Are you asking the right retirement questions to your employer?
Many professionals approaching retirement, especially eligible employees, find themselves caught off guard by crucial details about their retirement benefits that they wish they had known years earlier.
At Covenant Wealth Advisors, we’ve seen countless situations where asking the right questions early could have significantly improved our clients’ retirement outcomes.
Here's what you need to know.
Key Takeaways
Understanding your employer's retirement benefits can potentially add hundreds of thousands of dollars to your retirement savings
Many employees miss out on valuable benefits by not fully understanding their company's retirement match formula
Knowing your vesting schedule can prevent leaving money on the table when changing jobs
Special retirement benefits like mega backdoor Roth contributions or deferred compensation plans are often overlooked
Early retirement options and retiree healthcare benefits can significantly impact your retirement planning strategy
Table of Contents
See How Our Firm Can Help You Retire With Confidence
Will my money last in retirement? Find when you can retire and if you'll be able to maintain your lifestyle.
How should I invest in retirement? Personalized investing to grow and protect your wealth in retirement.
How can I reduce taxes in retirement? Identify tax strategies including Roth conversions, RMD management, charitable giving and more...
Understanding Your 401(k) Plan Structure
The foundation of most corporate retirement plans is the 401(k), but the details can vary significantly between employers.
Matt Brennan, CFP® at Covenant Wealth Advisors in Richmond, VA, emphasizes,
"The most costly mistake I see is employees not fully understanding their company's matching formula. I've had clients leave tens of thousands of dollars on the table simply because they didn't structure their contributions optimally."
Essential 401(k) Questions
What is the exact matching formula?
Is there a true-up provision for the match?
What is the vesting schedule for employer contributions?
Are after-tax contributions allowed?
What are the investment options and their associated fees?
Here are IRS Contribution Limits to help you understand how much money you can defer in your employer 401 (k).
💡 Pro Tip: Don't assume your employer's matching formula is simple. Some companies have complex tiered matching systems or require specific contribution patterns to maximize the match.
Exploring Additional Retirement Income Benefits
Many employers offer retirement benefits beyond the standard 401(k) plan. Understanding these additional options can significantly enhance your retirement strategy.
Engaging a financial planner can help you navigate these additional benefits and ensure you are making the most of your retirement strategy.
Deferred Compensation Plans
Some employers offer non-qualified deferred compensation plans (NQDC) that allow you to postpone receiving a portion of your income until retirement.
While deferred compensation plans can be powerful tax-planning tools, they come with risks that need to be carefully evaluated. Understanding the distribution options and company credit risk is crucial.
Healthcare and Health Insurance Considerations
Let’s face it - healthcare costs can take a huge bite out of your retirement savings if you’re not prepared.
Your retirement date marks a significant transition from employer-provided health and life insurance to personal responsibility for healthcare coverage.
Understanding your employer’s healthcare benefits into retirement can be worth its weight in gold!
Critical Healthcare Questions
Does the company offer retiree health insurance?
What happens to my HSA when I retire?
Is there a transition plan to help bridge the gap until Medicare eligibility?
Are there any wellness program benefits that extend into retirement?
💡 Pro Tip: If your employer offers an HSA-eligible health plan, consider maximizing these contributions even if you're healthy. HSAs offer triple tax advantages and can be an excellent way to save for retirement healthcare costs.
Stock Options and Equity Compensation
Understanding your equity compensation can be like trying to solve a Rubik’s cube blindfolded - there are lots of moving parts!
It is essential to understand the income tax implications of exercising stock options to prevent unexpected tax liabilities.
“One of the biggest mistakes we see is clients exercising stock options without considering the tax implications,” says Scott Hurt, CFP®, CPA at Covenant Wealth Advisors in Richmond, VA. “A strategic exercise plan can potentially save hundreds of thousands in taxes.”
Key Questions About Equity Compensation
What types of equity compensation do I receive (RSUs, ISOs, NSOs)?
What are the vesting schedules and expiration dates?
How does retirement impact unvested equity?
Are there any special retirement provisions for equity compensation?
Special Retirement Programs
Here's where things get interesting!
Many companies offer special retirement programs that can be absolute game-changers for your retirement planning. Think of these as the secret sauce in your retirement recipe!
Programs to Ask About
Phased retirement options
Retirement transition consulting
Financial planning services
Volunteer or consulting opportunities
Alumni networks and benefits
💡 Pro Tip: Some companies offer "retirement transition" programs that let you gradually reduce your hours while maintaining full benefits. This can be a fantastic way to test-drive retirement while still earning income.
Pension Plan Questions
If you’re one of the lucky ones with a pension plan, you’ll want to dig deep into the details.
Here are the mission-critical questions to ask:
According to the Employee Benefit Research Institute, understanding these details can significantly impact your retirement planning.
Essential Pension Questions
What are my payment options (lump sum vs. monthly payments)?
How is my benefit calculated?
Are there early retirement reduction factors?
What survivor benefits are available?
How are cost-of-living adjustments handled?
Understanding Your Retirement Benefits
Navigating the landscape of retirement benefits can feel overwhelming, but understanding what you’re entitled to is crucial for a secure and comfortable post-work life.
Here’s some additional insights to help you decode your retirement benefits.
What Retirement Benefits Am I Eligible For?
Understanding your retirement benefits is crucial for planning a secure and comfortable post-work life. Retirement benefits can vary greatly depending on your employer, location, and individual circumstances. Here are some key points to consider when evaluating your retirement benefits:
Retirement Plan Options: Your employer may offer various retirement plan options, such as a 401(k), 403(b), or pension plan. It’s essential to understand the details of each plan, including contribution limits, investment options, and vesting schedules. Knowing these details can help you maximize your retirement savings and ensure you’re making the most of your employer-sponsored plan.
Retirement Savings: Your retirement savings are a critical component of your overall retirement benefits. Consider contributing to a retirement account, such as an IRA or Roth IRA, to supplement your employer-sponsored plan. Diversifying your retirement accounts can provide additional financial security and flexibility.
Retirement Income: Your retirement income will depend on your retirement savings, Social Security benefits, and any other sources of income you may have. A financial advisor can help you create a sustainable income strategy for your retirement years, ensuring you have enough funds to cover your expenses and enjoy your retirement.
Retirement Benefits Eligibility: Check with your HR department to determine which retirement benefits you are eligible for. This may include health coverage, life insurance, or other perks. Understanding your eligibility can help you plan more effectively and take advantage of all available benefits.
Early Retirement: If you’re considering retiring early, understand the implications on your retirement benefits. You may be eligible for early retirement packages or phased retirement options, but these can impact your benefits and income. It’s important to weigh the pros and cons of retiring early and how it will affect your financial situation.
Full Retirement Age: Your full retirement age, as determined by the Social Security Administration, will impact your retirement benefits. Understand how your retirement age affects your Social Security benefits and other retirement income sources. Delaying retirement can increase your benefits, so it’s worth considering if you can afford to wait.
Health Insurance: Health insurance is a critical component of your retirement benefits. Understand your options for health coverage in retirement, including Medicare, employer-sponsored plans, and individual insurance policies. Ensuring you have adequate health coverage can protect you from high medical costs and provide peace of mind.
Financial Advisor: A financial advisor can help you navigate your retirement benefits and create a comprehensive retirement plan. They can assist with investment strategies, income planning, and benefit optimization. Working with a financial advisor can help you make informed decisions and maximize your retirement benefits.
By understanding your retirement benefits and options, you can make informed decisions about your retirement planning and ensure a secure and comfortable post-work life.
See How Our Firm Can Help You Retire With Confidence
Will my money last in retirement? Find when you can retire and if you'll be able to maintain your lifestyle.
How should I invest in retirement? Personalized investing to grow and protect your wealth in retirement.
How can I reduce taxes in retirement? Identify tax strategies including Roth conversions, RMD management, charitable giving and more...
FAQ Section
Q: How do I find out about benefits I might have missed?
A: Schedule a meeting with your HR department specifically focused on retirement benefits. Request a complete benefits guide and ask about any special programs for long-term employees. Consider bringing a financial advisor to this meeting to ensure you're asking all the right questions.
Q: Can I continue working while collecting retirement benefits?
A: The answer varies by employer and benefit type. Some companies allow you to collect certain retirement benefits while working part-time, while others require a complete separation of service. It's crucial to understand these rules before making retirement decisions.
Q: What happens to my benefits if the company is acquired?
A: Benefits can change significantly during acquisitions. Stay informed about any transition periods or grandfathered benefits. Keep all documentation about your current benefits, and don't be afraid to ask questions during transition periods.
Q: Should I take a lump sum or monthly pension payments?
A: This decision depends on various factors including your other income sources, life expectancy, and overall financial plan. Consider working with a financial advisor to analyze your specific situation and make an informed choice.
Conclusion
Taking charge of your retirement future starts with asking the right questions. Think of it as building your retirement puzzle - each benefit is a crucial piece that needs to fit perfectly into your overall picture.
By understanding and maximizing your employer-provided retirement benefits, you can create a more secure and comfortable retirement.
Remember, these questions are just the starting point. Your specific situation might require additional considerations, and that's where professional guidance can be invaluable.
At Covenant Wealth Advisors, we specialize in helping professionals like you navigate these complex decisions to optimize your retirement strategy.
Would you like our team to just do your retirement planning for you? Contact us today for a free retirement roadmap experience.
About the author:
Senior Financial Advisor
Adam is a Senior Financial Advisor with Covenant Wealth Advisors and a CERTIFIED FINANCIAL PLANNER™ practitioner. He has over 17 years of experience in the financial services industry in the areas of financial planning for retirement, tax planning, and investment management.
Disclosures: Covenant Wealth Advisors is a registered investment advisor with offices in Richmond, Reston, and Williamsburg, VA. Registration of an investment advisor does not imply a certain level of skill or training. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. The views and opinions expressed in this content are as of the date of the posting, are subject to change based on market and other conditions. This content contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. Please note that nothing in this content should be construed as an offer to sell or the solicitation of an offer to purchase an interest in any security or separate account. Nothing is intended to be, and you should not consider anything to be, investment, accounting, tax, or legal advice. If you would like accounting, tax, or legal advice, you should consult with your own accountants or attorneys regarding your individual circumstances and needs. This article was written and edited by a CERTIFIED FINANCIAL PLANNER™ professional with the assistance of AI. No advice may be rendered by Covenant Wealth Advisors unless a client service agreement is in place. Hypothetical examples are fictitious and are only used to illustrate a specific point of view. Diversification does not guarantee against risk of loss. While this guide attempts to be as comprehensive as possible but no article can cover all aspects of retirement planning. Be sure to consult an advisor for comprehensive advice.