In this episode of Friends Talk Financial Planning, we share valuable advice on how to optimize your benefits when changing jobs.
First, we recommend revisiting your 401(k) contributions—especially if you're making more money at your new job. Consider increasing your contributions, and at a minimum, take full advantage of your company's matching contribution. We also suggest transferring any old 401(k) accounts to your new employer’s plan or an IRA to keep things organized and avoid future headaches.
The next tip - look at health insurance. When it comes to health insurance, don’t just sign up without thinking—take a moment to assess if a Health Savings Account (HSA) is right for your current life stage. For parents, we encourage you to take full advantage of a Dependent Care Savings Account (DCSA) if available. These accounts can be a great way to save on childcare expenses with pre-tax dollars.
Be cautious with accidental death insurance, which may not be as beneficial as standard life insurance.
Another thing to consider is employee stock ownership plans. We recommend selling the stock as soon as you can to take advantage of the discount—just make sure you're not accumulating too much company stock, as that can lead to financial risks.
The overall advice is simple: Be intentional about your choices and take time to reassess your benefits to make sure you’re making the most of your new job!
Resources:
- Alliance of Comprehensive Planners: https://www.acplanners.org
- John's firm website: https://www.trinfin.com
-Find us on Facebook: www.facebook.com/friendstalkfinancialplanning
TRANSCRIPT:
Bridget: Hey, John, when you get a new job, it's a good time to rethink your benefits and what you've signed up for. That's what we're going to be talking about on this episode of Friends Talk Financial Planning. Hi, I'm Bridget Sullivan Mermel and I've got a fee-only financial planning practice in Chicago, Illinois.
John: And I'm John Scherer. I've got a fee-only financial planning practice in Middleton, Wisconsin. And before we jump into employee benefits at your new job, I just want to remind everybody to hit that subscribe button here. That helps us grow the channel and other people find this information on YouTube. And with that, I'm looking forward to having this conversation. Bridget. It's one of these things that I think you and I, because we deal with it so much, take for granted.
In the fall there are some signups for new benefits, but you don't really think about it that much when we're changing jobs, getting a first job, getting a promotion, or moving to a different company. All these things are kind of new. It's not the same old things where you just got to check boxes. No, it's all these new things to think about. It can be a really great time to level up your game and make some decisions that might have fallen under the rug in the past. So what things are on your list? What things do you talk about with folks when they do change jobs?
Bridget: The first thing I want to talk about is the 401(k). And there're a few different flavors here. First you want to obviously contribute, but generally when people are switching jobs, they're making more and it's great. I generally recommend people save half of that. So that's a great way to start increasing your 401(k). So sign up for 401(k) and increase your contributions. Any objections?
John: No, I think that's great. And at a minimum, make sure that you take advantage of the company match. At a lot of places, if you put in up to 5%, they match it. Sometimes it's up to 10%. So understand what the match is at the new company and make sure you're doing that at a minimum. And then I love this idea. Hey, I changed jobs. I got a 3% or 5% raise. Well, put 2% or 3% more into the 401(k) plan. Go from 10% to 12% or whatever. I still get more take home pay, but I'm also bolstering my retirement. That’s a great idea.
Bridget: Right. And then there're also details. So you probably have an old 401(k) and most people would prefer not to have a lot of accounts hanging out there, and so transferring your old 401(k) into your new 401(k) is something to consider.
John: Yep. And that's the same thing. We do take a look because some 401(k)s aren't as awesome as other ones. Even if I don't like some of the investments, the company match that comes in a 401(k) in most cases trumps all the other things like this. And it's still a great deal. But either rolling it into an IRA or into your current plan, if you like those investment options, is the number one choice for us.
Bridget: And I would say don't just keep your old 401(k) because you're feeling lazy. Sometimes we have old 401(k)s but don't do it just because it's convenient. And this is because it actually doesn't age well. It just becomes more of a pain to find your old logins and all that kind of stuff, to actually move it or to do anything with it later. So I like doing it now.
John: Okay.
Bridget: Another one, medical insurance. I think most people will remember to sign up for medical insurance, but it might be time to re-evaluate. Is an HSA or health savings account based medical insurance appropriate for you at this stage of life?
John: Yeah, that's exactly right. I think it's a time again when, hey, maybe you thought about three or five or seven years ago but think about it again. And I'll throw out there too that if you had an HSA at your old company and you're going to do the same thing, remember an HSA is an account, sort of like an IRA type account. Don't forget that. Don't forget the 401(k) and just leave it over there because of being lazy. Same thing with the HSA. Be intentional about that account as you make a change.
Bridget: So those HSA accounts are what we know in the business as portable, that means it comes with you; it doesn't disappear. It comes with you, so you can use it again. Another one that people often miss is dependent care savings accounts. These look a lot like, flexible spending savings accounts, but they're just for dependent care. So if your kid's in preschool, it helps a lot. And you can save a bunch in these. When people have kids in preschool, I really like these things.
John: Yeah, preschool. And I'll add daycare, depending on people’s situations.
Bridget: Right.
John: And the thing about those plans is that like the 401(k) or 403(b), the HSA is pre-tax deduction, right off your paycheck, so you can get a dependent care credit on your tax return. That's a good thing to do. But this thing that you can do through the company is just flat out a better deal, the more tax bang for the buck. So it's a great place to start. I love that. And a lot of people miss this, Bridget. My old company didn't have it, my new company does, but I didn't really pay attention to it. Again, pay attention. If it's there, it can be a really great deal.
Bridget: Another one. This is again our highlight reel. No accidental death. John is not worried about you dying from an accident. What?
John: It sounds like a good deal. Some people need life insurance. And especially if you have kids, you need life insurance. It doesn't matter if I get sick or if I'm in a car wreck, either way I need the insurance. So those accidental ones typically aren't a good deal. I will say sometimes the regular insurance (I got regular insurance for me, and I can buy more coverage; buy some for my spouse) can be a really good deal. It can be very affordable. But it can also be very expensive compared to what you can buy out on the open market, so don't just automatically go, “Oh, great, I can buy five times my salary. It must be a good deal because it's an employee benefit.” That's one where you need to do the homework and just make sure that it's a good deal.
Bridget: It's also interesting because some of the same plans can be good at some ages and bad at others.
John: That's right.
Bridget: Things can change, so it's worth taking a look at. Next, is employee stock ownership plans. So this is when the company gives you a deal for buying stock in the company, and they give you a discount. Tell me what your thoughts are on this.
John: Yeah, we used to see these a lot. We see less of them these days. But, in general those are a good idea with some caveats. What we don't like to see is people putting money into that and just building up a big pot of their employer stock, because they become too concentrated over time if they don't pay attention. There’s one place where I think it could be a good idea, but you have to read the plan because they're all different. Many plans will say, “Listen, you can buy once a year, and you can defer money from each paycheck.” Once a year you can buy company stock at a discount and then you can turn around and sell it.
And those are the places where, listen, if the day after I get it, I can turn around and sell it, I know I've gotten a 15% gain in it. It's like putting money in the bank. I'm interested in your take, Bridget, but be aware that some plans say, “Yep, you get that, but then you have to hold it for a year.” Wait a minute, over the course of a year, stocks can go down more than 15%. I could lose all the benefit that's there. I could even lose money on that. So the idea of buying it for a long-term investment, or even a year-long investment after I own it is less exciting for me and even negative. If I can sell it right away, if my plan allows that, that can almost be like free money.
Bridget: Okay. And my take on this is slightly different than yours, although we come to the same conclusion. You don't really want to be getting a big pot of your company stock, no matter how great your company is. But my take on the matter is if you need to hold onto it for a year in order to sell it and get the advantage of the discount, that's okay. I think statistically it'll probably work out for you. The bigger issue is, can you remember to sell it?
John: Yeah. Right.
Bridget: And so, if you are of the personality type, where you will be on top of it, great, go for it. But if you are not of the personality type who enjoys these kinds of things, if it's not your hobby, don't do it. That's what I would say.
John: That's such a great point. The behavioral side is critical. And you know me, I like to say, “Here's the logic, here's the math. Yep, the math works.” But it can cause a lot more damage if your reality is that you're just not going to pay attention to this stuff. That's such a great point.
Bridget: It’s fine. There's no problem with it. If accumulating more money is your hobby and it is for a lot of our viewers, then this is great, because you generally stay on top of it. If it's not your hobby right now, just take a pass. That's what I would say.
John: You’re not missing out. It’s not like, “Oh my gosh. Why didn't you do this?” If you don't put money in the 401(k) and the company match, “Geez, what are you doing? You're missing out.” For this one, yeah, it's nice but not necessary.
Bridget: You got to be on top of it. Otherwise, you have this huge amount, and we have clients who are in that situation and it's not really the ideal situation.
John: That's right.
Bridget: So that's a great time to wrap it up, John. I'm Bridget Sullivan Mermel. I've got a fee-only financial planning practice in Chicago, Illinois.
John: And I'm John Scherer. I've got a fee-only financial planning practice in Middleton, Wisconsin. Both Bridget and I are taking on new clients. We'd love to hear from you. But we're also both members of the Alliance of Comprehensive Planners, a national group of fee-only, comprehensive planners. If you like what you hear on our show and you want to find an advisor local to your area, you can check out acplanners.org.
Bridget: And don't forget to subscribe.
At Sullivan Mermel, Inc., we are fee-only financial planners located in Chicago, Illinois serving clients in Chicago and throughout the nation. We meet both in-person in our Chicago office and virtually through video conferencing and secure file transfer.
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