BY, COLIN MCCARTHY, ’13
Many Merrimack graduates will be entering the workforce this upcoming summer. As you look for that perfect job to start your career and get that coveted offer letter, it is important to understand what the company is offering in its entirety.
Oftentimes students compare only the base salaries of different opportunities in their job search. However it is also prudent to consider the benefits packages that companies offer their employees – the cost savings and long-term investment advantages these packages provide may well make up for the difference in salaries between the various positions.
One benefit that is often overlooked is a company’s 401(k), an investment vehicle that allows employees to save for retirement by making contributions directly from their paychecks.
Many companies will match a percentage of the money that you contribute to your 401(k), which gives you an immediate return on your investment and amplifies future gains. A 401(k) also gives you the ability to lower your taxable income because the money is contributed to the account before taxes are applied to your paycheck, which gives more money to individuals in the present.
Additionally, employees who hold their contributions past age 60 can withdraw the money without being taxed. One thing to keep in mind, however, is that contribution limits exist to ensure that Uncle Sam get his fair share of tax revenue from each citizen. Another unique feature is that you have the opportunity to allocate specific percentages of contributions to different investment vehicles.
Companies have traditionally offered mutual funds as the primary investment choices. Mutual funds offer investors immediate diversification by allocating investor money between numerous holdings, and often provide exposure to different asset classes such as stocks and bonds. Now, as young individuals with many years until retirement, soon-to-be-grads should consider the mantra of “take risks when you’re young” when choosing how to allocate their investments.
The risk-tolerant investor can look for aggressive growth or high yielding mutual funds as they tend to offer higher return (with more risk). Even if the market heads south, graduates just entering the workforce will generally have between 30 to 40 years to make that money back.
If you are more risk-averse, on the other hand, conservative strategies can help protect your investment from a sharp market correction downward. And there are several “conservative” strategies that still offer attractive returns with lower risk by implementing sophisticated diversification techniques such as international exposure and hedging through derivatives (financial instruments which derive their value from the changes in value of other financial instruments such as stocks and bonds). 401(k) plans are of great value to employees as they offer an attractive way to save for retirement without the hassle of handling it themselves.
It is important to understand all the benefits that a company is offering before you decide on a position, as the benefits a company offers can more than make up the lower base salary.
For more information, see: http://money.cnn.com/magazines/moneymag/money101/lesson23/index.htm