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Put Your Year–End Bonus To Work

Put Your Year–End Bonus To Work

If you receive an annual bonus from your employer, don't treat it as mad money, good for one wild splurge. Instead, put it to work strengthening your family's financial security.

Your bonus is not fun money. It's part of your income. That's why, as a financially savvy person, you should view your annual bonus as an opportunity to enhance your financial position, build assets, and work toward achieving long-term objectives.

What to do: Use your regular income to buy that new car, pay down debts or take a vacation. Use your bonus to make your life and your family's life more secure. Here are just three suggestions to consider:

  1. Shore up your life insurance protection. We don’t just say this because we’re New York Life Insurance Company. We’re New York Life because we believe in the value and importance of life insurance. Life insurance protects your family.

    For example, if you have minor children, you know they’re expensive. The average cost today of raising one child from birth to age 18 in a middle–income family tops $184,000, according to the U.S. Department of Agriculture. That’s more than $9,000 per year. For upper–income families, the average is nearly $270,000.1

    Use all or a portion of your year–end bonus to update your life insurance to protect your children and, if you are married, your spouse. How much do you need? The only real answer is enough! Each family's needs are different. Your New York Life agent can help you sort through your needs and determine the amount that is right for you. So, consider using part of your bonus to strengthen your life insurance program and your family's financial security.

  2. If you have minor children, consider saving part of your bonus for their education. This is one of the best gifts you can give them — a debt–free college degree.

    The problem is that college is expensive, and the cost keeps rising every year. Tuition costs at public institutions averaged $5,132 a year in 2004–2005, or more than $20,000 for four years, reports the College Board, an independent organization that tracks college costs. At the pricier private schools, tuition averaged $20,082 per year. Add another $10,000 or so for room, board and living expenses, and the total bill can get pretty steep.2

    This does not factor in the price of graduate school, that a four–year degree often takes up to five years to complete, or that you may be sending more than one child to college.

    Fortunately, in addition to scholarships, you have several options to help accumulate college funds in advance. Among the tax advantaged options is the Coverdell Education Savings Account, formerly known as Education IRAs, which lets you contribute up to $2,000, non–deductible, a year, with earnings received tax-free if used to cover qualified expenses.3

  3. Put a lump sum to work for your retirement. It’s the same principle as saving for college, but with potentially more time to build cash. The goal is to have a comfortable retirement nest egg waiting for you when you retire. Say your bonus is $2,000. The following chart projects how the single contribution will grow over time based on various average rates of return.

    After Year 5% 6% 7% 8%
    20 $5,306 $6,414 $7,740 $9,322
    25 $6,772 $8,584 $10,584 $13,696
    30 $8,644 $11,486 $15,224 $20,126
    35 $11,032 $15,372 $21,354 $29,570

    Figures quoted are for illustrative purposes only and are not necessarily indicative of past or future results of any specific investment. They do not include consideration of the time value of money, inflation, Fluctuation in principal, or in many instances, taxes.

    Do this every year with your bonus, and you will have gone a long way toward helping achieve your long-term financial security.

    The bottom line: You have a choice when you receive your year-end bonus. You can spend it; or you can put it to work for you and your family. If you need help working out the details of how to allocate your bonus for maximum accumulation, contact your New York Life agent and/or NYLIFE Securities Registered Representative. He or she will meet with you to help map out a strategy that works for you.

  4. 1 "Expenditures on Children by Families, 2004," USDA, April 2005.
    2 "2004-2005 College Costs," 2005, The College Board (
    3 "Coverdell Education Savings Accounts Can Make Education Costs Less Taxing," Internal Revenue Service, March 2005.


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Put Your Year–End Bonus To Work

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