How to maximize your employee benefits
Being your own boss might seem like a sweet deal, but one of the聽advantages of working for a company is the employee聽benefits package you鈥檒l聽usually get. Typical benefits include a聽听辫濒补苍,听聽and disability coverage, and health, vision and dental insurance.聽Full-time and sometimes even part-time employees聽are eligible.
But聽many people don鈥檛 take full advantage of these options. I review聽hundreds聽of plans with my clients each year. Here are three steps you should take to maximize聽your employee benefits and avoid the most common聽mistakes I see people make:
1. Save enough to get match money
Many employers offer to match 401(k) savings up to a certain percentage of your income if you do the same, but聽聽leaves聽match money on the table by not deferring enough of their income, according to recent research from investment firm Financial Engines. A typical match is 3% of your income.聽This is聽free, 鈥渆xtra鈥� money from your employer.
All you have to do is start saving.聽Creating a monthly budget is one step you can take to make saving easier.
What to do?聽Enroll in your employer鈥檚 401(k). Find out what your employer鈥檚 match criteria are and start saving at least that much, if not more, to take advantage of this benefit.
2. Enroll in聽disability insurance
Disability insurance coverage provides income protection, up to 70% of your salary, if you are not聽able聽to work. You typically get a chance to enroll in this coverage when you start working for a聽company.
If you are young and healthy, you might wonder聽why you would need it. But you never know what might happen, and it鈥檚聽a good idea聽to be protected.
Let鈥檚 look at what disability聽means for your financial picture. If you can鈥檛 work, you have no聽income and you can鈥檛 pay your bills. You聽might have some savings set aside, but what if you聽can鈥檛聽work for a long time?
What to do?聽Enroll in both short-term and long-term disability coverage. I also highly recommend electing to pay your premium with after-tax dollars. If you do this, the benefits you receive will be tax-free. But if you pay with pre-tax dollars, or your employer pays for your coverage, then the benefits you receive will be taxable.
For聽example, assume that your disability insurance provides coverage for up to 70% of your income. If you pay your premium with pre-tax dollars, when you collect the benefits, you will receive 70%聽of your聽income. But you鈥檒l have to pay income taxes on this amount, reducing how much you receive. Will it be聽enough for you to live on?
3. Take advantage聽of聽a group legal plan
This is a聽fairly new employee聽benefit that more companies are offering. A group legal plan provides access to a network of attorneys who provide various聽legal services at discounted rates.
The No. 1 reason I like group legal plans is because you can get basic聽estate planning documents drafted for a reduced fee.
What to do?聽I highly recommend that聽all of my clients work with an attorney to聽get at least these three documents prepared:
- A will, which outlines聽what to do with聽your property after聽you die.
- A durable power of attorney for financial matters, which indicates who will make financial聽decisions聽on your聽behalf if聽you鈥檙e incapacitated.
- An advanced health care directive, which indicates who will make聽medical聽decisions聽on your聽behalf if you鈥檙e incapacitated.
Some companies, such as tech companies and startups, might offer their employees more exotic benefits聽packages to聽attract聽talent. Many of my clients in Silicon Valley work for companies that offer their employees perks such as聽free breakfast and lunch, shuttles to聽commute聽to work, and open offices with beanbag chairs and nap rooms.
But even if your company doesn鈥檛 offer those fun extras, it鈥檚 critical that you make sure you are getting the most out of the benefits that it does offer. Review your benefits today.
Learn more about Anna on NerdWallet鈥檚聽.
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