At this time of the year, colleges and universities are holding graduation ceremonies for students eager to embark on their next phase of life. Roughly 2.2 million students will graduate from college in the spring of 2025, many of whom plan to enter the workforce. As these new graduates begin their careers, they face a variety of financial decisions that will have a lasting impact. Whether you’re entering corporate America or striking out on your own as an entrepreneur, it’s important to understand the variety and complexity of employer benefits that may be offered to you.
Why Are Health-Related Benefits Important for Young Professionals?
One of the most important, but often under-analyzed, employment-related benefits is choosing from the menu of health care options offered by your employer. Let’s look at the different benefits that are related to health care: health insurance, life insurance, and disability insurance.
Health Care Options
Many employers offer two different options for purchasing health care insurance—an HMO or a PPO. Understanding the differences between a health maintenance organization (HMO) and a preferred provider organization (PPO) may not seem important if you are healthy, but planning for coverage should you need it is important.
An HMO is a type of health insurance plan that usually limits coverage to care from doctors who work for or contract with the HMO. It generally won’t cover out-of-network care except in an emergency. HMOs often provide integrated care and focus on prevention and wellness. An HMO is often a lower-cost insurance option, but you must use doctors within the plan’s network, and referrals are often required to see a specialist. An HMO can be a cost-effective option if you live and work in one area and don’t have complex healthcare needs.
A PPO is a type of medical plan in which coverage is provided to participants through a network of selected health care providers, such as hospitals and physicians. Enrollees may seek care outside the network but pay a greater percentage of the cost of coverage than within the network. A PPO allows you more flexibility, typically at a higher insurance premium cost, to see the doctor of your choice, whether in or out of network.
It is also important to know that if you are under age 26, you may be able to remain on your parents’ health insurance plan, even after becoming employed. This can help you save money early in your career by delaying the need to enroll in your own employer-sponsored plan. However, once you turn 26, you will no longer be eligible to stay on your parents’ coverage and will need to enroll in your own health insurance plan, so it is important to understand your options ahead of time.
The Benefit of a Health Savings Account (HSA)
A high-deductible health plan (HDHP) allows you to use a health savings account (HSA)—that’s a lot of acronyms, so let’s break it down. An HDHP is a health insurance coverage option that many employers offer, offering lower monthly payment in exchange for a higher deductible.If you participate in an HDHP, and your employer offers an HSA program; that will allow you to make pre-tax contributions that can be used to cover qualifying medical expenses.
These pre-tax contributions grow tax-free inside the HSA, and distributions are tax-free if used for qualifying medical expenses—a three-fold tax benefit. In addition, the HSA is portable if you leave your employer. The HDHP / HSA option often makes sense for young healthy people who do not go to the doctor very often.
Life and Disability Insurance
It’s easy to dismiss the need for life and disability insurance when you are just starting your career, are healthy, and don’t have any dependents to consider. Group term life insurance is the most common type of life insurance offered as an employee benefit. Coverage is usually provided for the duration of employment and is typically 1 to 2 times the employee’s annual salary. It is often offered for free or at a low cost.
Disability insurance is one of the most overlooked options in a benefits package. Yet, it is potentially one of the most important benefits you can sign up for. The Social Security Administration estimates that more than 1 in 4 twenty-year-olds will become disabled before reaching retirement age. Disability insurance policies pay you a percentage of your income if you become sick, injured, or unable to work. They are typically offered in short-term and long-term options, with short-term generally providing coverage for 6 weeks to 6 months, while long-term usually spans from 2 years up to age 65 (or retirement).
Why Should I Contribute to a 401(k)?
Now that the fun discussion of the basics of health care benefits is complete, let’s move on to retirement planning. Many companies offer the ability to contribute to a 401(k) plan. Contributions to a 401(k) plan are made on a pre-tax basis. The money grows tax-deferred, but distributions from this account are taxable at the time of the withdrawal. As an added benefit, companies often match your 401(k) contributions up to a certain amount. For example, matching 50% of the first 6% of your earnings that you put into the account. The key to long-term growth is to begin contributions as soon as possible. We recommend contributing at least the amount the company matches.
Many company retirement plans now offer a Roth component. With a Roth 401(k), you contribute with after-tax dollars. While this doesn’t reduce your taxable income in the year the contribution was made, qualified distributions are generally tax-free at the time of withdrawal. If you are in a lower tax bracket, the Roth option may make more sense. Conversely, if you are in a high-income tax bracket, contributions to a traditional 401(k) might save on taxes in the current year. A Sunpointe advisor can help you explore these options within the context of your overall financial plan and can also provide guidance on which investment options within your 401(k) are right for you.
An Added Safety Net
Whether you’re selecting your benefits for the first time or reviewing your existing benefits plan, let’s take a moment to talk about an emergency fund that exists outside of your company’s benefits package. An emergency fund is meant to cover 3-6 months of all your monthly expenses. Placed in a money market or high-yield savings account, these funds provide a cushion if you lose your income. This is not a rainy-day fund for vacation or a weekend trip. An emergency fund should be funded before you open other investment accounts, aggressively pay down debt, or increase your retirement savings.
Building Strong Financial Habits Early
As a new graduate it’s easy to focus only on the immediate decisions that come with starting a career. But the habits and systems established early on can create a strong foundation for future financial confidence. Understanding your benefits, beginning retirement contributions, and building an emergency fund are not about having everything figured out right away. They are about creating stability, flexibility, and momentum as your career and life evolve. Once these core pieces are in place, future financial decisions become less overwhelming and more intentional.
Continue Building Your Financial Foundation
Starting your financial journey early can have a meaningful long-term impact. In addition to understanding employee benefits and building healthy financial habits, developing a broader understanding of budgeting, saving, and financial decision-making can help create a stronger foundation for the future.
To continue the conversation, we invite you to explore Sunpointe’s Family Financial Literacy: Building Strong Financial Foundations guide, which includes practical insights on budgeting, cash flow, emergency savings, and creating healthy financial habits across different stages of life.
If you or someone in your life would like guidance to help ensure you’re starting on the right path, please reach out to your Sunpointe advisor or schedule a meeting with our team here.
