In my last post, we discussed the potential pitfalls of working with a financial advisor and how to successfully navigate them. Now, let’s turn our attention to the first of only a handful of conversations I’ve had with one. This first conversation was useful to me as a wealth creation beginner. The conversation helped me get past some willful ignorance. It also gave me a good advice to kickstart my wealth creation journey. Know your workplace benefits, and don’t leave money at work.
What am I talking about? One word – BENEFITS.
In fact, only half of employees understand their benefits. This is understandable, as benefits have only grown in complexity and diversity over the years. However, data from the International Foundation of Employee Benefits Plans reveals up to 80% of employees do not even open their benefit materials!
Benefits beyond core salary and even health insurance play increasingly critical roles in modern workers’ overall compensation – and even their loyalty to an employer. We’ve all heard about the cool and even unconventional benefits some employers (particularly those in tech) provide their employees. We hear less about the more mundane benefits that can put real money in employees’ pockets but get overlooked.
This is a huge, missed opportunity. You can turn benefits that are already part of your employment into value – money – that can jumpstart your wealth creation.
So what can you do to ensure you’re not leaving money at work?
Know your open enrollment period
Open enrollment is specific to health insurance. It’s the yearly period when people can enroll in the same or new health plan. The open enrollment window for private, individual health plans usually lasts from November 1 to December 15 each year. Employer-sponsored plans may follow a different enrollment window. It’s therefore important to know yours no matter the type of health insurance you have.
Invest the time to learn about all your available benefits
I recently re-read my workplace benefits, and it took me about 30 minutes to get through them. I even learned a new thing or two! Trust me on this one. The small investment in time and a bit of cognitive strain, even just once each year, are well worth it.
These two steps have helped several Black professionals uncover – and then bank – some pretty awesome benefits at work. Below are a few of my favorites:
Mark, 33, Financial Services
Mark started a new job as an associate at an investment firm. He has never utilized a 401(k) plan at work before, which is not uncommon. In fact, only 55% of U.S. workers participate in employer-sponsored plans. Mark does some digging and learns that the firm will match 50 percent of every pre-tax and/or Roth dollar he contributes to the employer-sponsored 401(k) Plan, up to the Internal Revenue Service (IRS) basic deferral limit. Mark decides to opt into and max out his 401(k) Plan. In 2020, Mark therefore saved $19,500 of his own pre-tax dollars via this plan and received another $9,750 in tax-deferred money from his job. After thirty-years, if Mark continues to max out his 401(k) based and receive this $9,750 in yearly match from his employer, the match portion of his 401(k) alone could be worth $1.1 million! *
Felicia, 46, General Management
Felicia is a General Manager at a Fortune 500 company, and to prepare for her oldest child going to college, reopens her workplace benefits to see if they can help. She sees that her company offers an Employee Stock Purchase Plan (ESPP). The company’s ESPP plan allows Felicia to contribute the Federally defined maximum of her pre-tax salary ($22,500) to purchase shares at a 10% discount. This potentially yields Felicia an extra $2,250 in unrealized gains each year. Even if she sells her ESPP shares each quarter upon receiving them, the after-tax realized gains help her make more money than if she had not participated in the ESPP program. And this is money that she now uses to help her child.
Alberto, 23, Technology
Alberto recently graduated from college and has started his first job as a software engineer at a large technology company. He finds out that his workplace benefits include a corporate discount program through Passport Unlimited. The program offers discounts at many local merchants, restaurants, online vendors, and even home and auto lenders. Alberto’s favorite is the “buy-1-get-1 free” restaurant discount at his favorite restaurant. It helps him and his fiancée cut their weekly dining out bill in half – so they can save for their upcoming wedding.
So, spend a few minutes with your workplace benefits and find out for yourself – what money are you leaving at work?
* This estimate was generated using the hyperlinked investment calculator assuming an initial investment of $100, annual contributions of $9,750 for 30 years earning 8% in annual returns. As with anything in the investment world, this is just a loose estimate, and past performance does not guarantee future results.