Employee Benefits with a New Job – (Q & A)

Mar 2020


Dear Rick:
A few years ago, my husband unexpectedly passed away. Since that time, I have been living off a life insurance policy that my husband had through work. Originally, I thought the money would last me at least 10 to 15 years, but I now realize that was a mistake. I have, therefore, since the beginning of the year, been looking for a job and I recently found one. I will be starting my new job in mid-March and my first question is should I take advantage of the company’s 401(k) plan and how much should I put away? You should know that the company does offer a matching program. My second question is should I use the traditional 401(k) or should I take advantage of the Roth option? I am in my late 40s and only have about $25,000 put away for my retirement. Therefore, I know I’m going to have to work at least 20 years. My last question is my employer provides me with one year’s worth of my salary in life insurance; do you think I need more? I don’t think I need any more, since I do not have any children or dependents.

Thank you.


Dear J.G.:
First, congratulations on your new job. I wish you the best. With regards to taking advantage of your employer’s 401(k) plan, without question you should. In addition, if possible, you should put the maximum away. Even if the company match is just a portion of your contribution, I would still put the maximum away because you need to save for your retirement and a 401(k) plan is probably the easiest way to do that.

With regards to whether you invest in a traditional 401(k) and a Roth is dependent upon your tax bracket. If you were in a 22 percent tax bracket or lower, I would say it probably would make sense to use a Roth 401(k). The advantage of this is that when you retire, all the money you withdraw from your retirement account will be tax free. The downside is that the money you invest in your 401(k) is post-tax money. In other words, you are taxed on the money that is going into the 401(k) plan. On the other hand, if you were in one of the higher tax brackets, 32 percent or greater, it probably would make sense to use the traditional 401(k). If you’re in the 24 percent bracket, then it is the flip of the coin of whether you should use a Roth or a traditional 401(k).

With regards to investing the money within the 401(k), I recommend a long-term growth portfolio. After all, it will probably be a minimum 20 years before you begin to withdraw that money and that is why it makes sense to be in a growth mode. Even for someone who considers them self a conservative investor, when your time frame is at least 15 years, the majority of your money should be invested in equities.

With regards to life insurance, the question I always tell people to consider is, if you were to pass away, would anyone lose financially? If no one loses out financially, there is no reason for life insurance. In your situation, since you are single and you have no children or dependents, there is no reason to have additional life insurance. Even if the purchase of life insurance doesn’t seem that expensive, it’s not something I would recommend, because you do not need it. I’d much rather have you take that extra money and invest it for your retirement. You may find that in addition to your 401(k) plan you potentially can also invest in a Roth IRA thus, allowing you to have more money growing tax free for your retirement.

I have always believed that life insurance is not an investment; rather, it’s a means of covering risk. Therefore, the question isn’t if you’re going to pass away or not, because we all know that answer. The real question is when you pass, is there anyone financially dependent on you that you need to protect. In this situation there is none and therefore, no additional insurance is needed.

Good luck!


Rick is a fee-only financial advisor. If you would like Rick to respond to your questions, please email Rick at rick@bloomassetmanagement.com