Life: The Ultimate Road Trip by Anne E. Schutt, MBA

Associate Lead Advisor, Waite Financial Group

This past year many of us heard the echoing voice of our internal GPS saying, “recalculating…recalculating…” No doubt, we ran into detours, roadblocks, and winding mountain roads that had us wadding up our well-planned life maps and tossing them right into the waste basket! For too many people, sudden job loss or change, moving to a new home, or paying unexpected medical bills uprooted our best-laid plans.

As we’ve come to appreciate, part of planning out the Ultimate Road Trip of Life is having a strong financial plan that can withstand those “recalculating” moments that life brings.

Imagine for a moment with me: your financial plan is much like a cross-country road trip that begins in New York (starting your career), stops in Pennsylvania (getting married), breezes through Ohio (starting a family), and continues all the way to retirement. And where will you be on that cross-country road trip when you retire? Most assume that at retirement you will be soaking in the sun in California, having completed your journey and the work is done. But on this road trip of life, you have just made it through the Midwest and may only find yourself in Kansas at retirement! You may have as many years in retirement as you had working, so making sure your map doesn’t end part way through your journey is important

Through this finance section we will explore different stops along the road and discuss important things everyone should plan for to ensure that the “New York to California Journey” goes as smoothly as possible. I will walk you through important stops on your road trip, addressing common detours, ways to plan around them, as well as certain routes to take to avoid them in the first place. And while I can help map out ideas of the routes you could consider, the things you could pack, and the preparations you could make, I always recommend finding your own financial planner to be your personal GPS who can help you fine-tune and “recalculate” your specific route to—and through—retirement!

And so, we begin in New York! This is our “starting point,” focusing on those first steps as you begin your career: What do you consider when seeking out your first job? What do you need to understand about your benefits through work? How can you best plan your the long trip now?

(And for those of us who have long ago left New York in the rearview mirror, remember that you may be mentoring someone at work, or may have children or grandchildren who are in this phase. My hope is that you can learn some practical information to share with them.)

New York, New York!

Your first job! Congratulations, you have completed your schooling and are ready to start your career. So often, new graduates only consider what salary a company offers them, however, the benefit packages should be closely assessed as well. Here are a few things to keep in mind as you select a job and start to sign up for your employer benefits.

1. Do they offer a retirement plan? Most employers offer a retirement plan that allows you to contribute money to an investment account and they may match your contributions to a certain level. There are several different types of retirement plans depending on the size and type of company. Some common types of retirement plans offered by employers are the following: 401k, 403b, SIMPLE IRA, and 457. One question to ask when considering a job is, “Do you offer a retirement savings plan and how much of my contribution will you match?” You should consider, at minimum, to contribute the same percent that they match—building a habit of saving early can build your retirement savings quickly. Developing a habit of saving 15% of your income when you start in New York can make that post-retirement leg of the trip much more comfortable!
2. If they do offer a retirement savings plan, ask if they offer a Roth version of that plan. Ina traditional retirement plan, the money you contribute is put into the plan before you pay taxes on it, and it grows tax deferred. You then pay taxes on the money as you take the money out in retirement. By contrast, more and more companies are offering Roth retirement plans, where you pay tax on the money now and then put it in the savings plan. The money grows over time and when you take it out in retirement you don’t pay any additional taxes. Right now, most young people are in very low tax brackets and it may make sense to make your contributions to a Roth retirement plan. Check with your financial advisor which is the best selection for you.
3. Healthcare insurance is not something you think about when it comes to financial planning, however, there is a powerful tool you can use called a Health Savings Account. Many companies now offer what are called High Deductible Health Plans. This means you pay a lower premium every month for your insurance, but if something happens and you need to use it, you will pay more out of pocket before insurance covers the costs. For many young people who are healthy, this type of plan makes sense because they may only need their health insurance to cover major problems. If you have one of these types of health plans, you are eligible to open a Health Savings Account (HSA). You and your company can add funds to this savings account and get a tax deduction up to the yearly limit. Over time, these funds grow tax free and when you use them for qualified healthcare expenses, you don’t have to pay tax on the money. HSAs are also portable, and the balance carries over each year, so if you don’t spend it, the balance builds. If you change jobs, it goes with you. This isn’t to be confused with a Flexible Spending Account(FSA), which is another benefit companies offer that is not portable and most of what you put in these accounts you lose at the end of the year if you don’t use the funds. Check with your advisor to learn which is the best for you.
4. Life insurance isn’t something many young clients think about, and often we see them sign up for group term insurance through their employers. “Hey, its only $10-20 a month, why not?” Having life insurance is important, but if you are young and healthy, getting life insurance outside of work is most often going to be your best choice. Group life insurance is often more expensive for younger and healthier employees because they are subsidizing the older and less healthy employees. The insurance also isn’t always portable, meaning if ten years down the road you leave your job and only have insurance through work, you may lose your coverage. If you have any health issues that have occurred in those ten years, you may not be able to get new insurance. Getting life insurance from an outside insurance company when you are young and healthy should be explored.
5. Keep the engine running! What is your number one asset? When you are young you may say it is your car. As you get older, maybe it is your home or your retirement account. But I’m here to say, your number one asset is YOU! It is you and your ability to earn income through your working years. You are the engine, keeping the car moving across the country on this road trip. For instance, a young person starts a job making $50,000/year. If she didn’t receive any raises her entire career and made that amount for 30 years, her income is worth $1.5 million! If you owned a $1.5 million home, wouldn’t you insure it? This is one of the largest gaps we see when helping people plan. Often your employer will provide some disability income insurance, however it usually only replaces 40-50%of your income after taxes if you become ill or disabled and can’t work. Bridging that gap with supplemental disability income insurance is like putting oil into your engine to keep the trip moving forward.

I cannot wait to travel this road with you! See you next month at our next destination!

Do you have a specific question? E-mail me at: [email protected] and we can include your question when most relevant along our road trip together.