Decoding your offer letter: what to look for beyond salary
Finance 101
After multiple rounds of interviews and all those sleepless nights, you finally got an offer for a new job—congratulations!
Out of everything detailed in an offer letter, salary is understandably where the eyes go first. But actually, there are multiple other factors that can impact your bottom line and influence your financial future. In fact, base salary only accounts for about 70% of employee compensation.1
So, what should you be looking for in your letter? First and foremost, it’s important to calculate your potential post-tax income to ensure you’ll be making enough to afford your necessary expenses. Then, make sure the salary you’re being offered can help you meet your overall financial goals.
But what about navigating your offer beyond salary? To lend a hand, Misty Lynch, CFP®, John Hancock’s Head of Financial Planning, provided a list of valuable benefits to keep your eye on.
It’s likely your offer includes more than one of the benefits below and knowing how to capitalize on them can truly pay dividends, helping you and your family get the most from your new job.
401(k) Matching
While most companies offer a 401(k), some offer matching contributions. This means for every contribution you make to your 401(k), your employer matches the amount up to a certain percentage of your salary. Simply put, there are multiple benefits to a 401(k)—it’s more money for future you and ready to use upon retirement age (59½). But take heed: the money your company contributes doesn’t officially become yours until you’re fully vested––usually 3 to 5 years. If you intend on working at a company for a long period of your career, contribution matching can be an incredibly valuable benefit. If your employer doesn’t offer a 401(k), they may offer a SEP or SIMPLE IRA, which may have a smaller contribution limit.
However, if the company doesn’t offer a 401(k) or they do without matching contributions, you can always invest in a Traditional or Roth IRA. While the contribution limits are lower for IRA accounts compared to 401(k)s, they are still sound investments that can help you reach your financial goals.
Life Insurance
Life insurance is all about empowering you to live the life you want and protect the people you love. It’s a powerful tool, designed to help you achieve a variety of financial goals and needs, while crucially preserving your family’s well-being and assets to ensure the brightest future possible. Employers often provide basic group life insurance for free, which is typically less than a year’s salary.
Additional insurance may also be purchased through your employer to fill in the gaps. There may even be a discount if you live a healthy lifestyle. In fact, you can learn more about the benefits of maintaining your mind and body by exploring John Hancock life insurance with Vitality—the breakthrough life insurance solution that rewards you for the steps you take to live a longer, healthier life.
Health Insurance
Health insurance can save you thousands if you or a family member gets sick or injured. Some companies even offer additional health-related perks such as sick leave, in-office massages, yoga classes, meditation rooms and flu shots.
Keep in mind that these benefits are a big part of a compensation package. If you are working for a company that doesn’t offer much in this realm, you should consider that when determining what an acceptable offer is; don’t discount how much it will cost to cover these expenses.
Flexible Savings Account (FSA)
In addition to health insurance, an FSA is something you can opt into through your health plan. An FSA allows you to contribute up to $2,650 of your pretax income every year to cover the cost of copays, necessities like eyeglasses or contacts, prescription drugs, and more. Not only is this a convenient way to cover medical expenses, but an FSA will also lower your taxable income.
Paid Maternity/Paternity Leave
While new parents get federally mandated unpaid leave, some companies have implemented and expanded their parental paid leave offerings. States that have paid family leave include California, Connecticut, Massachusetts, New Jersey, New York, Oregon, Rhode Island, and Washington (both state and D.C.). If you’re expecting or planning to grow your family, relocating could be worth looking into.
Signing Bonus
A lump-sum payment just to start a new gig is pretty sweet. This could also be compensation for any anticipated bonus that you may be forfeiting at a previous company or if the salary you negotiated is lower than expected. Either way, it’s an incentive that screams how valued you are as a new employee.
Plus, a bonus is perfect for saving since those dollars aren’t usually allocated into our monthly or weekly budgets. Instead of using bonus dollars to splurge, re-investing is a great way to boost your emergency fund or pay off debt quickly.
Assorted Perks
On-site childcare. Gym memberships. Phone discounts. Vendor discounts. Free lunch. You may even save on dog-walking fees as dog-friendly offices are becoming more in style. Every company is different, so see what works for you. You may end up saving yourself hundreds to thousands per year depending on what is offered.
Ultimately, negotiating once you’ve received your offer letter is critical to your financial future, as there aren’t many opportunities to ask for more compensation or benefits once you start working. Before you take any job, make sure you understand the total compensation (salary and benefits) and that they truly work for you and the betterment of your financial future.
Securing an offer letter and starting a new job are definitely reasons to be excited. If you have any questions or concerns about your financial outlook—especially when it comes to planning for retirement or investing in life insurance—speak with a financial advisor.
Citations:
1 U.S. Department of Labor: “Employer Costs for Employee Compensation – December 2016” by Bureau of Labor Statistics, March 17, 2017 https://www.bls.gov/news.release/archives/ecec_03172017.pdf