By Chris Heisten, CRPC®, CFP®, CSRIC®
Retirement can be a daunting thought. You have to transition from 20 to 30 years of work and a steady paycheck to retirement, where you’ll have to generate your own income using the assets and investments you’ve built up over the past few decades. For many people, this creates a lot of stress and anxiety.
Yet there are two things that can potentially bring a lot of confidence to this process. The first is creating a comprehensive financial plan that takes into account all your goals and dreams so you can use your time and money on the things that matter most to you.
The second thing that can help is to fully utilize your company benefits, especially at a company like Hilcorp. According to government data, benefits at work account for 31% of total compensation, with the other 69% coming from wages and salaries (BLS News Release 12/15/22). That means when building your financial plan, it’s important to consider your employer’s benefits package so you can maximize your compensation and align your benefits with your long-term financial goals.
At Heisten Financial, we look to help Hilcorp employees with both of these key components. In this article, we’ll explore the different benefits offered by Hilcorp and provide tips on how to maximize your odds of a stable financial future.
The 3 Bucket Types of Hilcorp 401(k)
The Hilcorp 401(k) plan offers three types of investment accounts: traditional 401(k), Roth 401(k), and after-tax.
The traditional 401(k) is a pre-tax account, which means that the money you contribute will be taxed as ordinary income when you make a qualified withdrawal, typically at age 59½ or later. The company match goes into this account and the principal and earnings grow tax-deferred. Contributing to a traditional 401(k) can help lower your current taxable income.
The Roth 401(k) is a post-tax account, which means that the money you contribute has already been taxed. When you make a qualified withdrawal, typically at age 59½ or later, the money is not taxed. The principal and earnings in a Roth 401(k) grow tax-free. Contributing to a Roth 401(k) does not reduce your taxable income.
The after-tax account is also a post-tax account, where the principal is not taxed but the earnings are considered tax-deferred and are taxable at distribution. This account offers the ability for an in-plan Roth conversion of contributions, which allows you to convert pre-tax contributions to after-tax contributions and then to Roth contributions. This type of strategy is more complex yet could help lower your lifetime tax liability. Before proceeding, make sure to consult with a financial professional.
HSA and Other Benefits
In addition to your 401(k) plan, it’s important to consider other benefits offered by Hilcorp, including health savings accounts (HSAs) and other extra benefits programs.
HSAs are tax-advantaged savings accounts that can be used to pay for qualified medical expenses, including those incurred in retirement. If your health insurance plan offers an HSA option, consider enrolling and developing a strategy for using the account. Contributions to an HSA are tax-deductible, and the money in the account grows tax-free. Withdrawals from the account for qualified medical expenses are also tax-free, adding another tax benefit to this account type.
Hilcorp may also offer other extra benefits programs, such as CAPS and GAPS. These buy-in programs are unique and can help your long-term financial plans.
The Bridge Account and Cash Flows
A bridge account is often an individual or joint account that can be used as a “bridge” to retirement. This account can provide flexibility if you want the option to retire early. In contrast to most uses of your 401(k), the money in a bridge account can be used before age 59½ without any penalties or restrictions. As the name implies, it can help you bridge the expenses you need until you’re able to tap your retirement accounts later in life.
Cash flows are another critical factor in retirement planning. Whether you’ve got five years left of work, or you’re months away from calling it quits, it’s important to look at your cash flows and monthly expenses. From there, you can consider how much you need in various accounts to meet your income goals in retirement.
For some, it may make sense to fund the first few years of your retirement from non-retirement accounts, while for others it makes more sense to take distributions from your tax-deferred accounts. That, of course, depends on your financial situation and your long-term goals. But you won’t be able to get the clarity you need on what to do until you have a clear understanding of your cash-flow needs.
Moving Toward Your Retirement Goals
If you want to maximize your Hilcorp benefits while working to reach your financial and retirement goals, we’d love to help. Our team of specialists can help you establish a customized financial strategy that aligns with your goals and optimizes your benefits. To get started, email Jami at firstname.lastname@example.org or call 907.222.6270 to schedule a complimentary assessment today.
Chris Heisten is President and Founder of Heisten Financial LLC, a fee based boutique financial planning firm with the focus of giving clients back their time so they can spend it doing what’s most important to them. Acting as a true fiduciary for his clients, Chris aims to solve their financial pain points and move them toward financial freedom. In the financial industry since 2007, Chris partners with business owners and oil workers on their journey through life, striving to instill calmness and a sense of direction as he simplifies the complex. He loves nothing more than seeing clients experience relief when they achieve what they thought was impossible.
Chris graduated from the University of Maine, where he played hockey on a scholarship, and retired from professional hockey in 2007. In the community, he remains engaged serving as a youth hockey coach. Chris holds the CERTIFIED FINANCIAL PLANNER™, Chartered Retirement Planning Counselor℠, and Chartered SRI Counselor™ designations. Outside of the office, he enjoys trying new food and wine, reading, traveling, playing golf and hockey, fat tire biking, and donating to local charities. His passions include being a husband and dad, lake life with the family, watching his son and daughter play sports, and spending time with his wife. To learn more about Chris, connect with him on LinkedIn.