By: AnnaMarie Mock CFP®
In today's discussion, we embark on the second step of enhancing financial health for pharmaceutical executives: the strategic utilization of non-cash benefits. Led by AnnaMarie Mock, a fee-only certified financial adviser at Highland Financial Advisors, this video aims to shed light on the often underestimated yet impactful facet of compensation packages. Without further ado, let's delve into the realm of non-cash benefits, crucial for both reducing household expenses and leveraging valuable tax advantages.
Introduction
Hi, my name is AnnaMarie Mock, and I am a fee-only certified financial adviser at Highland Financial Advisors. If you like my content, please click on subscribe below, and you'll get notified of any new videos as they're released.
Overview
Today, we are going to focus on step two on how pharmaceutical executives can take control of their overall financial health. In the previous video, we delved into a breakdown about human capital consisting of cash compensation, non-cash benefits, and stock compensation. Today, we're going to focus on non-cash benefits.
Importance of Non-Cash Benefits
Benefits are a huge part of total compensation because it reduces household expenses and offers valuable tax deferrals. Employers can offer this at little to no cost to you as well, whether it's insurance, retirement plans, or fringe benefits.
Understanding Insurance Coverage
Insurance coverage, for example, provides peace of mind and financial security for you and your loved ones if something unexpected were to happen. Selecting medical insurance requires more than just looking at premiums and deductibles but looking at utilization as well. Utilization is how often you go to the doctor.
General rule of thumb is the higher the premium, the lower the deductible and more robust coverage you get, but the higher the deductible, the lower the premiums. But you also get access to a Health Savings Account or HSA. An HSA offers triple tax savings, meaning you get a deduction in the year that you contribute into the HSA, earnings grow tax-free, and withdrawals are tax-free if used for medical expenses. So, there's a lot of different factors to consider when selecting the right coverage.
Disability Insurance
Disability insurance is sometimes overlooked but is extremely important, especially for professionals. This type of insurance provides a stream of income if something unexpected were to happen to you and you couldn't work in the same capacity. But there are a lot of nuances with this type of insurance and terminology that might not be familiar to you. Some of the terminology includes a definition of disability, what the insurance company considers disabled, elimination period, benefit period, and benefit amount. So, I highly recommend that you look at that level of detail when selecting your coverage.
Life Insurance Planning
Nobody likes to think of mortality, but life insurance is a necessity. Proper life insurance planning provides the capital or death benefit needed for your loved ones to maintain their lifestyle. Group life insurance is typically inexpensive, and some of the premiums might be covered by your employer. Generally, $50,000 of your insurance is free from the employer, and if you get more than $50,000 of insurance, the death benefit may be taxable. In addition, if the coverage that your employer is offering you isn't enough, you can also potentially purchase supplemental life insurance. Now, keep in mind that when you're buying group coverage, you're getting it at the group rate. So, if you're young and healthy, that premium might be more than if you went to get private insurance coverage. So, it's important just to overlap your group with your private coverage.
Savings through Employer 401(K)
Savings is a huge part of everybody's financial plan, and one of the easiest access to savings is through an employer 401(K). Through this type of savings vehicle, you can defer a portion of your salary into the 401(K) per pay period up to the IRS maximum. Depending on the plan, you might have access to a traditional 401(K) where you're putting pre-tax money into it, and a Roth 401k where you're putting after-tax money into it. Your employer may also contribute a percentage of your salary or a match into the account on your behalf. According to a 2021 Vanguard study, the average employer match was 4 and a half percent. That's just free money that you don't want to leave on the table, and if you could take advantage of it, I highly recommend you do.
Deferred Compensation Plan
The other main type of savings vehicle is a Deferred Compensation Plan, but this is typically only offered to higher-level executives. With this type of plan it offers immediate tax savings because you get a tax deferral in the year that you make the contributions and don't recognize that income until a later period, usually retirement. There's no cap on the contributions, and it's something that's extremely valuable to incorporate because of the tax savings and just additional access to savings on top of the 401K.
Fringe Benefits
There are a multitude of different types of general benefits called fringe benefits that might encompass pet insurance, gym memberships, and tuition reimbursement.
Conclusion
The main takeaway is by understanding and maximizing your non-cash compensation, you can create a financial plan that balances out your needs of today with your long-term goals of tomorrow.
Call to Action
I highly recommend that you review your non-cash benefits on an annual basis during open enrollment, which is typically between October and December. This is just to make sure that you're taking advantage of everything that's offered.
Thanks for watching, and if you'd like to schedule a free 15-minute conversation, please click on my company's website down below and schedule the call through Calendly. Thank you, see you next time.
AnnaMarie Mock is a CERTIFIED FINANCIAL PLANNER™ and Partner at HIGHLAND Financial Advisors, LLC, a Fee-Only financial planning firm that offers comprehensive financial planning, retirement planning, employer retirement planning, and investment management. AnnaMarie graduated from Montclair State University with a degree in finance and management and successfully passed the CFP® national exam in 2016. She has been working at Highland Financial Advisors since 2013 as a fee-only, fiduciary Wealth Advisor and is a member of NAPFA.