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How to maximize your employee benefits

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Being your own boss might seem like a sweet deal, but one of the advantages of working for a company is the employee benefits package you’ll usually get. Typical benefits include a retirement plan, life and disability coverage, and health, vision and dental insurance. Full-time and sometimes even part-time employees are eligible.

But many people don’t take full advantage of these options. I review hundreds of plans with my clients each year. Here are three steps you should take to maximize your employee benefits and avoid the most common mistakes I see people make:

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1. Save enough to get match money

Many employers offer to match 401(k) savings up to a certain percentage of your income if you do the same, but one in four employees leaves match money on the table by not deferring enough of their income, according to recent research from investment firm Financial Engines. A typical match is 3% of your income. This is free, “extra” money from your employer.

All you have to do is start saving. Creating a monthly budget is one step you can take to make saving easier.

What to do? Enroll in your employer’s 401(k). Find out what your employer’s match criteria are and start saving at least that much, if not more, to take advantage of this benefit.

2. Enroll in disability insurance

Disability insurance coverage provides income protection, up to 70% of your salary, if you are not able to work. You typically get a chance to enroll in this coverage when you start working for a company.

If you are young and healthy, you might wonder why you would need it. But you never know what might happen, and it’s a good idea to be protected.

Let’s look at what disability means for your financial picture. If you can’t work, you have no income and you can’t pay your bills. You might have some savings set aside, but what if you can’t work for a long time?

What to do? Enroll in both short-term and long-term disability coverage. I also highly recommend electing to pay your premium with after-tax dollars. If you do this, the benefits you receive will be tax-free. But if you pay with pre-tax dollars, or your employer pays for your coverage, then the benefits you receive will be taxable.

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For example, assume that your disability insurance provides coverage for up to 70% of your income. If you pay your premium with pre-tax dollars, when you collect the benefits, you will receive 70% of your income. But you’ll have to pay income taxes on this amount, reducing how much you receive. Will it be enough for you to live on?

3. Take advantage of a group legal plan

This is a fairly new employee benefit that more companies are offering. A group legal plan provides access to a network of attorneys who provide various legal services at discounted rates.

The No. 1 reason I like group legal plans is because you can get basic estate planning documents drafted for a reduced fee.

What to do? I highly recommend that all of my clients work with an attorney to get at least these three documents prepared:

  • A will, which outlines what to do with your property after you die.
  • A durable power of attorney for financial matters, which indicates who will make financial decisions on your behalf if you’re incapacitated.
  • An advanced health care directive, which indicates who will make medical decisions on your behalf if you’re incapacitated.

Some companies, such as tech companies and startups, might offer their employees more exotic benefits packages to attract talent. Many of my clients in Silicon Valley work for companies that offer their employees perks such as free breakfast and lunch, shuttles to commute to work, and open offices with beanbag chairs and nap rooms.

But even if your company doesn’t offer those fun extras, it’s critical that you make sure you are getting the most out of the benefits that it does offer. Review your benefits today.

Learn more about Anna on NerdWallet’s Ask an Advisor.

This article first appeared in NerdWallet.


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