I recently had the pleasure of interviewing Adam Swartz, President and Financial Advisor at AMIN Financial Planning and Advisory Services.
What makes Adam’s perspective unique on this topic is that he worked for 27 years in the nonprofit sector, in a variety of different fundraising roles including serving as a CEO of a nonprofit for eight years. He also holds a master’s degree in nonprofit organizations from Case Western Reserve University in Cleveland.
1. What benefits can a nonprofit provide its employees?
There are different types of benefits that a nonprofit can provide. There are formal and informal benefits. It partly depends on the financial capacity of the organization and the scope of work that they’re doing to determine which type. Most employees today in our country, look to their employer to provide common benefits like health insurance and the opportunity for a retirement plan, either formalized or informalized. Maybe disability insurance, long term, short term, and a whole range of benefits.
But not every nonprofit can afford to provide all those things. So that’s where the voluntary opportunities can come into the mix. Either enabling people to purchase on their own through a trusted advisor the organization may bring in or thru financial education and allowing the opportunity for the employees to learn about what tools they can put in place for themselves, to make sure that they are protected.
It’s important that they have the opportunity to take care of themselves and their families. When employees feel better about themselves, understand their financial situation, feel in control of their financial situation they spend less time worrying. They feel comfortable and are more productive. So, it really turns out to be a benefit to the organization to provide opportunities, both formal and informal to make sure that the level of comfort is as high as possible amongst the employees to meet their individual and family’s needs.
2. When shopping for benefits, how do you compare plans apples to apples?
The most important thing is to really understand and be clear about what are you trying to provide to your employees? What do you want to make sure they have covered? What do you want to make sure they have taken care of? From that, you then can compare the most critical components.
Sometimes when plans are being presented there are enhancements that are above and beyond. Maybe there’s a health insurance plan that also provides a variety of other features and benefits to it. But you may not deem those as important. And so, then it’s not just dollar to dollar comparison. It’s also a comparison of what are the types of programs and services that are available to people. Is there an employee assistance program? Are telehealth and telemedicine an important benefit?
So, it’s really understanding first, what are you trying to accomplish? What are your goals in sponsoring a plan? And then really having a sense of what things are important or not important so that when you’re comparing, you’re really comparing an apple to an apple. Because if you just look at here’s the cost of this, and here’s the cost of this, and this appears to be cheaper and this appears to be more expensive, you may find yourself where the “more expensive plan” is really providing more of the things that are truly important to you. And it might be worth that additional investment or, or not.
I think the most important part, especially for a nonprofit that is really looking to be so careful about every dollar that’s being spent is really understanding what are the benefits that we’re providing? What’s the impact we’re having on our employees? And is this something that our employees are going to use? And from that, you’ll really be able to say, is this an important piece or not? Then have some discussions with the provider. Let them know what piece is not so important. Ask them what’s my pricing if you take that piece out?
That’s how you really compare them is by looking at what’s most important. What provides the best incentive and enhancement to our staff and then go from there.
3. How can a nonprofit begin to budget for benefits, especially like health benefits and retirement?
Don’t presume you have to do it all at once. Benefit plan pieces can be put in place over a series of years. If you’re transitioning from no plan to having a plan, you can’t go from zero to 100 in five seconds. We need to take a tiered approach to it. So, you may identify health insurance, for example, is the most important piece that we want to put in first. In year two we can add this piece. In year three we can add this piece. The budgetary demands are going to require that you stage it in overtime.
The second part is really having an ongoing and clear discussion with the volunteer leadership. Whether that’s the chairperson or the executive committee of the board. It is making sure that they are as aware of the importance and the added value of staff.
The ongoing dilemma that nonprofits face about the percentage of revenue that’s used for overhead versus an administrative expense, versus service needs to be discussed. Part of what’s important to recognize is that it is part of the CEO/ED responsibilities to really engage with the leadership and dialogue around one of the tools that we provide that enables us to get our work done is the quality of our staff. The stability of our staff and providing a benefit package, whether small or large, helps you bring in and maintain quality staff.
From my experience and anecdotally having to replace and train new staff is far more expensive than just the net salary that is paid to that person. The ramp-up of all those pieces is a cost to the organization, whether tangible or intangible.
So, one of the things that help maintain stability and retain quality staff is having an appropriate benefit program for them. Part of the ongoing dialogue between the CEO/ED and the key volunteer leadership is, what do we put in place to maintain the quality of the staff that we have? What is it going to cost us? Here’s how we phase it in overtime. That then creates a partnership between the volunteer and the professional about putting it in place and making sure that we are not just grabbing for everything, but we’re being deliberative, strategic, and thoughtful about this and recognizing here’s where we are going.
It saying we’re going to have a combination of direct benefits or educational benefits. So, we’re not just looking to give our employees things that we must spend money on. We want to look at the whole employee and make sure that we have opportunities for them to be able to do for themselves, especially in areas that we may not be able to financially afford to put in place for them.
One of the things that are important to remember and its part of the discussion between the volunteer and the leadership is as social responsibility becomes a real framework for our corporate societies how does that impact nonprofits?
The old presumption that the nonprofit sector used to have about the corporate world has this piece of the pie and they work on that. And the nonprofit sector has this piece, and the governmental sector has this piece. Those lines have become, over the last 10 years, more and more blurred over time. And we can highlight numerous examples of companies that are still keeping themselves as for-profit entities but are putting in place activities that are socially responsible and are having them be good corporate citizens. As they’re doing more and more of that the pool of people that would traditionally look only to the nonprofit or governmental sectors for their employment are having opportunities to look at the corporate sector to do good and to contribute to society. That poses a challenge to the nonprofit sector regarding being competitive.
As we know, most nonprofit professionals are willing to take a lower salary than they would take in the corporate world because they want to be part of making an impact on people’s lives. But that doesn’t mean that they’re willing to forego everything in doing that. So that’s where it’s critically important for nonprofits to really say we must treat our most valuable asset, people, in a way that’s going to at least allow us to have some level of competitiveness.
So yeah, we know we’re not going to pay them as much money. But there are other things we can do to keep and retain them. And one of those is the formal benefits plan. And another is the informal benefits piece. So that at least the employee feels the ability to be empowered to understand and to know about actions they can be taking for themselves. These are the ones that I must pay for myself and these are the ones that my employer is helping me do for myself. But at least they’re helping me have a full level of knowledge and awareness and understanding of what I’m doing, why I’m doing it, and what I should be doing that they’re not able to do within for me.
4. If your nonprofit does not offer a plan, what are the key steps a person can take?
The first part of that is to recognize that thinking about and planning for retirement needs to start today.
That is even for a person who’s in their very first job right out of school, breaking away from home for the first time, working full time on their own behalf, and earning their own living. That’s a time to start thinking about retirement. Partly because retirement involves money. Money needs time to work. Money needs time to be able to accumulate and to grow.
The other piece is what does retirement mean? For every single person, it’s different. I’ll use myself as an example. I don’t ever anticipate what I would call a full retirement. I love what I do. I love having a purpose. I love having meaning. I love having that push to get me out of bed and help people daily. And I don’t ever see fully stopping that. But the ability to have a retirement plan to fall back on gives freedom and flexibility and the ability to say, I don’t want to fully stop working. But because I have enough accumulated in savings, I can work half time instead of full time. That is empowering. So, it’s having awareness in yourself and this is going to evolve over time.
So, when a 23 or 24-year-old, says to me, how do I think about retirement, I’m just starting to work? I say it’s going to evolve over time. But since money needs time to work for you, to accumulate and compound and grow, your vision of what retirement is going to look like, is also going to evolve over time. But you should be thinking about what’s important to you in retirement. What and when do you want to transition? Do you want to try to retire early? Do you want to try to retire late? Ask these questions so you can have a timeframe to stay on target.
The only way you can do that is to have a roadmap. You must know what you are trying to accomplish in retirement and by when. It’s important to start not just looking at it from a financial perspective, but also from a what does it mean to me perspective. Again, that’s going to change a lot over the course of time. People get married or have a health situation. There are several things that can impact the path. So, it’s not a static one time in your life, final answer and then leave it alone. It’s, here’s where we think we’re going to be based on today’s realities, and here’s what I need to accumulate to provide that for myself. The next time you have the discussion that may be a little bit different.
But when you have an accumulation of assets, you can tweak and readjust the balance of what’s being done with that. If you wait for 10 years to start the process, it just means you must work that much harder to accomplish the same result.
You should also look at retirement in stages.
I frequently work with clients on three different phases of retirement. I break them down into roughly 10-year segments.
In the immediate stage of retirement, where you’re finished working, you’re generally in a position where you can still maintain a high level of activity. You have an active lifestyle. You may want to volunteer, travel, visit family, or have new hobbies you want to pursue. You’re going to be very active and there’s going to be an implication for that.
The next phase of retirement is less active. Your health declines and you may want to slow down on things. Your social circle may begin to be a little bit narrower due to death or people moving to be closer to their children.
The third stage is really where you may become much more sedentary. You may have some physical limitations or some physical issues. You may really want to spend your time with friends, family, and close community. You either need to help care for a loved one, or you may want to just engage with loved ones on a much more limited timeframe.
Each of those three stages has implications for the kind of financial requirement and obligations. Far too frequently I find when people think about retirement, they think only about the financial. They don’t think about what is that number and what is that money trying to accomplish? What is it going to take to enable me to successfully do those kinds of things?
The sooner that you start doing it, the easier that you can avoid other challenges in life. So, go back to the 23-year-old first job out of college. They may think I can just take all the money and go play. Sure, you can and that may be important to you. But, as you move on through life, there are other things that are going to compete for those same dollars, whether it’s building a family and the financial demands of children. You can go from renting a place to buying and owning a place, and then the air conditioner goes down, and all of a sudden, now you got a multi-thousand-dollar bill, etc. That’s why sooner, when you have fewer obligations for your money, the better positioned you are to begin that accumulation.
5. What is social security? And how will it play into a retirement plan?
Social Security is not a one size fits all plan for everybody. I think that’s one of the challenges, people sometimes think of social security as it’s the same thing for everybody, it’s not.
First, it’s one of those things that you have to accumulate a certain amount of time in a job to be able to have accumulated benefits. Roughly 10 years of work or 40 credits. The longer you work, the greater your benefits.
I will give you a 10,000-foot view.
it’s a place where the government sets aside a portion of your income into the equivalent of a trust fund for retirement. It’s not a one size fits all. What you get from that retirement is determined by when you start to withdraw those benefits. So, you can start to take Social Security benefits before the full retirement age. In this case, you’ll get less than 100% of your entitled benefit. If you take it at full retirement age, you’ll get more of the benefit you’re entitled to. You can get a statement every year that shows you exactly where you are based on the number of credits and the amount of money you’ve put into the system. You can defer taking the money out of Social Security. This will give you the opportunity to have a little bit more than what your full benefit would be.
But it’s all based on what you’ve put into the system and the amount that you’ve contributed.
For everybody who’s born after 1959 full retirement is 67. If you were born before 59, it varies. If you’re born before 55 full retirement is 66. And then there’s kind of pro-rata in between there. They are talking about pushing retirement to age 70.
If you retire at 65, or 67, it’s not uncommon to live for another 30 years. Your needs in your early 90s are going to be vastly different than your needs at age 68 or 69.
What retirement risks should someone plan for?
One is I live longer than I had planned for and I didn’t put in place a plan for how I am going to use my money. So, I take too much of it each year in the first 10–15 years of retirement. Now, I have nothing left.
That is why the three stages of retirement are so important. What are my health care costs going to look like the first 10 years, the second 10 years, third 10 years? How do I manage the risk of market volatility?
There’s the risk of living longer than what you planned for. There is inflation risk. The cost of something today 10,15, 20 years from now it’s going to cost more.
Health care costs, as we get older, we typically get less healthy. While modern medicine has continued to allow us to live longer and longer it doesn’t mean that we’re necessarily living at the highest level of health through all those years. We may be living in a frailer state than we had been in our working adult lifestyle and so there may be dramatically increased health care costs.
Depending on how we had our money invested or allocated, the market can go up, down, or stay flat. We must be careful about what could happen with the volatility of where our money is invested.
I hope this helps. Comments are welcomed. Sharing is Caring.
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