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  • Writer's pictureSteven Chau

6 Tips to Get the Most Out of Your Employee Benefits

Starting a new job can sometimes be an overwhelming experience. A majority of our focus during those first couple of days are usually to just make a good impression and understand what our real day-to-day is going to look like. It's also the same time that we're making some very important decisions that we might not look back at for a very long time.

Whether this is the first time going through this at a new employer or you're just long overdue for a review, understanding employer benefits can impact several areas of your life both short-term and long-term. These decisions can affect everything from how much of your paycheck you receive to when you can retire and how you and your family will be taken care of in the event of a crisis.

Here's a break down of six simple things you can do to start getting the more out of your benefits:

1. Invest in your future

The earlier you save, the faster your money can grow. Time and compound growth is an incredibly powerful tool. Rob Lieber, "Your Money" columnist for the New York Times illustrates that starting in your 20s instead of your 30s could potentially have you staring at twice as much money at retirement. His example:

"If two people put the same amount of money away each year ($5,000), earn the same return on their investments (6 percent annually) and stop saving upon retirement at the same age (67), one will end up with nearly twice as much money just by starting at 22 instead of 32. Put another way: The investor who started saving 10 years earlier would have about $500,000 more at retirement."¹

Most employers will offer ways for you to save for retirement. The one most people are familiar with is the 401(k). This a tax-advantaged account that allows you to take a portion of your salary and invest for the long-term. Although the 401(k) is the most common, it certainly isn't the only option out there. Each employer is different and may have different offerings. You'll want to get familiar with what your employer offers and the specific features that plan offers.

2. Make sure your money is at work

A common misconception is that the money you're putting away in your retirement plan is automatically being put to work and growing. A major reason for this is the conflating of pensions, which was the common retirement plan decades ago, with the retirement plans more common today like the 401(k). Pensions hire a professional manager to invest your money behind the scenes with the promise to pay you a specific amount every month, after you retire, for the rest of your life. Accounts like the 401(k) require you to take on the role of that professional manager to grow your money AND make sure it lasts when you retire.

Although this is a problem that many companies recognized and are making efforts to change, it's not a guarantee that your money gets automatically invested when it hits your retirement account. It's critical to follow-thru and make sure your money is being put to work by manually reviewing and choosing the investments that align with your retirement goals.

3. Don't leave any free money on the table

Aside from your paycheck, there are potentially several things your employer could pay for on your behalf. Using our previous example of 401(k), some employers will provide an incentive for you to save for retirement by "matching" your contributions. This means that if you put in a dollar in your 401(k), your employer will "match" and put in a dollar as well. That's an instant 100% return on the money you put in!

Retirement isn't the only thing you might be able to have your employer contribute to. There could potentially be reimbursements or contributions for things like tuition, gym memberships, health savings accounts, and the list goes on.

4. Don't pay more than you need to

The most common thing a lot of people overpay for is taxes. If you're getting a return after you file your taxes, you essentially gave the IRS an interest-free loan and they're paying you back. How generous of them! Knowing how much to withhold and how many allowances can be confusing. Luckily, the IRS has simplified things and done away with allowances in 2020. They have also added a nifty calculator to help you get a better idea of what you should withhold.

Another way to save money is by using pre-tax dollars to pay for expenses. Those are the dollars on your paystub before all the fun stuff like taxes, social security, and Medicare are taken out. After all of that is taken out, you might only have three quarters for every dollar you made. If you know you'll have to spend money on things like childcare or medical expenses, your employer may have a Flexible Savings Account (FSA) that allows you to contribute and use those pre-tax dollars.

5. Protect yourself

It's never fun to think about the things that could put you out of work or worse. However, it is a necessary step to take in order to prepare for these things. Making the right decision or understanding what's available could potentially be incredibly difficult or even impossible after an incident.

A good place to start is reviewing your healthcare plan. Get familiar with how much you'd pay every month (premiums), how much you pay out of your own pocket before you get a discount (deductible), and the most that can come out of your pocket before the insurance covers it all (out-of-pocket max). There isn't going to be a universally correct answer here. There are several factors you'll need to consider including how often you go to the doctor, your ability to cover costs in a worst-case scenario, your medical conditions, and availability of care in-network, etc.

These benefits may be paid for by your employer, but you'll still want to familiarize yourself with disability insurance and life insurance. These policies detail how you'll be compensated if you're physically or mentally unable to perform your job or worse.

6. Participate in your company's growth

When you joined your company, you most likely came in with the expectation that your contributions will have a part in helping the company grow. Your company may have even offered incentives to motivate and retain your talent in the form of partial ownership in the company. This could come in the form of stock options, restricted stock units (RSUs), employee stock purchase plans, and more.

If managed properly, these assets have the potential to help fast track you to your financial goals. As we had talked about previously with retirement accounts, participation is only half the battle. It's also incredibly important to know when you'll need to make decisions and how that it's going to be taxed. With proper planning, you can potentially minimize the tax impact.

It's important to note, that these are tips to help you start thinking more about the impact of your employee benefits and help you find some that you might not have known about. As with all parts of your financial plan, it's rare that your decisions will be completely isolated. You should always consider how these decisions will affect the other parts of your financial plan.


¹ Lieber, Ron How to Win at Retirement Savings

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