When I was just getting started in my career, I was singularly focused on one way to build wealth and keep a healthy bank account: salary. It was an easy way to measure progress and compare my situation to that of my friends around me — and even my parents before me.
It has been the golden benchmark, but over time I’ve realized it’s just one of many factors. Salary is just a part of what builds savings, and too often we overlook the other benefits that a job can offer, ones that really do contribute to building wealth — or a safety net — and prepare you to realize your goals and prepare for families and retirement.
Americans continue to reap the benefits of a healthy economy. The job market is strong and the majority of Americans are reporting that their economic well-being has increased; they are “doing okay or living comfortably” financially, according to the most recent Federal Reserve Report on the Economic Well-Being of U.S. Households.
But when it comes to retirement, 25% of non-retired adults have no retirement savings or pension whatsoever.
I am no longer new in my career, and as I find myself in a position to make benefits decisions for our employees, I see that there are many other ways to build wealth, many of which begin with decisions made at the top. I encourage employers to consider a few lesser-known benefits to help employees start a nest egg and prepare for future costs.
1. Roth 401(k)
The flexibility offered by a Roth 401(k) makes it a great partner for a traditional 401(k). With a Roth 401(k), employees can get tax obligations out of the way when tax rates are low, then enjoy earnings tax-free later on in life.
It also has two great retirement advantages: First, employee contributions can be withdrawn at any time and have no required minimum distributions in retirement. Second, it’s another account, on top of a 401(k) to help employees save dedicated funds for retirement.
In my experience, simply adding this to the repertoire of possible retirement account options makes employees feel like they have more control in planning for their future.
2. Health Savings Account
Rising healthcare costs have forced many employers to shift a larger share of expenses onto employees. In fact, nine out of 10 employers are now expected to offer a high deductible health plan (HDHP). What most companies don’t realize is that by offering plans with a higher deductible, it not only saves you money on monthly employee premium costs but could also gives employees a valuable wealth-building tool in the form of a health savings account (HSA).
Health savings accounts stay with your employee for life and allow them to save, invest and pay for healthcare — all tax-free. These accounts also double as a stealth retirement vehicle, because at 65 funds can be withdrawn for any expense and taxed like a 401(k). I always encourage employers to shift some of their saved costs toward employer HSA contributions, as it’s a great way to invest in your employees’ long-term medical care and will lower your taxable business income.
Across all users, balances increase over time, suggesting that not everyone is using all of their funds in their HSA every year — a great sign that people are really thinking about saving for when they can utilize the funds when they need them most, which is later in life.
3. Professional Development/Education Benefits
Offering a stipend or reimbursement for employees to maintain or sharpen their skills is good for business. It is a clear way to show that you’re invested in their personal development and the value they bring to the company — and they’ll take notice. A study conducted by the Robert Half recruitment company found that businesses with a strong learning culture enjoy employee engagement and retention rates around 30% to 50% higher than those that don’t. Happier, more fulfilled employees are more productive and drive a healthy culture.
It’s easy to think that providing financial assistance for employees to gain new skills will just help them leave your company. But many employees end up advancing further within your team because of the good rapport and learning culture cultivated in your company. This upward professional movement will unlock bigger earnings potential, something that employees will certainly appreciate As an added bonus, the IRS considers many education benefits a business expense, and could allow you a $5,250 deduction per employee in annual education assistance.
4. Employee Stock Options
Offering employee stock options is another way to help employees build wealth, while also offering them a more tangible stake in the company. Employees with stock options have a vested interest in keeping high job performance and a greater share in the company’s long-term success. Getting all your employees on the same page and benefitting from company stocks will contribute to creating the best possible experience for each employee. For small startups or companies with lean budgets, stock options can be a way to appeal to talent in a competitive job market.
Companies of all sizes have a lot to gain by extending quality financial benefits to employees. As business leaders, we are only as strong as our workforce, and maintaining an engaged and committed work culture starts with investment from the top. With steep competition for talent and shorter employee retention times, it’s important to think outside the conventional benefits packages. In most cases, this means going beyond making sure employees are set up for success in their current role at your company — it means setting them up for long-term success in life. To reach our goals as companies, it is up to us as leaders to prioritize a full benefits package as a competitive, strategic point of differentiation — not just a way to check the box.
The views of the author of this article do not necessarily represent the views of Gradifi. We make no claims, promises or guarantees about the accuracy, completeness, or adequacy of the information contained here. Readers should consult their own attorneys or other tax or financial advisors to understand the tax, financial and legal consequences of any strategies mentioned in this article.