Weighing the Importance of Benefits as You Consider Job Offers

Prepared by Libertiny Financial

If you’re looking for a job or someone has contacted you and asked you to join their firm a variety of questions tend to cross our minds:

  • What’s the new job like?
  • Will the people be good to work with?
  • How much money will I make?

The last issue is generally comprised of Salary, Bonus, and Benefits.  With the cost of benefits continuing to escalate much faster than inflation, the quality and financial value of your benefits need to be a part of your financial analysis.


Here are the 4 steps needed to make a well informed, apples-to-apples comparison of the total compensation being offered.


1) Salary
Let’s assume that you live in Metro Los Angeles, California, and you make $61,000 per year (pre-tax) salary. You’re offered a job in Chicago, Illinois. Should you take the new job? Here’s part of the answer:

We’ll use the following graph as an example of average salaries for your particular job in six metropolitan locations:


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With Los Angeles as the baseline, here are the relative cost of living percentages. These are biased toward the major costs that one encounters: Mortgage or rent and vehicle expenses.


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By combining the two sets of data, we obtain a composite graph that outlines any salary differences between the various locations, assuming that your salary doesn’t increase from what you’re paid in Los Angles ($61,000 per year).


By moving to a new job in Houston, Miami, or Seattle, your lifestyle would change only modestly.

However, New York and Chicago are significantly more expensive, and you’d need to negotiate a large increase in salary to live in the same lifestyle. Alternatively, if your budget and salary allowed for it, you could reduce your cost of living in order to take advantage of the job offer and new location. To answer the question “should you do this” requires honestly answering the question “is it worth it to me” AND determining if it’s possible to cut a significant amount of money from your budget.

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2) Retirement Plans
A key issue is having access to one of the prominent types of retirement plans offered by employers: 401(k) or 403(b).

Continuing with our example, although the present maximum contribution to a 401(k) plan is $13,000* and employer matching can be up to 25%*, most folks don’t save the maximum amount.

*Note: IRS regulations may lower these limits. Please consult with your tax advisor.

For this example, let’s assume that you contribute $6,800 and your employer matches your contribution with $1,700 (25%).  Annual Retirement Plan Subtotal: $8,500


Tips: Factors that you can control that affect your financial ability to retire the most:

  • Annual pre-tax savings rate–Maximize this amount
  • Age when you start to save–The earlier the better
  • Your retirement age–The later the better
  • Your post-retirement spending rate–The lower the better
  • Risk & return of your investments–Ask your Independent Financial Planner & Advisor to match your comfort level with your required return rate
  • Employer pre-tax matching–Find an employer that matches your pre-tax savings rate

3) Insurance
Insurance is the next question. For most folks, medical, term life insurance, and long term care are the three most important types of personal insurance. Estimates for the annual cost vary considerably based on your location, age, health and gender, amongst other factors. A ballpark estimate for a 25 year old male in good health follows:

  • Medical insurance: $1,200 (includes $1,000 deductible and prescription drug coverage)
  • Life insurance: $500 (20 year term policy with $500,000 coverage)
  • Long Term Care: $1,600 ($175 per day for 4 years. Includes inflation protection)
  • Annual Insurance Subtotal: $3,300

Tip: Use insurance for its intended purpose


Medical Insurance
The simplest emergency surgery can cost you in excess of $20,000. Therefore, you should purchase the best quality of insurance that you can afford (not necessarily the most expensive).
Insurance is designed to cover emergencies and life threatening illness, not the common cold and flu. Purchase insurance with a high deductible and start a savings account to pay for normal doctor visits. As an added benefit, you’ll demand good service when you’re paying for it!


Life Insurance
Buy only what you need. For most folks, this is “term life” insurance not “whole life”.


Long Term Care Insurance
One of the fastest growing expenses in America. The cost is very dependent on your location and the provider. Again, use high quality companies and read all of the fine print in the contract.


4) Putting It All Together
You received a job offer that you always wanted in Chicago. The good news is that they increased your salary by $11,000 per year to $72,000 (from $61,000). But, they company does not match as much on their 401(k) plan as your present Los Angles job. Based on an apples-to-apples financial analysis and comparison, should you take the job, pack your bags and move from Los Angles to Chicago?


It sounds good, but the cost of living is considerably higher in Chicago. The total compensation package is worth a 115% of your present package, but the cost of living in Chicago is 124% of that in Los Angeles.


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When you take into account the seemingly minor reduction in retirement plan matching (down from 25% to 10%) you lose 4 years of retirement compared to your original job.


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Bottom Line
Take the time to compare the financial ramifications of the total compensation package prior to making a final decision. This will give you the opportunity to determine if you need to negotiate for more money, walk away, or accept the new job.

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