Avoid Benefit Shock

In a nutshell, I have become an advocate for independence from the traditional U.S. work model.  By that, I mean the model where you exchange sometimes extraordinary amounts of time per week, and typically 49 – 50 weeks a year, for income and benefits.

It’s the benefits that can be the big “gotcha” of this arrangement.

First, I do want to make clear that I fully support, recognize, and value working, and am not anti-big business in any way.  I’m really a laissez-faire capitalist at heart.   I get the structure.  And I get that it works for companies and it works for most people.

I’m just not most people anymore.  If you’re reading this, you may not be either.

As you begin planning to re-structure your life away from the traditional working one into a Semi-Retired one, here are some of the expenses and impacts you will need to consider:

  • Self-Employment Taxes
  • Other Insurance
  • Discounts and Reimbursements
  • Credit Rating
Self-Employment Taxes

Depending on how your employment is structured, you may be responsible for paying the other half of the roughly 15% of your wage that goes to Social Security, FICA, and Medicare.   In a traditional employment structure, half of that is paid by the employer and half by the employee.

Check with your employer.   If you work full-time, but for a limited time like a season, the employer is likely paying this.  Your paycheck will provide a clue – are SS/FICA/Medicare taxes being withheld?

If you are running your own business as a Freelancer or Independent Contractor, this will become your responsibility.  Be sure to check with an accountant, preferably a tax expert, to make certain you are handling this properly.

Other Insurance

We have talked about health insurance ad nauseum already.

Additional coverages for dental, vision, life, and disability insurance typically do not have the hefty price tag of health insurance.  That said, if you want these types of policies, be sure to factor in that cost.

A good estimate to use for the value of workplace benefits is approximately 25 – 35% of your wage/salary/income.  The difference will largely be in how much of your current health insurance premium value your employer pays.

To get a feel for how much you will need to earn to REPLACE your current income, take your monthly gross amount (before taxes are withheld) and multiple it by 1.25 and 1.35.  This will give you a range to work with.

That said, replacing your income entirely may not be your goal or need.   Just be aware that you will likely need more income to net the same amount without benefits.

Reimbursements/Discounts

Be sure to include in your budget things that your employer reimburses that will go away when you leave or retire.  Cell phone?  Parking? Transportation? Internet?   What about discounts you receive on any of these through your employer?

Credit Rating

Got a stellar credit rating?  Don’t be surprised to see it take a dip if you are not “employed.”   Even if you don’t miss a payment on something or go into more debt.

Wow…with those negatives, why would anyone leave traditional employment?  Well, often they don’t.  It’s a time-for-money exchange.  There’s a level of security in it that goes beyond just the take-home pay.

The flip side is a loss of time freedom.  Free time to do and see and be the what, where, and who you want.  It’s not about not working.  It’s about the time OFF.

My goal is to structure my  employment life to get substantially more of that in longer segments.

How about you?

Recovering MBA. Writer. Photographer. Scanner. Learning Addict. Airplane Geek. Teacher. Certification Collector. Serenity Seeker. Semi-retiree in training.