The Retirement Guru says….

When you’re thinking about taking a job fresh out of college, recruiters always talk about salary. The problem is, salary for many people doesn’t make up as much of total compensation as you might think.

Here’s a breakdown of what goes into a job offer:

Salary: Since this is the biggest part of it, we’re going to talk about it first. This doesn’t mean that it’s how you should make your decision. A higher salary means higher taxes. Benefits usually are tax free or tax advantaged.

Bonus: Is the bonus the same percentage every year/quarter or is it based on things you can’t control (like company sales)? Again, you pay very high taxes on bonuses (usually 40%!)

401(k) match: A match of 5% means a lot of money for you. But be careful of vesting schedules. You may have to wait up to 6 years to get all of that money. For most grads, you won’t last more than 2 years anyway. This is money for you that you don’t pay taxes on until you retire. I also wrote a more in-depth article about 401(k) plans here.

Profit Sharing: Sometimes companies call their 401(k) a profit sharing plan, sometimes they have a seperate plan where they put money for you in a protected account. This is replacing pension plans as time goes on.

Pension: Most people depend on it, but few should. Pensions are a promised benefit, and nothing more. It’s like social security, but less dependable.
Insurance: Nobody in college cares about insurance, but statistically, 1/3 of you will become disabled at some point in your life. Between health insurance, eye and dental insurances, you can save thousands in a bad year. On top of the fact that most of you will never budget for this, it could deplete your savings (or worse, retirement plans).

Vacation Time: For most recent grads, jobs aren’t stressful enough to need a lot of vacation. The nice thing about vacation is that you can use it to find another job if you need to without missing the money. With some great companies, they pay you your unused vacation days when you quit. I ended up getting a check for $2,000 one time just for quitting!

Others: Some companies offer a concierge service that will buy your christmas gifts for you free of charge. Others have day care facilities on site. Others have discounts on cell phones, computers, TVs or just about anything else. They could save you time and money.

A good 401(k) match could be worth over $2,000 a year on less than a $38,000 a year salary. Add on Profit Sharing, Insurance, and vacation time and you could end up missing out on thousands of dollars. Pay attention to the benefits and you could end up making a lot more money than your friends that have a higher salary.

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