Unused by 90% of employees (The Wall Street Journal)
As the saying goes, the biggest investment you can make is in yourself. Compared to a bachelor’s degree, earning a master’s degree increases median lifetime earnings by $400,000 – and earning a professional degree increases median lifetime earnings by $1.9 million. The more you can do to develop your skills and make yourself more marketable – be it through academic degrees, professional designations, certifications or skills training – the more valuable you can potentially become to your employer (or others).
According to data from SHRM, 56% of employers offered tuition reimbursement in 2019 – a number that’s only likely to rise given the current war for talent and skill shortages nearing 90%. While each employer will structure their programs differently, it’s worth noting the IRS allows employers to offer $5,250 of educational assistance tax-free per employee per year – these are benefits you don’t have to include on your income tax return.
Unused or inaccessible by 68% of private sector employees (Bureau of Labor Statistics)
According to the Social Security Administration, more than one-quarter of today’s 20-year-olds will become unable to work due to illness or injury at some point before the age of 67. If you rely on your paycheck to maintain your lifestyle, you should have a plan in place in the event you are unable to work for an extended period of time, particularly if the reason you can’t work brings with it hefty medical bills.
Long-term disability insurance is designed to replace a portion of your salary (typically 50–80%) in the event of disability. However, it is not always easy to get. A private long-term disability policy can be hard to qualify for and prohibitively expensive. Social Security disability plans tends to offer little in benefits, and nearly two-thirds of Social Security disability applicants are initially denied.
Companies often offer long-term disability insurance as an employment benefit, either automatically or as a voluntary benefit paid for via payroll deduction. Even if you have to pay for it separately, a group policy through work will likely be easier to qualify for and less expensive than buying one on your own.
Unused by more than 50% of eligible employees among most companies (NASPP)
Employer stock purchase plans are company-run programs designed to help employees purchase company stock. Instead of having to pay the entire purchase amount upfront, workers can choose to have money withdrawn from each paycheck over a period of time (usually six months). Helpfully, ESPPs often have a lookback provision, where the purchase price would be determined by the stock’s value at either the beginning or the end of those six months, whichever is lower.
Through an employee stock purchase plan, workers can build wealth through the stock market and participate in the success of the business (to which they themselves have contributed). Plus companies often also offer an employee discount to encourage participation – typically between 1% and 15%. It can be a great way for employees to access the stock market while supporting the company they work for.
Unused by 33% of workers enrolled in a high-deductible health plan (JAMA)
Many employers offer what’s known as a high-deductible health insurance plan (HDHP), for which workers essentially trade a smaller monthly premium payment for assuming more of the upfront costs should they need care. To help manage those potentially higher costs, those with HDHP coverage can also participate in what’s called a health savings account. This savings account for qualified healthcare expenses can provide significant financial benefits:
- Contributions reduce your taxable income. Contributions to your health savings account reduce your total annual income when it’s time to calculate your taxes – the more money you move into your HSA, the less tax you’ll owe. The maximum contribution you can make in 2022 is $7,300 if you have family healthcare coverage and $3,650 for single coverage.
- The account grows tax-deferred. HSAs are both interest-generating and investment accounts, and any growth within the account is deferred until funds are withdrawn, if then.
- Withdrawals can be tax-free. If an HSA withdrawal is used for qualified healthcare expenses, you won’t be taxed on the distribution. HSAs are the only investment vehicle that offers this triple play of tax benefits.
Because HSA balances can accumulate over time, they can be a great tool for building wealth, especially if you’re able to pay cash for current healthcare expenses while you allow the HSA to grow. You can even use health savings account funds to pay yourself back for previous healthcare expenses – even years later, so long as they were incurred after the HSA was opened.
Unused by 17% of employees with access to an employer-sponsored plan (Qualtrix)
The statistics are alarming: Only 36% of non-retirees think they are financially on track for retirement. Employer-sponsored retirement savings plans like a 401(k) can be a great option to build those retirement funds quickly: Your monthly contribution is withheld from your salary automatically (so you don’t have to remember to do it, or are tempted to spend that money elsewhere) and you have control over how your funds are invested.
Savings to 401(k)s offer their own unique and immediate benefits as well:
- They reduce your taxable income. Just like the HSA, money moved into your 401(k) reduces the amount of income you’ll be taxed on. It’s like giving yourself a cash-back discount on money you’ll only use later in retirement.
- Many employers offer matches. To encourage you to save, many employers are willing to match whatever you move to your retirement account, up to a certain amount or percentage. This is free money for retirement, with no strings attached. Yet among those whose employer offers a company match, 12%, or 17.5 million people, are not taking full advantage.
- Older workers can save even more. The IRS limits how much you can save each year in your 401(k) to $20,500 (a $1,000 increase over 2021’s limit). However, if you’re over age 50, you can also make a catch-up contribution of up to $6,500, for a total of $27,000. (Already max out your 401(k)? Fortunately, there are several other retirement strategies worth considering.)
It’s worth noting that some employers offer what’s called a Roth 401(k): Much like a Roth IRA, contributions aren’t tax-deductible today, but withdrawals in the future can be fully tax-free.
When talking about employment benefits, it can be fun to look at the more exotic offerings – just make sure you’re not overlooking the benefits you might have already. Your Baird Financial Advisor can help you make sense of your current employment benefits and integrate them within your larger wealth management plans.
The information reflected on this page are Baird expert opinions today and are subject to change. The information provided here has not taken into consideration the investment goals or needs of any specific investor and investors should not make any investment decisions based solely on this information. Past performance is not a guarantee of future results. All investments have some level of risk, and investors have different time horizons, goals and risk tolerances, so speak to your Baird Financial Advisor before taking action.
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