young adult in interview for job with employee benefits

Financial Literacy Basics: A Guide for Your Young Adult – Part 3

Employee Benefits and Financial Security

As your young adult embarks on their professional journey, it becomes imperative to guide them through crucial decisions regarding employee benefits, retirement savings, and insurance.

Discussions about financial well-being are essential in this era of diverse employment structures and a growing desire for work-life balance.

Employee Benefits
Understanding Benefits Packages

Discuss the advantages of being an employee of an organization that provides benefits such as medical, life, and disability insurance, health-related savings accounts, and a retirement savings plan. This is especially relevant in the gig economy.

Conversations with your young adult might include the best options for health insurance, whether purchasing life insurance at this point makes sense, and how to take full advantage of an employer’s retirement savings programs.

Navigating Benefits Decisions

Receiving an employee benefits package and being asked to decide about each offering can be overwhelming.

Encourage your child to review it with someone knowledgeable and think about both the short-term and long-term value of what the company is offering.

If your child is already employed, emphasize the importance of revisiting employee benefits choices during open enrollment periods.

Health Insurance Insights
Exploring Health Insurance Options

Explain that everyone is required to have health insurance. Explore various options together, including policies on state health insurance exchanges or plans sponsored by employers, unions, or professional groups, or possibly remaining on a parent’s plan.

Discuss the size of the deductible they are prepared to shoulder, whether to participate in health savings or flexible spending accounts, and how much to contribute. Include factors such as how much they anticipate accessing medical services and their risk tolerance.

Special Considerations

If a young adult older than 26 is a student or unemployed, a parent can purchase a rider on their insurance plan to provide coverage through age 29.

The “age 29” rider provides coverage in New York State if the young adult is unmarried, is not eligible for comprehensive health insurance through their employer, and resides in the health insurance company’s service area.

The young adult need not live with a parent or be financially dependent on a parent.

Retirement Benefits
Starting Early for Retirement

Emphasize the financial benefits of saving for retirement at a young age. Explain how to take full advantage of employer matches in a 401K plan. Inform them of their option to take along their current plan when changing employers or convert it to a Rollover IRA at a brokerage firm.

Stock Options and Total Compensation

Highlight potential opportunities to receive shares of a public company as part of total compensation. Emphasize that paying income tax on awarded shares is a short-term cost that lays the foundation for a possible long-term benefit.

Saving for Future Goals

Encourage the incorporation of a monthly automatic contribution to an after-tax savings account. This fund can serve as an emergency fund or be allowed to grow to be utilized for significant goals like a home purchase or further education.

As Part 1 of this series mentions, suggest that your child explore whether the employer will split payroll direct deposit between a checking account and a savings account.

Life Insurance Considerations
Insuring Future Responsibilities

Whether or not employee benefits include life insurance, discuss the idea of purchasing life insurance at a young age to secure coverage for future financial responsibilities like marriage and children.

Explore options between term and whole life insurance, considering conversion riders and guaranteed renewability features.

Point out that any time there is a life-changing event, they should review their policy’s beneficiary(ies).

Analyzing Lifetime Cost

Encourage a thoughtful analysis of the lifetime cost of insurance starting young versus obtaining insurance at a more typical time. Discuss the potential benefits, especially for those with a family history of uninsurable medical conditions.

Young people in good health, with no pre-existing conditions, can generally purchase either term or whole life insurance at inexpensive premiums.

Term policies often allow extending coverage at the end of your original term life policy (possibly until age 95) through a conversion rider. A guaranteed renewability feature allows extending the death benefit without providing evidence of insurability (i.e., getting a new medical exam). Of course, the premium will change as the policy is extended.

Many term life policies also offer the option of converting a term policy into a permanent policy. This option incorporates a savings component.

Empower your young adults with employee benefits insights, enabling them to make informed decisions that contribute to their financial security and well-being in the long run.

Read the other articles in our Financial Literacy Basics Guide for Young Adults – Part 1: Nurturing Financial Wisdom and Money Management and Part 2: Navigating Major Financial Decisions. For information on our services in this area, please visit our LifeArc page.

Launching your kids into the world can be daunting. It is even more challenging to help them navigate major financial decisions to build a secure financial future.

Eddy & Schein Group has expertise and experience in empowering newly independent adults with financial knowledge and insight. If you’d like some assistance, please give us a call. We’re here to help.

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Eddy & Schein Group helps:

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Tell us what you need.
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