrive at the net increase to my compensation.)

Retirement plan – Any match your employer gives you should be considered additional compensation, so definitely take that into account. Some employers even make discretionary deposits regardless of your own level of contribution, which should absolutely be accounted for when considering total pay. Financial Finesse basically matches me 4% as long as I contribute 5%, which is a no-brainer. Contributing less than 5% is the same as saying, “No thanks. I don’t want that extra bit of pay.”

  • Annual employer match: 4% of my eligible pay = over $3,000

Financial wellness benefit – Offering a workplace financial wellness benefit is becoming an increasingly common (and smart, if you ask me) way for employers to demonstrate their commitment to employee wellness. In fact, it can be a great resource in helping you to make the most of all your other benefits! How you quantify this benefit will depend on what’s offered. At Financial Finesse, all employees have access to calling our Financial Helpline, which is the equivalent of having a CERTIFIED FINANCIAL PLANNERTM professional on retainer. When I was an independent financial coach working with the general public, I charged clients $300 per quarter for a similar service. That meant they had unlimited access to call, email or meet with me as long as they paid that fee, similar to the Financial Helpline that many of our clients offer to their employees. If the offer you’re looking at includes an unlimited benefit like Financial Finesse, that’s the best way I know how to quantify it.

  • Annual savings by not having to hire a financial coach: $300 x 4 quarters = $1,200 (Note that this has nothing to do with what employers actually pay for their employees to have access to financial wellness but instead is what you’d have to pay if you sought an equivalent service on your own.)
  • Not included in this number: The financial benefit of using a financial wellness program to pay off debt, create a budget, increase savings for the future or invest appropriately along with reduced financial stress. Value: priceless

Professional development support – This depends heavily on your career field and any credentials you have to maintain but can be a real differentiator. I have three professional credentials that aren’t cheap to maintain on an annual basis. Financial Finesse supports all of them, but my last employer only supported part of them, which is a big difference to my wallet. Beyond that, each employee at Financial Finesse also has a $250 per year personal professional development budget to be spent on things related to enhancing their job function such as books, classes, conferences, and even role-specific consultants. For mine, I add up all my credential licensing fees, professional association dues, cost of continuing education and the professional development fund.

  • Annual savings by having my professional expenses reimbursed: about $1,750

Life insurance – Most employers offer employees automatic coverage of at least a year’s salary should the employee pass away while they are employed. The differentiator is when they cover more than that. Quantifying that truly depends on your personal situation. For some people, one times their annual salary is enough so additional coverage might not factor in as applicable compensation to consider. If you would need more coverage than the employer offers, you can figure out the savings based on what you pay for any additional policies you have outside of work.

  • Annual savings by having a portion of my needed life insurance covered: $50

To add it all up, I’m actually receiving at least $7,500 in benefits beyond my salary and insurance coverage – not too shabby!

There are plenty of other benefits to consider as well, depending on your personal situation and what you need. For example, your employer may offer discounted pet insurance, but that’s only applicable in your calculation if you’d switch your pet insurance over and get a discount. Another example would be pre-paid legal assistance, a benefit that’s really handy for people who need to draft estate planning documents or own rental property and need a little real estate legal advice but not as useful if you’re all set it those areas. This also doesn’t include the more typical benefits that the majority of employers provide like disability insurance, an EAP and obviously unemployment insurance. Since you’re likely to have those benefits at any place you work, they won’t really help in making a decision even though they are useful and important benefits to have and appreciate.

 

Kelley Long is a resident financial planner with Financial Finesse, the leading provider of unbiased workplace financial wellness programs in the US. For more posts by Kelley or to sign up to have her weekly post delivered to your inbox each Wednesday, please visit the main blog page and sign up today.

 

Employee Benefits New Moms Need to Know

April 04, 2017

I joined the Army in 1993 and spent the next 11 years in the military. I have been called every name you can imagine in my military career. I have also accomplished things I never thought possible such as scaling a 3 story building, training in hand-to-hand combat and shooting a rocket launcher (my G.I. Joe moment). Later, I became an instructor helping people navigate through simulated grenade attacks. I did this with no tears, just a determination to finish anything I started.

With all I have experienced, you would think that there is nothing that could bring me to tears. I thought so too until I had to drop my newborn daughter off at her daycare for the first time. I cried so hard the day care director had to give me a hug. What made this easier was the wealth of benefits I took advantage of through my employer. If you are about to have a baby or recently had a baby, consider researching the following benefits:

Affinity Groups For Mothers. For all of you that are parents, you learned that there were things you did not even think to ask because you just did not know they might be a problem. I was lucky. My employer offered affinity groups for mothers and even classes for expectant mothers. I learned invaluable lessons such as when and how to tell your employer you are expecting and how to develop a transition maternity plan and a post-maternity plan for when you return.

Employee Assistance Programs. Personally, I think employee assistance programs (EAPs) are one of the most underused employer benefits. My EAP provided information on what to expect after my daughter was born and guidance on deciding what type of childcare works best for my needs. The right childcare is different for everyone. For some, a daycare center eliminates the uncertainty of finding last minute daycare if your nanny or in-home provider is sick or on vacation. For others, a nanny eliminates the uncertainty of your kid getting sick because of another child.

My EAP offered a daycare referral service that saved me hours of research. I filled out a form with the details of the type of daycare I wanted and they sent me a list of the daycare centers that met my criteria. This made the process so much easier.

Daycare Discount Programs. Some employers have partnerships with daycare centers. This could translate into substantial savings. Other employers  offer “emergency daycare” programs where you get a discount if you need daycare for a day.

My employer partnered with a daycare center that discounted one day services to $25 – much cheaper than the normal drop in cost for that particular daycare. Some even offer daycare discounts for children who may be too sick for daycare (temperature over 100.5 in some cases) but not sick enough to be bedridden or go into a hospital. Contact your employer to get a list of possible daycare discounts. The list can literally save you hundreds of dollars per month.

Dependent Care Tax Breaks. For those of you that have children under the age of 13, consider using a dependent care FSA to pay for daycare expenses pre-tax. If you are going to pay for daycare anyway, you might as well do it in a way that can help you save money on taxes. You can even use the dependent care FSA for summer camp. A good rule of thumb is the dependent care FSA may be the most beneficial for taxpayers in the 15% or higher tax bracket. If you are in the 15% or below tax bracket then paying the costs with after-tax money and taking the dependent care tax credit may be more beneficial.

Being a new mom can be tough, but you don’t have to be alone. Talk to co-workers who recently had children and contact your HR benefits department and your EAP to explore every benefit you have available to you. This will help make the transition to motherhood a lot easier.

 

Quiz: Do You Get the Most Out of Your Benefits?

April 03, 2017

Today is Employee Benefits Day. How will you celebrate? Don’t worry. Celebrating Employee Benefits Day does not require you to make a special trip to the party store or spend a single dollar.

In fact, the best way to celebrate it is to recognize and appreciate the value of your employee benefits and to maximize them for your personal financial situation. Don’t know where to start? Take this quick quiz to test your benefits knowledge.

1) You have decided it’s time to prepare a will. Where might you most likely find links to basic estate planning tools?

a. The public library

b. Your employee assistance program (EAP)

c. Your retirement plan provider

d. The HR department

2) Next year you plan to get laser eye surgery to correct your vision. Where is the best place to save extra money pre-tax to pay for it?

a. A health savings account (HSA)

b. An employee stock purchase plan (ESPP)

c. A flexible spending account  (FSA)

d. A deferred compensation plan

3) Where you can save and invest for retirement so that the income after age 59 ½ will be tax-free?

a. Non-qualified stock options (NSOs)

b. Nowhere – there’s no such thing as tax-free retirement income

c. A cafeteria plan

d. A Roth 401(k)

4) During this year’s open enrollment, you choose a high deductible health plan (HDHP) because of the lower premiums. You have the option to save money pre-tax in an HSA to cover the deductible and a portion of out-of-pocket expenses. You should:

a. Skip the HSA. The point of choosing your health insurance was to save money.

b. Contribute no more than $1,000.

c. Contribute the maximum ($3,400 for an individual and $6,750 for a family in 2017). If you don’t need to use the money, you can roll it forward to future years.

d. Contribute no more than $1,500.

5) Taylor takes the train to work every day, Max drives and parks in the public garage and Jenna rides her bike. Who can use a pre-tax commuter benefits account offered by their employer?

a. Only Taylor. The point of pre-tax commuter benefits is to encourage employees to take public transportation.

b. Taylor and Max can contribute up to $255 per month in 2017, but not Jenna. There are no employer-sponsored bicycle benefits.

c. Everyone but contributions are from the employer only.

d. Taylor and Max can contribute up to $255 per month in 2017. Jenna can’t contribute pre-tax, but she can participate in her employer’s bicycle reimbursement program, for up to $20 per month in eligible expenses.

6) According to our recent financial wellness research, the single most important tool an employer can offer to boost employee retirement preparedness is:

a. A “bank at work” program

b. A retirement calculator

c. Incentive stock options (ISOs)

d. A target date fund

7) Which benefit replaces your income if you have an injury or illness which is not work-related?

a. Disability insurance

b. Long term care insurance

c. Workers compensation

d. Unemployment insurance

8) According to the 2016 Milliman Medical Index, what is the typical total cost for family coverage in an average employer-sponsored group health plan?

a. $25,826 for a preferred provider organization (PPO) plan

b. $6,742 for a health maintenance organization

c. $43,350 for a high deductible health plan (HDHP)

d. $15,003 for preferred provider organization (PPO)

9) Your employer will reimburse you up to $3,000 for an undergraduate course, a graduate course or a professional certification. How will the reimbursement be taxed?

a. Reimbursement for a professional certification will be taxed  but not reimbursement for college/university courses

b. Reimbursement for college/university courses will be taxed  but not reimbursement for professional certification

c. Tuition reimbursements are generally included in the employee’s taxable income

d. Tuition reimbursements of less than $5,250 are generally not included in the employee’s taxable income

10) What type of pre-tax benefit can you use to pay for after-school care expenses for your children?

a. Health savings account

b. None – after school care is not eligible for reimbursement

c. Education savings account

d. Dependent care flexible spending account

See the answers in italics below. How did you do? If you scored a 9 or higher, congratulations! Chances are that you see your employee benefits as an integral part of your overall compensation.

If you scored an 8 or lower, you may be leaving money on the table by not taking full advantage of everything your employer offers. If you have access to financial coaching via your workplace financial wellness program, consider setting up a time to talk to a planner about how you can fully maximize the value of your employee benefits. In addition, check out the blog posts for the rest of this week, which will focus on various aspects of your benefits.

Answers:  1 – b, 2 – c, 3 – d, 4 – c, 5 – d , 6 – b, 7 – a, 8 – a, 9 – d, 10 – d

 

Do you have a question you’d like answered on the blog? Please email me at [email protected]. You can follow me on the blog by signing up here, and on Twitter @cynthiameyer_FF.

 

Rebooting Your Career After a “Gray Divorce”

November 15, 2016

I was recently at a conference talking to a group of women. The conversation was about everything from movies and books to kids and then it turned to marriage. What surprised me about the conversation was not how many women were divorced (we all know that the divorce rate is high in our country) but the age of the women who were recently divorced or facing a divorce. Almost every woman at my table of 20 who was recently divorced or about to be divorced was about 50.

Many were either stay-at-home wives or worked part-time jobs making little money. The reality of being divorced meant they now had to look for work that was not only satisfying but could meet their expenses, and in some cases, help them save for retirement. As these women found themselves job hunting after being out of the job market for decades, I offered the following suggestions on what to look for before accepting an offer:

1) A generous 401(k) match and/or a pension program: Get as much help as your employer can give you to save for retirement, especially if you feel you are behind in savings. Although most pension programs are going the way of the dodo bird, there are still organizations like the federal and state governments  that pay a pension. The other is to look for companies with generous 401(k) matching programs. Consider using this article as a starting point to research potentially generous 401(k) plans and verify the information using Glassdoor, Vault or any other website that has employer information and/or employee comments about the company.

2) An extensive benefits package that you can take with you when you retire: Benefits like long term care, life and health insurance while you are working and after you retire (if offered) can be extremely valuable. In most cases (not all), long term care insurance is particularly cheaper when bought through an employer as opposed to an insurance salesperson. In some cases, you can even get it with a less extensive underwriting process.

3) A generous vacation schedule: Most people do not think about it, but you want time to recharge and see the world without having to fight your employer. Look for employers with generous vacation/time off schedules. As they say, time is money.

4) Good opportunities in your career: A company may have the best employment opportunity, but if it is not in the field you are in, you may not experience the full benefits. Consider the potential career opportunities in your field from your potential employer. Explore the job training and tuition reimbursement programs and how committed the company is to helping you develop professionally. Also consider that it may be better to temporarily take a lower paying job if it advances you in the long run.

There are lots of websites to help you on your search. Look at articles such as Forbes‘ “The Best Places to Work in 2016”  or similar articles in your local newspaper. Employees are not shy talking about their companies, both good and bad. Go on websites like Glassdoor,  Vault and Monster  to get insider info about the company. You can even ask questions as many people are happy to reply.

Lastly, do not discount the power of personal connections. Talk to your friends and family about your job search and try to get insight about potential employers. The work you put in at the front end will go a long way to finding a satisfying career.

 

 

 

Long Term Care Insurance Doesn’t Have to Break the Bank

October 06, 2016

Did you know that you could do everything perfectly right in saving and investing for retirement only to see your entire nest egg wiped out with just a few years of long term care? It’s the missing piece of most people’s retirement plans. After all, it’s estimated that 70% of 65-yr olds will need some type of long term care and yet Medicare and other health insurance programs don’t cover it.

Medicaid does cover it, but you have to spend down virtually all of your assets to qualify. You could purchase a long term care insurance policy, but they can be expensive or even impossible to qualify for if you have health problems. Here are some ways you might be able to get long term care insurance for less:

Ask your employer. Many employers offer group long term care insurance as an employee benefit. While it’s typically not paid for or even subsidized by your employer, you might be able to get a better price with limited underwriting, especially if you have any health issues.

See if your state offers a long term care partnership program. If you purchase a policy through a partnership program and use up all the insurance coverage, you can keep an additional amount of assets equal to the insurance you purchased and Medicaid will pick up the rest of the bill. For example, if you purchase $500k worth of coverage and use all the benefits, you can qualify for Medicaid and keep $500k worth of assets that would otherwise have had to be spent down. This way you know exactly how much insurance to buy: enough to CYA or cover your assets. Without that Medicaid protection, you might need to purchase additional coverage to make sure you have enough.

Consider a life insurance or annuity long term care rider. Many insurance companies sell life insurance policies or annuities with a rider that provides some long term care insurance protection. This is more expensive than a standalone policy, but the underwriting is often more lenient and if you don’t use the long term care benefits, at least your beneficiaries will eventually receive the death benefit.

Buy a single premium policy. One of the biggest problems with long term care insurance is rapidly rising premiums that cause many people to drop their coverage. To avoid this, consider a single premium policy. It’s a lot of money upfront but can save you money in the long run.

Not planning for long term care costs is one of the biggest mistakes people make. Part of that is the feeling that you have to choose between paying unaffordable premiums or risking depleting your assets. As always, make sure you understand all of your options before making a decision.

 

 

 

How to Calculate the Value of Your Benefits

September 26, 2016

Are you overlooking the real value of your benefits when you think about your compensation? According to the Bureau of Labor Statistics, benefits accounted for 31.4 percent of employer paid compensation for U.S. workers  in June 2016, with salary making up the other 68.6 percent. It’s “open enrollment” season, the time of year when employees make decisions about their health insurance and other employee benefits for the upcoming year. While you’re weighing your options, it’s a good time to practice some benefits appreciation.  One way to do this is to estimate how much the benefits you choose are worth to you:

Health Insurance (typically $5,000 – $30,000)  – Your health insurance is a significant component of your benefits.  How can you value what your employer contributes for you and your family, as well as the discount you receive on coverage for participating in a large group plan? According to the 2016 Milliman Medical Index, the cost of healthcare for a typical American family of four covered by an average employer-sponsored preferred provider organization (PPO) plan is $25,826, with employers typically picking up 57% of the cost. That means that participation in their company sponsored health care plan is worth at least $14,721 for that typical family at the typical employer. Of course your insurance costs may be different, and your  employer may subsidize more or less of that.

More and more employers are also offering high deductible health plans in conjunction with a health savings account (HSA). In many cases, they’re contributing to the employee’s HSA as well. HSAs are a widely misunderstood and underrated benefit, and if you fully utilize your HSA, the long term tax advantages can be a benefit to you in retirement.

Retirement Plan (typically 3-6 percent of your salary in matching contributions) – While companies aren’t required to make matching contributions to what employees save for retirement, most companies with employer-sponsored 401(k) plans are offering this benefit. According to the Society for Human Resource Management (SHRM), 42% match employee contributions dollar for dollar up to a certain amount. 56 percent of companies require workers to save 6 percent or more in order to receive the full employer-matching contribution.

There’s also the value of having an employer-sponsored retirement plan in the first place. If you don’t have one as an employee, you won’t be able to save as much for retirement in tax-advantaged accounts. The consequence: employees without a work-sponsored retirement plan are far less likely to save for retirement. In fact, according to the National Institute on Retirement Security, 45% of working age households in the U.S. have zero retirement account savings.

Stock Purchase Plan (typically 10 to 15 percent of market value per share purchased) – In a typical stock purchase plan, the employer offers employees the opportunity, but not the  obligation, to purchase publicly traded company stock at a discount from the market value.

Disability Insurance ($2,000 to $5,000 per year) – Premiums for insurance that replaces a portion of your income if you can’t work due to a non-work related illness or injury can be paid for by the employer, employee or both. Purchasing this insurance as individual policies would be quite expensive. Group policies are much less expense per covered employee, so even if you’re paying some or all of the premiums yourself, you’re getting a good deal. That is if you have access at all. According to the Bureau of Labor statistics only 25 percent of U.S. employees have access to both short and long term disability insurance benefits through their employer.

Life Insurance ($250 to $500 per year) – Many large employers cover their employees with term life insurance at one times their annual salary. Supplemental term coverage is often available for a low, additional cost.

Employer Contribution to FICA (7.65 percent of salary) – What is FICA and why does it get so much money from my paycheck?! FICA stands for Federal Insurance Contribution Act, e.g., Social Security and Medicare, and your employer pays just as much as you do towards both programs.  The employer contribution adds up to total of 7.65 percent of your salary and bonus. When you are retired and draw Social Security and utilize Medicare for health insurance, know that your employers were partners in getting you there.

Unemployment Insurance (0.3 – 1.5 percent of salary) – Under the Federal Unemployment Tax Act (FUTA), employers pay your unemployment insurance, not you, as well as most states. If you lose your job through no fault of your own, and you meet your state’s requirements, you can file for unemployment benefits for some period of time (which varies by state). Like all types of catastrophic insurance, you hope you won’t have to file a claim – but it’s comforting to know that it’s there if you need it.

Other great benefits –  Your company may offer other benefits such as tuition reimbursement, pre-paid legal assistance, commuter benefits, health and wellness programs, access to group long term care insurance, etc. Before you make decisions during open enrollment, check and see if your company has a workplace financial wellness program. That is the benefit which helps you understand all your other benefits.

Do you have a question about workplace benefits? Please email me at [email protected]. You can also follow me on Twitter @cynthiameyer_FF.

 

What I Wish I Had Known When I First Started Working

September 06, 2016

I don’t know about all of you, but the older, I get the faster time seems to go by. I feel like yesterday I was babysitting my kid’s friends and today I am watching them graduate from college. After one of my friend’s kids graduated from college, I went to a party celebrating the achievement. While at the party, I was listening to a conversation with my friend’s daughter and her friends, most of whom are also recent college graduates.  Luckily for them, we are in a better job market and almost all of them are either employed or getting ready to start new jobs.

As I listened to their conversation, I started to feel a sense of dread at the direction their conversation was going in. Their discussion was focused on getting paid the most money, moving to a “hot” new city (whatever that means) and what car they are going to buy themselves. I told them that the decisions you make your first working year will lay the foundation of their future financial success or demise – their choice. At that point, I had their undivided attention and I started talking to them about some of the things I wished I would had known when I first started working.

The best job is more than the highest salary. When I looked for my first job, the only thing I considered was the salary. I never stopped and considered that a lower salary that pays more benefits could net me a higher total compensation than a higher salary with crappy healthcare benefits. As you consider your next job, think carefully about the offer. How much will your new employer cover for healthcare benefits?

I also never considered my ability to grow my career. A higher future salary could easily outweigh a lower starting one. Consider how many opportunities you may have to progress in your future organization.

Your location will determine how far your money will go. One of the young women I spoke to was currently working in Georgia and thinking about a lateral career move to New York City. Being from Brooklyn, I told her she has to consider the difference in income and encouraged her to do a paycheck calculator to see what her net pay may look like with a move.  She was shocked at how much her net pay decreased.

Next ,I encouraged her to use a cost of living calculator to compare how far your income will go in one state or city vs. another. She needed almost a $30,000 increase in salary to maintain the same lifestyle she had in a small town in Georgia in New York City. If you are deciding on a move, consider doing a paycheck calculator and a cost of living calculator so you won’t go into sticker shock when you move.

The lower you keep your lifestyle now, the better quality of your lifestyle in the future. Remember that where you live now may not be where you will live in a few years so keep your home expenses to about 25%-30% of your net income so you have money left over for other goals and possibly a move. I pretty much went stupid when I got my first professional job. I convinced myself that I had to look the part and spent thousands on a wardrobe. You can look professional without going broke by shopping for high quality professional clothes at consignment shops.

Fortunately, I kept my old car though. This was probably one of the best decisions I made. I was easily able to make the move for a great career opportunity because I kept my expenses so low. If you end up getting a loan, consider following the 20/4/10 rule – put a 20% down payment, finance for no more than 4 years, and make sure the total monthly vehicle expenses (principal, interest and insurance) are no more than 10% of your gross monthly income.

Understand that good money management equals financial success. I wish I would have prioritized my finances better. I would have created a monthly spending plan that outlines ALL of my spending (including car maintenance, vacations, and gifts), saved 3-6 months of expenses, contributed at least enough to get my 401(k) match and attacked debt sooner. Use calculators like the Debt Blaster to come up with a game plan.

If you’re just starting your career, you have a tremendous opportunity to shape your financial future. Taking these steps before making a financial decision can go a long way to building a lifetime of financial success. You can do it!

 

 

 

Which Job Offer Should You Take?

August 16, 2016

A few weeks ago, I was having a wonderful conversation with a young woman trying to decide what to do with her life. She recently received multiple job offers in multiple states. I asked her how she was weighing her options. She looked at me as if to say, “Why would you even ask this question” and she replied that she would take the offer that paid the most. I told her that she should focus on the net, not gross amount.

Look at net vs gross paycheck. State taxes vary wildly in the U.S. Some states like Florida and Texas do not tax your income and states like New York and Maryland not only impose tax taxes, but some of their cities also impose taxes. This can take a big bite out of your income. Consider doing a paycheck calculator so you can see how little or how much of your paycheck you get to keep based on what state you live in.

Review the benefits from each company. Not only can taxes take a bite out of your paycheck, so can your benefits. If possible, find out how much the average healthcare premiums are and compare. Taking a job that pays $6,000 more with a $250 per paycheck healthcare premium will eat away the extra money. Ask about other benefits like 401(k) plan matching, contributions to medical savings plans and generous time off as well.

Review cost of living by states. In addition to taxes, consider the daily cost of living, such as housing costs, to see how far your dollars can go. After all, you still want a life. Estimators like CNN’s cost of living calculator can help you compare what income you need to maintain your life style by city.

Potential job growth.  How much room to grow do you have with each opportunity? What programs do they have to help you grow professionally? Will your future organization pay for additional education and certifications?

Don’t just look at the gross salary. Calculate the actual net to you. Taking a few moments to really evaluate job opportunities can go a long way to helping you make the best decision for your future.

 

 

Why Health Savings Accounts Are Such a Great Deal

August 10, 2016

Health savings accounts have been around for several years now, but we still find that there are plenty of people out there who don’t understand how they work or why they can be such a great deal. We are lucky enough to have access to them at Financial Finesse and my colleagues with great health and relatively little expenses simply love the plan. Here’s why: it’s a high-deductible plan connected to a health savings account (HSA), a plan type that is becoming more and more common as traditional insurance premiums continue increasing.

In our case, our company pays lower premiums because we have to spend $3,500 each year before the insurance even begins to cover us. That doesn’t sound like a great deal for us employees though, huh? That’s what a lot of people originally think too. But the other side is that our employer uses the savings to put $2,500 each year into a health savings account for each of us that we can then use to pay that $3,500 deductible. As a result, we would only have to pay an additional $1,000 to reach the deductible, and that’s only after our healthcare costs exceed $2,500.

The best part is that we pay no taxes on this money and unlike FSAs, we get to keep whatever we don’t spend in our account. That doesn’t mean you can take the money and splurge it on a nice vacation (at least not without paying taxes plus a 20% penalty on it). But it does mean you can invest that money in your HSA tax-deferred until age 65, when you can then spend it on retirement without penalty, use it tax-free for medical expenses (which Fidelity estimates will be about $245,000 over the remaining lifetime of a 65-yr old couple without retiree health insurance), or just let it continue to grow tax-deferred.

The interesting thing is that it changes your whole view on health spending. Normally, you probably just go to the doctor when you feel sick and don’t think much about costs since someone else (the insurance company directly and your employer indirectly through higher premiums) is paying. Think about how you’d spend if other areas of your life worked that way (as someone who loves to eat out, I wish my company provided us food insurance). Instead, when the dentist asks when the last time you had your x-rays done, you’re more likely make sure you know the answer before paying for x-rays you don’t need.

Annual wellness visits are free of charge by law. If you rarely get sick, you may not have to spend any money at all while still keeping up on your vital visits (and banking those employer contributions). You can also use your HSA for medical expenses as well as on your spouse and dependents even if they’re not covered on your health insurance plan.

Another thing I love about HSAs is that an individual at my company can also add another $850 to it each year since the limit is $3,350 per year for a single person. If you have the deposits deducted from your paycheck, you also don’t have to pay the 7.5% payroll tax on it. Not even 401(k) contributions let you do that. When you consider that HSAs offer you both pre-tax contributions AND the potential for tax-free withdrawals, there’s an argument for funding it even ahead of your 401(k) (after you’ve maxed the match, obviously) or IRA.

So what’s not to love? Apparently not much. With two caveats: make sure you have at least enough cash on hand to pay each year’s out-of-pocket maximum and if you have latent health conditions like I do, consider switching to a lower-deductible plan when your healthcare needs are projected to grow.

 

 

3 Things You Can Do About Student Loan Debt

May 27, 2016

One of the biggest things that we see not only in our research but also in day to day conversations is the impact that huge student loan balances are having on people of all ages, especially younger employees or those who went back to school during the “Great Recession.” My biggest piece of advice to anyone would be to avoid student loans as much as you can by working first and/or part-time, going to a less expensive state school or community college for the first couple of years, or any number of things. But for those that have already rung up a hefty student loan bill, there is still hope. Here are a few things that you can try with little or no pain involved.

1. Focus more on your student loans now but contribute just enough to get the company match to the 401(k) and sign up for the rate escalator feature if available. By putting the majority of your money towards your debt, you can focus your energy and efforts on the here and now but also have your 401(k) running on autopilot in the background. This way, if it takes you 10–15 years to pay off your loans, you are still in a great spot towards retirement instead of being debt free but with no savings.

2. Make your own “matching program” for your student loans. Look at each bill that you have and research to see if you can find a less expensive alternative and then set up automatic extra payments to your highest rate or smallest balance student loan equal to what you will be saving. So if you cut the cable and just use streaming services and it would save you $50 per month, “match” that saving to an automatic increase to one of your student loan payments. This could be a great project on an evening or weekend when rainy weather keeps you inside. If you don’t have the time, look at services like BillCutterz to do the work for you but you have to share the savings with them.

3. Ask your employer if they have any programs to help with student loans. While many employers do not currently have a student loan repayment plan, more and more companies are offering special deals on student loan refinance programs like SoFi or  actual repayment plans like Tuition.io or Student Loan Genius. There is even a bill before Congress to make a certain amount of student loan repayment tax free to the employee, similar to tuition reimbursement programs, so hopefully this will become a common benefit in the future.

Don’t get me wrong. There may not be a magic solution to your student loan issues. However, these steps can help you not just survive but thrive while you balance paying off the debt and engaging in life along the way.

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Don’t Make These 3 Common Tax Mistakes

April 19, 2016

As we wrap up tax season, I find people have more questions than answers. Some are pleasantly surprised and others are shocked and even angry about owing taxes. As I was sitting with family over dinner, their grumblings about taxes kept cropping up in the conversation.  As they continued to talk, I realized that many of their  problems came from the following mistakes about taxes:

Mistake #1: Getting a big tax refund. Giving an interest-free loan when you need the money is almost never a good idea. Consider using the IRS Withholding Calculator to estimate how much withholding to use to break even on your taxes. This may free up the funds for other financial goals like savings, getting out of debt and college.

Mistake #2: Not taking advantage of itemized deductions. An article from Nolo.com  cites a report by the Government Accountability Office stating that as many as 2.2 million taxpayers overpay taxes by an average of $610 per year due to a failure to itemize deductions. Consider itemizing deductions if you:

  • Paid interest and taxes on your home
  • Made a large charitable contribution
  • Had a lot of uninsured medical and dental expenses
  • Had large unreimbursed job-related expenses

Mistake #3: Not looking to your employer benefits for tax savings.  I recently spoke to a friend who was concerned about owing taxes and was looking for ways to lower her taxable income. I told her to start looking at her workplace benefits. Pre-tax 401(k) plan contributions lower your taxable income as well as contributions to pre-tax medical savings plans like Flexible Spending Accounts or Health Savings Accounts. Since she has children under 13 years old, I mentioned the Dependent Care Flexible Spending Account so she can contribute money pre-tax for her children’s childcare expenses.

Don’t believe everything you hear, especially when it comes to taxes. Before jumping on everyone’s tax bandwagon, take some time and do research to validate if what they are saying is true. If you find this overwhelming, consider working with a tax professional that can help separate fact from fiction.

 

 

Two Ways To Make Next April 15 Less Taxing

April 15, 2016

In the early days of my career as a financial advisor, there were some “interesting” investments that my clients owned. There were a lot of oil and gas partnerships that were very mediocre investments if viewed solely as an investment vehicle, but they offered spectacular tax advantages that made them wildly popular. People wanted to buy them solely for the tax benefits. And then…tax laws changed and these investments tanked! Clients couldn’t get out of them because no one else wanted them.

Similarly, I have had many conversations lately with people who are looking for magic strategies to reduce or eliminate their tax burdens from 2015. (It must be close to April 15th.) Newsflash – there is very little you can do in April 2016 to impact your 2015 tax return. When it comes to tax planning, the key is to start early in 2016 (I’d suggest NOW if you haven’t already) to impact the tax return you’ll file on April 15th 2017. A couple of my favorite ways to reduce income tax burdens are available right through your employer in many cases:

Health Savings Account (HSA): This is my #1 favorite right now. The contribution limit for single in ’16 is $3,350 and for a family it’s $6,750. Contributions are either pre-tax (through your employer) or tax deductible (if you write a check) and if used for medical expenses, they are tax-free on the way out too.

Are you kidding me??? The IRS allows a vehicle to be tax-free in AND tax-free out? That’s remarkable. You can build a substantial bucket of money in the future, and the IRS can help subsidize it. I can’t think of another vehicle where you’re allowed to “double dip” with tax benefits in and out.

401(k): Another great way to minimize next year’s taxes is to get as close as you can to the IRS maximum on your 401(k) contribution. This year, it’s $18,000 ($24,000 if over 50 years of age). If you’re in the 25% tax bracket, getting to the $18,000 mark would save you $4,500 in current year taxation. Rather than just stop at 3% or 6%, whatever the employer matching contribution is…..work toward getting the max contribution. If you can’t do it this year, you can increase your contribution by 1-2% per year until you’re there.

I hear and read a lot of “experts” talking about stopping at the level of employer matching contributions and then opening an IRA or Roth IRA outside of the employer account. I’m not opposed to that, but not everyone is disciplined enough to make that work.  But if you get up to the maximum contribution and then do the IRA or Roth IRA, you’re going to be saving an enormous amount of money and getting closer to your retirement goals with each passing paycheck. For perspective – I’ve never met someone who was within months of retiring complain that they had too much money saved for retirement!

These are two quick and easy things that you can do to make next April 15th much more manageable and reduce your overall tax burden. These are the obvious ones, and a future blog post will touch on some of the not so obvious ones. Until then, get busy contributing to your HSA and 401(k)!

3 Things I Didn’t Tell Clients as a Financial Advisor

December 02, 2015

Joining the planner team at Financial Finesse was a game-changer in my career and in my life. After years of frustration and creative effort to find ways to provide people with unbiased truth about how to make the right financial decisions for themselves, I’m finally free of the shackles of compliance, the pressure to sell and the need to gather assets. The sad reality is that there are very few avenues where financial planners can provide unbiased information while making a living and staying within the regulations of their industry. Continue reading “3 Things I Didn’t Tell Clients as a Financial Advisor”

5 Things To Know About Group Insurance Discount Programs

November 04, 2015

You may not view it as an employee benefit, but discount insurance programs could be a valuable part of your overall benefits package. Employers and other large groups are often able to negotiate much lower rates simply because the risk is spread out over a larger pool than if you just purchased the policy as an individual. Examples of discounted insurance policies you may be able to realize through work include homeowners or renters, auto, umbrella and even pet insurance. Here a few things to consider about these perks: Continue reading “5 Things To Know About Group Insurance Discount Programs”

Making the Most of Your Employee Discount Programs

October 28, 2015

A popular component of many employers’ wellness programs is a discount on membership to local fitness centers and/or weight loss programs, which can be a great way to save some money toward your financial goals. If you’re currently paying a gym membership or using a program such as Weight Watchers, definitely check to see if you can get a discount through work. It’s a no-brainer. Our health insurance benefit at Financial Finesse actually offers a $20 per month rebate on participating gyms but in order to receive it, participants need to attend the gym at least twelve times per month. For many people, that’s the motivation they need to show up! Continue reading “Making the Most of Your Employee Discount Programs”

When 0% Interest Looks More Like 44%

September 14, 2015

I happened to overhear the following conversation while visiting my local coffee shop the other day:

“Hey, nice laptop. Where did you get it?”

“We have this program at work where we can buy computers, electronics, furniture, appliances, and other stuff and pay for it with monthly deductions from our paychecks. This laptop will be paid for in 12 months, and I never had to use my credit card or pay any interest.”

Buy now and pay interest-free over 12 months with convenient payroll deductions? Sounds like a great way to buy, right?

Maybe. Maybe not.

The issue

Often touted as “employee purchase plans” or similar programs, companies engaged in this business can make it sound as if this is a great alternative to credit cards or personal loans to purchase items such as computers, household appliances and more – until you take a closer look at the total cost of the purchases you make under these programs. Granted, there are employee product purchase plans that allow employees to buy products at a significant discount. But too often, those who cannot obtain credit or who aren’t willing to save up cash for a purchase, buy these items at greatly inflated prices when less costly alternatives may be available.

An example

A popular employee purchase program offers a 40” named-brand LED television for $849.99 or “only” $70.83 per month over 12 months — all conveniently deducted from one’s paycheck, of course. There will also be additional charges for shipping and taxes, according to information buried in the fine print.

On the other hand, this same item can be purchased from a large online retailer (whose name is similar to a very large river in South America) for only $479! This is a savings of $371 or a whopping 44%. Of course, for someone who doesn’t have $479.00, that monthly payment of $70.83 can look pretty attractive. However, even for consumers who have poor credit or no credit, some creative thinking can help them find less expensive options for making these purchases.

Exploring the alternatives

For instance, there is Mom’s well worn and time-tested advice: save up for it and then buy it, particularly if the item is not something you absolutely must have to support your career or education. Using the earlier example of the monthly payments at $70.83, if we instead saved $70.83 in a savings account, it would take a little less than seven months to accumulate the much less expensive $479 purchase price offered by the online retailer. And if we kept saving $70 each month, we could use that money to build or improve our emergency fund, save up for a future vacation, pay off some credit cards, contribute to an IRA, etc.

But what if the item you want to buy is something you absolutely need right now? For example, my fellow java junkie at the coffee shop may have needed that laptop for some college courses she was taking in order to improve her career prospects. In that case, waiting seven months or more to save up for the purchase may not be practical.

When you can’t wait

Some other alternatives she could have considered instead of the expensive payroll purchase plan include borrowing from family members (a bit awkward at Thanksgiving), or she could consider borrowing some money from her 401(k) plan at work. There are pros and cons to borrowing against an employer’s retirement plan, of course, such as missing out on future investment growth or taxes and penalties if the loan is not paid back on time so we certainly do not want to use 401(k) loans as ATMs for frivolous purchases. But for overcoming occasional and relatively small financial tight spots, a 401(k) loan that you borrow from yourself and pay back over time may be a practical solution.

Better still, when you need or want to buy some new things, why not sell some old stuff you no longer use or like? An old fashioned yard sale still does the trick and modern technology can also help us quickly turn household items, collectibles, or heirlooms into quick cash. Social media sites are popular options for advertising your sale items, and there are well known websites such as ebay.com and craigslist.com you can use.

While you are busy thinning the herd and selling off excess possessions, this is a good time to also review your personal spending plan and see where some additional trimming can be done. In my case, cutting back on the weekly trips to the coffee shop can save me a tidy sum, though I may miss out on some interesting conversations.

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The Hidden Costs Of Overlooked Benefits

July 29, 2015

August is an overlooked month. Every other month of the year has a holiday or is associated with an exciting beginning, but not August. Many of us try to sneak in one last summer weekend or some back to school shopping but other than that, August is usually a lull in the calendar. A great way to make August productive is to examine the employee benefits programs that you aren’t taking advantage of so that you know which options you do want to sign up for during open enrollment this fall. A few minutes now can help you be prepared to maximize your benefits and possibly save thousands of dollars instead of rushing through a decision or just doing what you did last year. Continue reading “The Hidden Costs Of Overlooked Benefits”

What to Do for 2015

January 16, 2015

I usually view “what to do at year end” and “what to do to start the new year” financial articles with great disdain (the same way I typically avoid writing “theme” blog posts for Valentine’s Day, Mothers’ & Fathers’ Day, Independence Day [is there any bigger cliché?], and any other over-played theme). However, I have spent most of my work hours early in 2015 talking to people who want to look at things they can do in the next 12 months in order to make progress toward becoming financially secure.  It’s only because I have been asked so often that I’ll cave in, become part of the crowd and write a “What To Do for 2015” suggestion list. Continue reading “What to Do for 2015”