Tips to Navigate the Benefits of a New (or First) Job

Whether you're starting your first full-time job or have been in the workforce for a while and are switching jobs, you'll have access to a variety of employee benefits. It's important to fully understand what your employer offers.

Knowing your benefits is not just helpful in the short term, so you don't miss out on current benefits and opportunities, but also over the long term to prepare for your future and retirement.

Generational differences in retirement savings

Especially if it's your first job, retirement may seem far off, but getting started early with retirement planning is critical for your financial future.

Interestingly, even more so than prior generations, Gen Z (born in 2000 and later) seems to recognize the importance of saving early for retirement. In fact, studies show that Gen Z'ers are already putting away money for their retirement, even though their median age is just 19.

In contrast, the often talked about Millennials (born between 1981 and 1996) are just starting to think seriously about their retirement, while Gen X'ers (born between 1965 and 1980) are in their peak earning years and keenly focused on boosting retirement savings.

The oldest living generation, Baby Boomers (born between 1946 and 1964), are either already retired or close to it.

Employer-sponsored retirement plans

One of the best ways to save for retirement is through an employer-sponsored retirement plan. The most common type of employer-sponsored retirement plan is a 401(k) plan, but some companies offer other plans too.

Employer retirement plan match

If your employer offers a matching contribution, take full advantage of it! Find out what the match is and maximize your contribution so you can get the full benefit.

Some plans will match a percentage of your contributions up to a certain percentage or amount. For example, your employer may offer a 401(k) plan with a match of 100% of up to 3% of your compensation and then a 50% match on the next 2% of compensation. If your annual salary is $60,000, and you contribute 5% of your pay ($3,000) annually, your employer will match another $2,400.

If 5% is too much, even if you contribute 3%, you'll still be ahead of the game. It's important to contribute enough to maximize your employer match so you don't leave money on the table.

The power of compound interest

When you start saving early for retirement, you take advantage of the power of compound interest, because your money grows over time. Compound interest is the interest calculated on your initial deposit, plus the accumulated interest from previous periods. This can really add up to a big payoff.

For example, if your total annual 401(k) contribution is $5,400 ($3,000 from you, plus $2,400 matched by your employer), assuming a 7% return compounded annually, the contributions would grow to over $96,000 over 12 years. That's a significant amount of growth for just $3,000 annual contributions.

401(k) plan tax benefits

Even if your employer does not offer a retirement plan match, contributing to a 401(k) plan is still smart. Your contributions are tax deductible and reduce your taxable income. For instance, if your annual salary is $60,000 and you contribute $3,000 per year, your taxable income is reduced to $57,000. Assuming a 25% tax rate, that equals about $750 in annual tax savings.

Health insurance is a must

Health care costs in the U.S. have skyrocketed in recent years. To help alleviate some of this financial burden, an employer-provided health insurance plan may be one of your most critical employee benefits. However, not all plans are created equal, so it's important to understand the levels of coverage your employer offers.

Most employers offer either an HMO (health maintenance organization) or PPO (preferred provider organization). HMOs typically cost less, while PPOs offer more flexibility in choosing doctors. Regardless of your age, getting regular check-ups and maintaining good health are some of the best cost-saving steps you can take for your future.

Some employers offer dental and vision insurance too, which can help cut costs on your dental care, vision screenings, and prescription glasses/contact lenses. Some even offer pet care insurance to help lower costs on medical care for your furry friends.

Other insurance benefits

Many employers offer other insurance benefits beyond health insurance. For example, short-term and/or long-term disability insurance provides compensation if you become disabled and unable to work. Statistically, disability is one of the bigger risks for the newly employed, so don't overlook it. Life insurance may also be important, especially if you have family members to support.

Employers often offer group plans for insurance coverage at a lower cost than what you can get as an individual. The caveat is that group plans may have less flexibility on terms and coverage. Therefore, it's important to compare rates and coverage terms for group plans versus individual plans.

Additional benefits to look for

Your employer may offer other benefits, such as college tuition reimbursement, pre-tax health savings accounts, and employee stock purchase plans. These perks can all play a role in helping you to achieve your financial goals.

A financial planner can help

While this article provides an overview of the most commonly offered employer benefits, be sure to reach out to your HR department or Benefits Coordinator for specific details about your new company's benefits.

And while you may be comfortable handling employee benefit decisions on your own, you may profit from working with a financial advisor who can take an experienced, objective view of how your benefits fit into a larger financial plan. To learn more, visit our Investing & Financial Planning page.