Strata Capital

Strategic Wealth Management | Fairfield, NJ

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Inflation: What it Means for Your Cash & Potential Risks in Your Portfolio

You’ve probably noticed lately that you’re paying more for groceries, gas, electronics, and—well, just about everything. In the past year, inflation has been two times the historical average, and many people are wondering how this will affect their long-term financial plans. You might be asking,

How will inflation affect my retirement? Will I have enough money to cover my regular expenses?

Should I change my investment strategy to keep pace with inflation?

What other risks might I be missing?

Inflation creates a ripple effect in our economy, so it’s important to know how it impacts your personal financial world. In this blog, we’re covering some important things you need to know about inflation and what you can do to maximize your portfolio.

What are some financial risks involved with high inflation rates?

The obvious, immediate impact of inflation is an increase in the costs of goods and services, but while this might put a strain on your current budget, it’s usually not a long-term concern.

Instead, the biggest issue we see is for conservative investors (typically those nearing retirement) because they generally have a bond-heavy portfolio, and those bonds have less purchasing power during periods of high inflation. Their rate of return doesn’t keep up with the rising costs of goods.

One of the strategies the Federal Reserve uses to suppress inflation is to increase short-term interest rates. This has a negative impact on bonds and bond funds held inside your portfolio, which leads to falling values in your fixed-income portfolio. Professional money managers can employ strategies that help reduce this risk, which is why it’s important to discuss your situation with an adviser.

Should I adjust my financial plan?

As long as inflation levels out in the next few years, it shouldn’t affect your long-term financial plan. Historically, we haven’t experienced higher-than-average inflation for long periods (10-plus years at a time). However, if it does remain above average for three to five years (or rises higher), it would be wise to revisit your financial plan, because the projected inflation rate used when you and your adviser originally created the plan might not be as accurate.

Either way, if you want a better chance of keeping up with inflation and increasing the value of your dollar over time, it helps to invest in asset classes that historically have kept pace with inflation, like equities, real estate, and commodities.

Know What You Own

There are a lot of things to consider during times of high inflation—will the Federal Reserve increase interest rates? How will that affect your portfolio? Is your purchasing power deteriorating? How does that impact your retirement distribution strategy?

When it comes down to it, the key is to know what you own and how it will react to inflation and rising interest rates. If you haven’t discussed your situation with an adviser, now is the time. Investment professionals can do an “X-ray” of your portfolio and conduct a stress test to see how it will respond to all types of situations. And if some adjustments need to be made, the sooner the better. Reviewing your plan with a professional now could mean the difference between a timely retirement and delaying your golden years because you’re waiting for your portfolio to recoup—don’t let a lack of preparation undermine your future financial goals.

When Should I Engage a Financial Advisor?

Financial planning is a professional service that’s often misunderstood. Some people assume wealth management is only for the wealthy or that advisors are only out to sell them something. But a fiduciary advisor helps you make the most of the money you have—they coach you through financial decisions that fall in line with your goals.

As financial planners, it’s our job to understand what you want to accomplish; educate you about potential roadblocks, setbacks, and opportunities to build your wealth; and help you achieve your financial goals in the most effective way possible. In short, a good advisor helps you optimize your financial world so it supports the life you want to live—and we do it all by putting your needs and desires above our own.

That said, not all financial advisors are created equal. Some advisors aren’t required (and/or don’t have the desire) to give advice that’s solely in your best interest. Depending on the organization they work for, licenses they hold, or what their planning ideology is, some advisors may suggest strategies or products because they receive higher compensation for them or have proprietary product requirements from their employer to recommend them—this means the product could be “suitable” or appropriate for you, but not necessarily in your best interest.

That’s why it’s incredibly important to do your research before engaging a financial advisor. Ask your friends, family, or colleagues for recommendations and find out if the advisor they work with is a fiduciary. If they are, it’s important to clarify whether the advisor is a fiduciary solely for the account they are managing or if they are required to give fiduciary advice regarding your entire financial situation. (You can also visit BrokerCheck.com to see if the advisor has any disclosures on their licensing.) Advisors working in a fiduciary capacity are required to serve your best interest, so you can trust their recommendations will be genuine and beneficial. (And yes, we at Strata operate in a fiduciary capacity!)

So, working with the right kind of advisor can be highly beneficial—but how do you know if you’re ready to engage a financial planner in the first place? Here are some indications you should hire a professional to help manage your wealth:

  • You have an ambitious financial goal (like buying a second home) and you’re unsure how it will affect your finances.
  • Your children are about to start college and you’re trying to determine the best way to fund their education.
  • You’re thinking about retiring in a few years.
  • You just experienced a significant liquidity event (e.g., your company was bought out, you received an inheritance, you sold property, or your stock options vested).
  • You feel uncertain about a specific financial decision or your finances in general.
  • You want a practical plan to prepare for the future and you’re not sure where to start.

If any of these scenarios sound like you, you’d likely benefit from talking to a financial planner. That said, we know people sometimes still have doubts about whether working with a professional is necessary, so we want to address those concerns. Here are some common questions people have about hiring a financial advisor.

What do financial advisors do, exactly?

Essentially, we help you achieve your financial goals. For some, that’s early retirement; others may want to buy a second or even a third home. We start by getting to know you as a person; then we discuss your hopes and objectives. From there, we review every aspect of your finances and look for ways we can improve your strategies or help protect you from unnecessary risks. Whatever your financial dreams are, it’s our job to show you what steps you can take to achieve them.

Can’t I just do financial planning myself?

Yes, but consider this: most people only retire once, but we as advisors have “retired” dozens of times. We’ve walked multiple clients through multiple scenarios, and we’ve seen what works and what doesn’t. A 2019 Vanguard whitepaper says an investor could increase their net returns by 3 percent by working with an advisor. And Vanguard isn’t the only one—Russell Investments estimates that the value gained in working with a dedicated financial partner could mean as much as a 3.75 percent increase in returns.

So you can take a DIY approach, but you likely won’t reap the same benefits you would when working with an advisor. Just like you can go to court and represent yourself in matters of the law, you can manage your wealth without the help of a professional—but you’ll lower your chances of getting your desired outcome. When you engage the help of someone who specializes in wealth management, you’re more likely to achieve your goals and enjoy the process.

Many people also don’t realize the time they can save when working with an advisor. Engaging a professional allows you to focus on things that matter to you, rather than worry about financial details.

I work in finance for a living—why would I need help managing my own money?

More than half of our clients work for a financial institution, and they value our guidance. One reason is that not all financial professions are the same—just like you wouldn’t go to a podiatrist for heart surgery, an accountant or financial analyst won’t necessarily understand all the intricacies involved in personal (or business) wealth management.

For example, here’s something people–even those adept in financial concepts–often misunderstand: life insurance is not always completely tax free. Life insurance benefits are exempt from income tax, but not from state or federal estate tax. Depending on where you live, if you purchase a life insurance policy under your name rather than having your trust purchase the policy, you may subject your estate to estate taxes because the death benefits would be included in the calculation of your estate—potentially putting you over the limit for estate tax exemptions. If you live in a state like Massachusetts or Oregon, where the state estate tax exclusion is a mere $1 million, this could potentially affect your heirs.

Something else to know is that many people who work in finance are subject to restrictions or pre-approval when making investments. But if you sign over your investment discretion to an advisor, you can avoid that compliance hassle and benefit from the knowledge of someone who specializes in professional money management.

Am I too young to work with an advisor?

If you’re worried an advisor won’t agree to work with you (some do have minimum net worth or assets-under-management requirements), know that there’s an advisor out there for everyone—the key is finding someone you feel comfortable talking to and sharing the details of your life with.

Beyond that, “young” is a great time to start financial planning because you have so much time to save for your goals. And the more time you spend in the market, the less that you need to save.

For example, if you start saving $5,500 a year beginning at age 25 and continue until you’re 65, you’ll end up with $1,174,852 after those 40 years (assuming a 7% net rate of return). If you start saving the same amount at age 35 and get the same return, you’ll only earn $555,901.

Remember, you don’t get time back. We’ve met too many people who reach retirement and regret they didn’t start planning sooner. The best time to start planning is now, because the earlier you visualize your goals, and the earlier you take those goals to a financial planner, the better chance you’ll have of accomplishing them.

Is there ever a time someone shouldn’t work with an advisor?

If you feel overwhelmed by all the financial decisions you have to make, worry you might be missing something, or simply want greater confidence about your future, talk to an advisor. In our experience, this is the number one reason people seek financial guidance. Not only can an advisor help you clarify and prioritize your goals, but they can also show you the impact of financial decisions before you make them, so you don’t end up further from your goals.

That said, for a financial planner’s advice to be effective, you’ll need to keep an open mind and be willing to change—so if you’re not ready to make adjustments, it might be best to wait.

If you have more questions about what it’s like to work with a financial planner, please don’t hesitate to contact us. In the meantime, you can learn about various financial topics on our blog.

1 https://advisors.vanguard.com/iwe/pdf/ISGQVAA.pdf

2https://www.thebalance.com/should-you-hire-a-financial-advisor-4120717

3https://money.usnews.com/money/retirement/aging/articles/states-with-estate-and-inheritance-taxes#:~:text=State%20Estate%20Tax%20Thresholds&text=Massachusetts%20and%20Oregon%20have%20the,million%20and%20%245.9%20million%2C%20respectively.

Retirement Planning Checklist:
5 Steps to Financially Prepare for Your Golden Years

Retirement is meant to be an exciting time of freedom, a season to enjoy the investments you’ve made after years of hard work. You get one shot to do it right, and it can be scary to imagine a “failed” retirement–one where you end up going back to work not by choice, but out of necessity. Fortunately, there are ways to ward off these kinds of scenarios and protect yourself from risks as you prepare for life after work.

Planning for the future can be complicated, so we’re sharing our simplified checklist to help you get started. Below are some tips to prepare your finances so you can make the most of your golden years and avoid unnecessary risks along the way.

I: Paint a Picture

The first question you need to ask yourself is this: What does my retirement look like? Once you know how you’ll spend your time, you can create a more detailed plan for spending your money.

Ask yourself the following questions:

Will I transition to working part time in my current job, start a new part-time job, or not work at all?
Are there any hobbies I want to explore that I’ll need to budget for?
How often do I plan to travel?
Will I live in the same house (or apartment) or downsize? Will I want a “summer home?”

Something else to consider is whether you want to spend time volunteering—some volunteer opportunities might require you to travel, which will of course impact your spending. You might enjoy traveling frequently (whether to vacation, volunteer, or visit family) early in retirement but decide to stay closer to home as you get older.

The more detailed answers you can come up with, the more accurate your projected retirement budget will be. Of course, you may not have definite answers for all these questions now, and your preferences may change over time, but as you consider your options and how to budget for them, you’ll create greater financial flexibility for yourself in retirement.

II: Evaluate Your Expenses

One of the best ways to determine how much you’ll spend in retirement is to review how much you spend now. Remember, though, that once you stop working, every day becomes a Saturday—many people spend more when they retire than they did while working because they travel more or participate in other forms of entertainment more frequently. Some people spend the same amount as during their careers, but few people spend less when they retire.

If you don’t already, start tracking your expenses with an online budget tool or tracker. Then consider additional expenses you might have when you retire—for instance, if you want to travel, take cooking classes, or experience other new hobbies, you’ll need to factor those into your budget. If you plan to live somewhere other than your current residence, you’ll want to review the cost of living expenses in that location.

Another thing to consider is your health and how it might change over time. You’ll want to create a plan for unexpected medical expenses, especially if you have health conditions that could worsen as you age. If you retire before 65 (when you would qualify for Medicare), you’ll also need to account for the cost of medical insurance, especially if your current policy is through an employer.

As you create a rough draft of your budget, remember to evaluate your needs versus wants. Some of your needs, like healthcare and housing costs, might fluctuate in retirement, and that will affect how many of your “wants” (like vacations, eating out, and buying gifts) you can practically budget for.

III: Create a Distribution Plan

Most people focus on saving money for retirement–but you also need to determine how you’ll spend that money once you’re no longer generating income. There are two primary ways to create cashflow during retirement: through guaranteed sources and non-guaranteed sources.

Guaranteed sources include funds like pensions, annuities, and social security that provide guaranteed income in retirement.

Non-guaranteed sources have the potential to provide a greater return than some guaranteed sources, but that return can vary depending on market fluctuations and individual investments. These include investments like stocks, bonds, mutual funds, exchange traded funds (ETFs), and real estate.

Once you have an idea of a budget, you need to determine how you’ll manage your income and investments during retirement. For example, if you have a pension, consider whether it will cover your necessary expenses, or if you should supplement it with an annuity. How much money will you need to withdraw each month? Will you automate that process or handle it on a case-by-case basis?

Coordinating cashflow from multiple sources can be complicated, and sometimes hiring a professional to manage the details can provide the peace of mind it takes to enjoy your retirement. When you talk with an advisor, they can also help you determine what types of income sources make the most sense for your lifestyle and how to best manage them both now and in retirement.

Iv: Manage Risks

Retirement should be a time of celebration and enjoyment, but even with careful planning, life doesn’t always happen as we expect it to. That’s why it’s important to create contingency plans for your life after work. You’ll want to ask yourself these questions:

  • What happens if my health is compromised and I need critical or long-term care?
  • Will my nest egg last throughout my retirement? How do I make sure I don’t outlive my savings?
  • Will my income and investments keep up with inflation?
  • What if taxes increase (as they notoriously do)?
  • Is my investment portfolio in line with my risk tolerance?
  • What happens if I lose money in the stock market shortly before I retire?

Some of these questions might evoke hypothetical scenarios you don’t yet have a plan for—and that’s why you should think about them now, while you have a chance to prepare. Managing these risks before retirement ensures you can enjoy your golden years without nagging “what-ifs”.

V: Stress Test

Over time, your financial situation and goals often change. Maybe you or your spouse decide not to work part time in retirement, or you decide you’d like to leave a donation to your favorite charity. You might also have negative experiences that affect your finances, like a prolonged bear market or unexpected expenses from a stay in long-term care.

All these things impact your finances in retirement, so once you have a plan in place, you’ll want to have an advisor run an analysis to see how your funds hold up to unexpected financial stress. A good advisor will be able to forecast these kinds of scenarios and determine if your wealth is positioned for success in a volatile environment, or if you need to adjust your strategies to create a more substantial cushion.

You’ll want to factor in these possibilities as soon as possible. That’s why it’s important to regularly review your retirement strategy and portfolio. We recommend meeting with a financial professional annually so they can perform a stress test and help you adjust your budget accordingly.

VI: Implement

A plan is only as good as its follow-through—so once you have an idea of where you are and where you want to be in retirement, create a timeline to help you implement your retirement planning checklist. If you have trouble getting started, feel unsure of your next steps, or need help articulating your long-term goals, we recommend discussing your situation with an advisor. We can help you prioritize your objectives, identify strategies to help you meet your goals, and hold you accountable as you grow.

There are many factors to consider when preparing for retirement, and this checklist is just a brief overview to help you get started. If you’d like to learn more about creating (and implementing) an effective retirement plan, stay tuned for our upcoming blogs where we’ll discuss each step in more detail. As always, feel free to reach out to us if you have questions or want to discuss your personal financial situation.

Target Date Funds: “Low Maintenance” Retirement Planning

When you’re managing money and creating a plan for the future, there are multiple factors to consider. You have to determine which of your goals are most important to you, how comfortable you are with financial risks, and how much time you have to reach certain objectives. The more detailed your plan is, the better chance you have of being satisfied with the outcomes.

That said, custom financial plans require regular maintenance, so some investors leverage what’s called a target date fund to establish a simpler retirement investment plan. In this blog, we’re discussing how these funds work and what you should know before using one.

What is a Target Date Fund?

A target date fund (TDF) is designed to be a “set it and forget it” approach to investing for retirement accounts. They’re meant to be more aggressive (with the chance of earning greater returns) when an investor is younger, and less aggressive as the investor gets older and closer to his or her retirement date. This usually means the fund’s asset allocation shifts from more stocks (and fewer fixed income sources) to more fixed income sources (and fewer stocks) over time. This gradual shift in asset allocation is called the TDF’s glide path.

A TDF is typically set up as a mutual fund that decreases its overall risk as the fund approaches its target date, or “retirement year,” which theoretically corresponds to the investor’s retirement year. For this reason, they’re sometimes called age-based funds or lifecycle funds. They’re usually offered via 401(k)s or other types of retirement plans, but you can also purchase them as part of brokerage accounts or IRAs.

Are all TDFs the same?

Despite their common goal, all target date funds are not created equal. Different fund managers and companies manage TDFs in different ways; consequently, even TDFs with the same target year follow different glide paths. For example, one fund manager might manage a Target 2025 fund with the assumption that an investor’s stock-bond ration should be 40/60 at retirement, while a different fund manager might aim for a stock-bond ratio of 30/70 at retirement.

In 2008, some investors experienced the harsh reality of this when their Target 2010 funds lost more than 40 percent just two years before retirement. Investors expected their ready-made funds to perform like other 2010 target date funds, but because some fund managers had vastly different investment styles, some investors remained “safe” while others lost big time – despite them having portfolios with similar goals.

As such, there’s really no “standard” or precise method to managing a target date fund—which is why it’s incredibly important for an investor to understand what their individual plan looks like. Then they can determine if their TDF aligns with their goals and risk tolerance.

What are some pros and cons to using a Target Date Fund?

Aside from “looking under the hood” and making sure you choose a TDF whose allocation is consistent with your risk tolerance (as described above), target date funds require minimal ongoing maintenance on the investor side, which is great for DIYers who want something simple. By nature, TDFs are reasonably diversified portfolios, so there’s no need to regularly rebalance one on your own or worry about asset allocation.

On the downside, TDFs lack transparency about their underlying investments; it’s difficult to know exactly what you’re investing in without going through the fund’s prospectus or looking at the annual report. A target date fund also assumes its investors are retiring in its designated target year, even though individual investors may not actually retire that year. (For example, someone may have a 2030 TDF but plan to retire in 2027.) TDFs also don’t account for individual risk tolerance, income needs, or an investor’s overall financial situation, which makes it difficult to synchronize a TDF with a comprehensive investment strategy. Like mutual funds, generally, target date funds involve a risk of loss. They are subject to the same risks as the underlying stocks and bonds they hold.

What do I need to know before investing in a Target Date Fund?

If you’re considering a TDF, do your research and consider what your appetite for risk is. Remember, just because the retirement year of the fund aligns with yours, that doesn’t mean the asset allocation matches your risk tolerance or individual goals. Find out what a TDF is investing in before you invest your own money. Ask your advisor for help doing the research; if you decide a particular TDF is too risky, your advisor should be able to present another solution.

For more complete information about any target date fund, please request a prospectus from your registered representative. The prospectus explains the investment objectives, strategies, risks, charges and expenses of the fund and should be read carefully before investing.

The Bottom Line

Even though target date funds are designed to grow with you, that doesn’t mean the specifics of any given fund will actually align with your goals or risk tolerance. So whether you already have a TDF or you’re considering one, do your due diligence to better understand what’s under the hood. If you purchase one through your 401(k), you can reach out to the 401(k) provider, the advisor on the 401(k), or your personal financial advisor for help with the research and decision-making process. If you’re purchasing a TDF outside an employer plan, we highly recommend talking with your advisor.

If you don’t have an advisor and you want help with your financial strategies, just give us a call or send us an email! We’d love to answer your questions and get you on track to achieving your goals.

This article is intended to be for general information about the topic(s) described only, and should not be used as financial advice specific to your situation. For financial advice pertinent to your lifestyle, goals, risk tolerance and opportunities, please contact a financial professional.

1www.thinkadvisor.com/2021/06/08/target-date-funds-a-time-bomb-in-a-retirement-tool-for-the-masses/?slreturn=20211017105750

2www.finra.org/investors/learn-to-invest/types-investments/retirement/target-date-funds-find-right-target-you

Optimizing Your Benefits During a Job Transition: Part II

Starting a new job is exciting—it usually means opportunity for growth, often in more ways than one. One of the challenges of transitioning jobs, though, is determining how to maximize your benefits—both those from your previous job and those at your new place of employment.

There are lots of factors to consider when reviewing your benefits, which is why we recommend talking with your advisor during the process. Someone who knows your long-term goals and values can help you see the bigger picture and decide what’s best when it comes to keeping old plans or leveraging new ones.

For now, let’s review some potential benefit options when transitioning jobs—specifically, what you can do with a 401(k), a pension, stocks, and other investment opportunities.

401(k), 403(b) or other ERISA plan

If you leave a company where you have a 401(k) or other employer-sponsored retirement plan, you can do one of three things with the money in your account:

  • Leave the balance in your previous employer’s plan
  • Transfer the balance into your new employer-sponsored plan (if you have one)
  • Transfer the money into an IRA, where you’ll have diverse investment options like stocks, bonds, ETFs, mutual funds, annuities, CDs, and more

One thing to note about company contributions is that some or all of the money your employer contributed may not be yours if you leave the company. Companies often have vesting schedules tied to their contributions, so the money they add to your account isn’t considered fully “yours” until you’ve been with the company for a certain period of time. So if you leave before the end of the vesting period, they’re entitled to take some or all of their contributions back.

The most common arrangements are three-year cliff vesting (where an employee is fully vested after three years) and gradual vesting (where an employee gains more benefits over a period of time), typically between two to six years.

So, if you worked at a company with a three-year cliff vest and decided to move on after four years, you’d be able to keep all their contributions. But if that same company had a five-year equal percentage graded vesting schedule, you would only be able to keep 80 percent of their contributions when you leave.

Pensions

The two most common pension plans companies offer are defined benefit plans and cash balance plans, and depending on which one you had (or have), you’ll have different options when you move to a new company.

Cash Balance

Cash balance plans allow you to keep your pension plan as-is or roll over your account balance into an IRA. If you’re considering transferring the balance, there are a couple steps you should take first:

  1. Request an analysis that shows the estimated value of your plan at the age you plan to retire. (So if you’re 55 and want to retire at 65, request an estimate of what the value would be in ten years.)
  2. Once you have this value, you can compare those estimated returns to what you might earn if you invested in different vehicles through an IRA. Then you can decide whether it makes sense to keep your plan as-is or transfer it to an IRA.

Whichever way you’re leaning, we recommend reviewing your options with an advisor to determine which strategy will best support your overall goals.

Defined Benefit

Unfortunately, there aren’t any rollover options with defined benefit plans, so you simply have to focus on managing your current plan as effectively as possible. We suggest keeping a record of this plan year-over-year and requesting an estimate of what your monthly payment will be when you retire. Ask your company or plan provider when you can start withdrawing income from your account—some plans specify an age when you have to take distributions (e.g., 65) but others let you take them whenever.

Stock Options

If your current company offers stock compensation, you’ll likely have a few different options when you leave the company. It’s important to reference your specific plan documents before you make any decisions, since the rules regarding stocks vary from company to company. Generally speaking, though, employees have up to 90 days after termination to exercise their vested stock options; after that, unvested options are typically forfeited.

Stocks are one of the more complicated benefits to navigate when leaving a job. Every company has different rules, and your options might vary depending on how long you’ve been at the company. If you have the flexibility, it might make sense to delay your departure until all your stock options are fully vested. There are many factors to consider, which is why we recommend discussing your options with a financial planner who’s well versed in this area.

Restricted Stock Options

Just like other stock options, restricted stock and restricted stock units (aka RSUs) can get tricky when you leave a company. Typically, an employee can keep the vested portion of their restricted stock or RSUs when they leave a company, but they’ll have to forfeit any unvested shares. Again, it’s vital that you reference your plan documents because the rules vary from company to company. From there, you’ll want to talk to a financial professional about the best way to leverage your particular benefits.

Have Questions?

There are lots of things to consider when you change jobs, and navigating your benefit plans can be complicated. That’s why no matter what benefits you have, it’s best to lean on a financial professional so they can help you make the best decisions for your unique needs. If you’re changing jobs and have questions about your finances, we’d love to help—our goal is to help you protect everything you’ve worked for and make the most of your new opportunities.

Optimizing Your Benefits During a Job Transition: Part I

Starting a new job is often as stressful as it is exciting—not only are you learning new systems and developing relationships, but you also have to reevaluate your financial situation—specifically whether and how to leverage your employee benefits. If you’ve changed jobs recently or plan to soon, you’ve probably asked yourself:

Should I take advantage of my new employer’s insurance plan or search for other options? Should I consider my spouse’s plan?

Can I keep my current plan?

How do I know if I have enough coverage?

If you’re looking for answers to these questions, we’re here to help! In this blog, we’ll discuss your options for changing benefit plans and the factors you should consider to make the most of what’s offered to you. And of course, we’re always happy to answer additional questions you have—just give us a call or send us an email!

For now, let’s review a few types of benefits and what you need to know about each when leaving a company or changing jobs…

Health Insurance Coverage

When you transfer to a new company, make sure to review the health insurance plan it offers and compare it to what you had at your previous job—if it provides less coverage or comes with much higher premiums, you may want to consider an independent plan or supplemental coverage. If you’re married and your spouse’s employer offers a health plan, you should also consider the cost of joining his or her plan and the coverage you would receive.

With any employer-offered plan, remember to check whether your preferred physicians are in network—if not, you might want to seek an independent plan.

Health Savings Account (HSA)

A Health Savings Account is almost like an IRA for medical expenses, and it can be funded by you, your employer, or both. HSAs are only available to individuals with high-deductible health insurance plans, but the good thing about these tax-advantaged accounts is that they belong to you, not your employer, so you have several options when you transfer jobs:

  • HSA Transfer: If your new employer offers an HSA, you can transfer your current HSA funds into the new account. Your new employer will need to provide the paperwork to complete this transfer.
  • HSA Rollover: Similar to a 401(k) rollover, with an HSA rollover, you’re issued a check for your HSA balance, and you have 60 days to deposit the funds into your new HSA account. Just note that if you don’t deposit the funds within the 60 days, those funds will be taxed and you’ll be penalized.
  • Maintain Current HSA: You can also keep the funds in your current HSA. But if your previous employer has been paying administrative costs, you will now be responsible for those costs.

Flexible Savings Account (FSA)

Unlike an HSA, an FSA is owned by your employer, and you don’t need to be enrolled in a specific health plan to be eligible for it. If you have an FSA at your current job, your best option when you leave or change jobs is to check your account balance and try to spend the remaining funds before your last day at the company. These accounts can’t be transferred from one company to another, nor can they be owned by an individual, so the money remains with the employer if you don’t spend it before you leave.

Group Life Insurance

If you have a group life insurance policy with your current employer, you should check and see whether your benefit is portable or if it can be converted to an individual policy. Here’s how those options work:

Porting Your Policy

If your policy is portable, that means you can continue your current group policy as an individual. However, your rates will likely be higher than your original premium because group plans often calculate rates based on generic health classifications. That means that under a group plan, you might be classified under a rate that applies to a generic unisex smoker (which could elicit a high premium)— even if you’re a young, fit female who would typically pay lower life insurance premiums.

Converting Your Policy

Most group plans are term life insurance policies, but you might be eligible to convert your plan to a permanent individual policy. This offers more comprehensive coverage, but it will likely increase your premiums.

Other Options

You should also explore any benefits your new employer offers for life insurance. Most companies offer a low-cost term policy that applies while you’re employed at the company. These premiums typically increase every five years.

Depending on what your new company offers and what you need, it might make sense to enroll in a completely new policy independent from your employer. Choosing an individual life insurance plan would mean you don’t have to rely on your employer (or your employment, for that matter) to protect your family in the event of your death. This option can also be very cost effective because you can lock in your rates.

Evaluating the advantages and disadvantages of each plan can be overwhelming, but it’s important to review the details of the policies available to you. That’s why it’s a good idea to discuss your options with a professional—your advisor should help you understand what each plan offers and how they could affect your overall goals.

Group Disability Insurance

Unlike group life insurance policies, group disability policies (both short- and long-term), are generally not portable. So when you transfer jobs, you’ll want to see if your new employer offers disability coverage and exactly what the plan covers. If your new employer doesn’t offer a disability plan, you should consider purchasing your own, especially if you’re the sole (or majority) provider of your family’s income. If they do offer a plan, you’ll want to review how much of the premium the company pays and whether you have the option to supplement your coverage by paying out of pocket.

For example, your employer might offer to pay for a long-term disability plan that covers just 40 percent of your salary*; but they might allow you to buy an additional 20 percent of coverage for which you pay the premium—giving you a total of 60 percent income coverage if you were to become disabled.

You could also consider purchasing an individual policy to supplement what you have through your employer—this is one of the best ways to maximize disability benefits. That said, there are lots of long-term disability plans available and multiple ways to customize them, so it’s wise to discuss your options with your advisor. They’ll help you sort out the details and determine what options best support your goals.

*It’s important to note—any portion of a benefit from a plan that is paid for by your employer is taxable. If you pay the full premium, the full benefit is tax-free. If you pay a portion of the premium, whatever percentage of the premium you pay is the percentage of your benefit that will be tax free.

We’re Here to Help

Each of these decisions—from choosing the right health plan to determining how much disability insurance you need—creates a significant impact on your overall financial plan and future goals. That’s why we don’t want you to walk this road alone. If you’re transitioning jobs, we’d love to guide you through the process so you can identify the benefits that are best for you—just give us a call or send us an email.

If you’ve changed jobs recently or plan to soon, you probably have additional questions about your 401(k) and other investment options—don’t worry; we didn’t forget these vital components of your plan! Check out Part II of this blog where we discuss your options for pensions, 401(k)s, and other benefits when you transition jobs.