Are you one of the tens of millions of workers quitting their jobs this year or considering a similar change? Whether you’re looking for another career opportunity, downsizing your working life, or embracing full financial independence, it’s important to know all the ways you may be getting paid.
Understanding total compensation puts you in a better negotiating position if you are comparing new job opportunities. And if you are scaling back or stopping paid work entirely, your financial planning can properly adjust for benefits and services that you now might need to pay out-of-pocket. Blunt rules of thumb like needing 80% of your income in retirement don’t account for these types of income and spending differences.
Salary grabs everyone’s attention, but the bigger financial picture is your total compensation. Various benefits and alternative pay structures can represent a big portion of your all-in compensation.
Other top areas to focus on include bonuses and commissions, healthcare benefits and subsidies, employer-sponsored retirement plans, plus a variety of other benefits that help support your lifestyle. Worth noting is that each of these examples may also impact your take-home pay and taxes.
You may be able to take some benefits with you when you leave. For example, with an old retirement plan, you should evaluate whether to transfer your balance into your new employer’s plan or roll it into an IRA where you may have more control and better investment choices. For retirees, some employers may offer continued access to health coverage and life insurance.
Everyone’s situation is different, and some benefits may be more important to you than others. Working with a comprehensive financial advisor can help you understand all the ways you are paid, how your compensation and benefits compare to those at potential new jobs, and what options you have if you decide to scale-back or stop working. Here’s a checklist I created to help a client quantify how he is being paid now, before he considers a search for a new position.
Income
Salary—It’s not about what you make but what you keep. Taxes can have a big impact, especially if you are an independent contractor instead of an employee.
Bonuses—Performance bonuses can be based on both individual and group performance, and new hires may get signing bonuses.
Commissions—Understand how the commission program is structured and what factors may support or limit your earnings.
Profit-sharing or stock ownership plans—Ownership in a growing company can pay off longer-term, but this investment is also your employer, and you may not want to put so many eggs in one basket.
Health and other insurance benefits
Medical—Analyze the premium you pay and compare that with the co-pays and deductibles. Pay especially close attention if you are comparing traditional plans with high-deductible options.
Dental and Vision—Most dental and vision plans offer limited coverage, so you may still have hefty out-of-pocket expenses for these services.
Life—Guaranteed term coverage based on your salary may be included, and you may be able to purchase additional coverage. Consider life insurance policies outside of your employer to ensure you can maintain coverage if you switch jobs.
Disability—Options include short-term and long-term coverage based on your salary.
Retirement and savings
Employer-sponsored 401(k), 403(b), or IRA—Factor in employer matches, vesting schedules, and contribution limits. If plan expenses are high, consider participating up to the employer match and fund your own retirement account outside of the plan.
Pension—While less common among private employers, pensions are still typical for government positions. Your employer makes contributions, and you receive the benefit of steady payments in retirement.
Deferred compensation—457 plans may be available from state and local government employers and some nonprofits. These plans allow you to put money aside on a pre- or after-tax basis, but the rules differ from typical retirement plans like a 401(k). Unique rules also apply for deferred compensation packages with private employers.
Health savings account (HSA)—If you have a high-deductible health plan, you may be able to put money aside in an HSA. These funds are never taxed if used for medical expenses, and you can add to the balance each year and take it with you if you leave.
Flexible spending account (FSA)—You can fund these accounts with pre-tax money to pay medical or dependent care costs. Unfortunately, balances do not carry over to future years (you must use it or lose it).
Time off
Company holidays—Most companies recognize 7-11 holidays each year, but not all of those days may be paid.
Paid time off, including vacation and sick/personal days—Understand how much paid time you get and how that amount increases in future years. You may be able to purchase additional time off and roll balances into future years, and some companies might offer an extended sabbatical option.
Other benefits
Housing and Relocation assistance—If you are required to move for a job, all or part of your expenses may be covered.
Day-care or child-care reimbursement—Some companies may offer on-site daycare or a childcare subsidy.
Education assistance—Some companies offer reimbursement for additional school or training related to your field. College loan repayment programs are a helpful benefit if you have student debt.
Travel—A company car and gas card can be worth thousands of dollars each year, and free or discounted parking is helpful, especially in urban areas. And for frequent flyers, travel reward points can add up quickly.
Additional benefits—Companies may also offer discounts on legal services, gym memberships, adoption services, cell phone plans, computers, and other consumer goods and services.
Associated costs for new job seekers
Location—Will you need to relocate to a more expensive area of the country? Factor in cost of living and taxes that will reduce the spending power of a large salary.
Commuting costs—Working from home can reduce or eliminate commuting costs like gas and mileage on your car. But commuting also has a time cost. Just 10-15 extra minutes each way can add up to more than 100 hours of travel time over the course of a year.
Wardrobe—Consider expectations for the role and plan to dress accordingly. Costs for company uniforms may be covered or reimbursed by your employer.
Tim Drake helps individuals and families build and align their finances for living a fulfilled life. Working with integrity and mutual respect, his comprehensive process includes investments, debt and cash flow management, insurance, and tax, retirement, and estate strategies. He is a Senior Financial Advisor at Pegasus Financial Planning, a fiduciary, fee-based Registered Investment Advisor (RIA).