How Tech Employees Can Protect their Income Using Employer Benefits
When you ask most tech professionals which of their most valuable asset is, many will tell you it is their real estate or stock portfolio. However, at Consilio Wealth we believe that your biggest asset is your ability to earn an income. The unique skills and expertise in the tech sector has left many professionals in high demand; resulting in substantial income year after year.
We often think of financial planning as the ability to build wealth, but an equally important question to ask is, “How do we maintain the wealth we’ve built up to this point?” I’m going to cover a few often-overlooked employer benefits that every tech employee should be aware of. These strategies will help ensure they have the right coverage to protect themselves and their families.
Life Insurance
Aside from having an emergency fund, many people think of protecting their financial plan by purchasing life insurance. In the event of your passing, what would happen to all the income you planned to earn throughout your career? Most of our clients tell us they would still want to cover the following:
Pay off all debts such as mortgage, vehicles, or student loans
Funding college education for children
Income replacement to maintain standard of living
Final expenses for burial, childcare costs, and providing a sabbatical for a surviving spouse.
Most tech companies provide a benefit that is equal to 2x your annual cash compensation, with the ability to purchase additional multiples during open enrollment. While a payout of 2x of your annual salary may sound like a lot of money, it is rarely enough to cover the financial goals you hope to accomplish throughout a working career. Further, many tech employees receive a substantial amount of their income in stock compensation (RSUs), which may not be covered by this benefit.
Determine what your primary long-term goals are and speak with your financial planner to ensure you have the right coverage. Consilio recommends that you audit your life insurance needs every 3-5 years, or during a major life event such as marriage, divorce, childbirth, etc.
Accelerated RSU Vesting
Restricted Stock Units can often be a substantial line item on your balance sheet. To receive those RSUs you’ll have to meet the requirements of the vesting schedule by staying employed with that company, often spanning 3-4 years. Some employers now offer a benefit called accelerated vesting. This means that in the event of your passing, all unvested shares are 100% immediately vested. This could be a substantial windfall that could help your family during their time of need. If this is a benefit that you don’t have, it places greater stress on other protection strategies such as emergency funds and life insurance.
Survivor’s Income Benefits
Survivor’s Income Benefit is a new benefit we’re beginning to see provided by tech employers more frequently. Survivor’s Income is exactly what it sounds like - if an employee who works for a tech company passes away, the insurance will pay an income replacement benefit for several years to their surviving spouse.
For example: Alphabet’s (Google) benefit amount is 50% of the deceased spouse’s income (cash & stock) up to a maximum of $150k/year for up to 10 years.
This benefit may not replace life insurance entirely, but it does provide some great peace of mind by not forcing a surviving spouse to immediately return to work.
Long-Term Disability Insurance
Long-term disability insurance (DI) is one of the biggest gaps that people overlook in their financial plan. It is common knowledge that life insurance is important to protect your family in the event of your passing, but what happens if you become ill and can’t work? What happens if you’re never able to return to work due to sickness or injury?
The reason this is important to discuss is because there many conditions and illnesses that could prevent you from working, most of which we have no way of predicting. For example, many types of cancer, autoimmune disorders, neurological disorders, mental illness, degenerative diseases, deafness/blindness, and even long-term injuries. Many of these illnesses may not prevent you from working entirely; however, they may prevent you from performing in your specific role with your specific skillset.
Most financial plans are predicated on the idea that you will be able to earn a given amount of income throughout your career. Disability insurance protects your most valuable asset, your income, and thus the ability to fund the financial plan.
For people that work for one of the tech titans of today such as Microsoft, Amazon, Meta, etc., employer-provided long-term disability insurance has become commonplace as part of your benefits package. The standard for most of these companies is to cover 60% of your cash compensation up to a certain dollar limit, but likely does not cover RSU income. If 60% of your cash compensation is not sufficient to cover monthly expenses, save for retirement, and meet other financial goals, then there is a gap in your financial plan.
For techies in the startup space, long-term disability might not be offered or covers less than 60% of their annual cash compensation. To make matters worse, many startup companies design their compensation structure to provide a larger amount of stock for lower cash compensation/benefits. The hope is that the startup is successful, and the stock appreciates over time.
It is important to stress that most employer-provided disability policies don’t cover stock compensation. We recommend that you audit your disability coverage if this is your first time building a financial plan, whenever you switch companies, or if you receive a substantial raise or promotion.
Disclosures
The information provided is for educational and informational purposes only and does not constitute investment advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does not take into account any investor's particular investment objectives, strategies, tax status or investment horizon. You should consult your attorney or tax advisor.
All information has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. There is no representation or warranty as to the current accuracy, reliability or completeness of, nor liability for, decisions based on such information and it should not be relied on as such.
Consilio Wealth Advisors, LLC (“CWA”) is a registered investment advisor. Advisory services are only offered to clients or prospective clients where CWA and its representatives are properly licensed or exempt from licensure.
