Benefit From Your Work
by Joel Dresang
Delete those get-rich-quick offers that keep landing in your e-mail in-box. Hot investment tips are for high
rollers. Coupon clipping is nickel-and-dime stuff.
The surest way to build your financial comfort and eventual wealth is by first, working for a living and
second, making the most of your employment benefits.
Pay is paramount, but it's no longer just, "Show me the money." More than 27% of employers' costs for their
employees is wrapped up in benefits such as health insurance, paid vacation, and savings plans, according to the
U.S. Bureau of Labor Statistics. And too many workers overlook such fringe forms of compensation.
"In my experience, lots of people don't focus sufficiently on the value of the employee benefit package,
especially when deciding between two job offers," says Paula Hogan, a certified financial planner and chartered
financial analyst in Glendale, Wis. "And also, because of the lack of focus, people often miss the opportunity to
capture big benefits."
Free money
The mother lode of perks is the 401(k) and other similar retirement savings plans. Through such arrangements,
you set aside part of your pay before it's taxed, thus sheltering some of your earnings from tax collectors. That
money is invested in an account that grows tax-deferred. And many employers match half or more of your
contribution
up to a certain level.
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Start early and sock away as much as you can. |
"Not even a great investment adviser can get you an immediate, risk-free 50% return on your savings
and the ability to invest with pretax dollars," Hogan says. And, once you enroll in such a program, it becomes
an automatic savings plan—"the only kind of savings program that realistically works well for any of us," she
adds.
Expanding offerings
But employers offer more than ways to save for your later life.
In its 2001 survey of what perquisites companies proffer, the Society for Human Resource Management found that
97% of employers offered health insurance; 96% offered life insurance; and 41% offered accident
insurance. These plans help protect your hard-earned money from costly medical bills and help provide for your
loved ones if you die or lose your ability to work.
The fact is, employers are offering an ever-expanding smorgasbord of benefits to attract and keep the workers
they want. The same survey listed 160 possible benefits, 28% more than in the 2000 survey—twice the
number in its first survey six years earlier.
The breadth and complexity of benefits can be dizzying. But don't let that discourage you from making the most
of what your employer offers. It's part of what you earn.
Do your homework
Before you start a job, or at your company's annual benefits enrollment period,
pay keen attention to what you can get, how much it costs and—most important—what you and your family
could use.
"Take advantage of any information meetings," says Jerome Mattern, chairman of the compensation and benefits
committee of the Society for Human Resource Management, in Washington, D.C. Mattern advises seeking the assistance
of your human resource staff as well as the company administering the benefits. And don't be shy about asking the
opinions of outsiders, including financial professionals you already know and trust. "Be informed," Mattern
says.
Among key benefits to consider:
Retirement savings plans. Start early and sock away as much as
you can. At a minimum, save whatever is required for your employer to make a matching contribution. And as you
choose how your savings are invested, remember that these are long-range plans that have little to do with recent
stock market performance.
Medical insurance. Unexpected hospital costs pose a major threat to your finances. Health insurance can protect you, but with employee costs for such coverage climbing, it's worth scrutinizing which plan works best for what you need. Think hard about how you've used health care in the past and your plans for the next year.
Flexible spending accounts. These allow you to squirrel away earnings before they're taxed to cover predictable expenses such as childcare, elder care, and medical and dental costs not paid for by your insurance. "Spending accounts are misunderstood, and employees have a difficult time planning for those expenses," Mattern says. Still, it's another way to force yourself to save and lower your taxable income. Caution: Plan your deduction conservatively because at the end of the year you lose what you don't spend.
Life and disability insurance. "Most parents of young children have insufficient life and disability coverage," Hogan says. "And no one complains about having too much insurance coverage once a claim occurs." Consider how much your dependents would need to be able to support themselves without your income. Also, compare the cost and coverage your employer is offering with what you could get on your own.
Tax withholding. Most tax filers get refunds each April because they have too much income tax money taken out of each paycheck. It's smarter to adjust that and boost your take-home pay now. Caution: Don't withhold too much, or you'll be owing the IRS. Generally, over the year you should withhold at least as much as the taxes you paid the year before.
Direct deposit. The less you handle your money, the less tempted you'll be to spend it. So, if your employer allows it, have your pay automatically deposited into your credit union share draft/checking account. For your own good, funnel a portion into savings.
Depending on the company, plenty of other benefits are available, including credit union membership,
adoption assistance, tuition reimbursement, flexible scheduling, transportation allowances, mental health
counseling, club memberships, and merchant discounts.
"Some companies, usually the larger ones, offer to match employee charitable contributions," Hogan says. "But
employers don't seem to advertise this benefit very loudly. So if you have charitable intent, check to see if you
can amplify your own donations by getting them matched by the company."
The point is to learn what your company has to offer and to match that against what will benefit you so you can
make the most of what you're earning.
December 10, 2001
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