Assess This Offer...

NedRN · Apr 12, 2013

The only way to negotiate is to have a Plan B. Without it, you have no leverage. In any case, you will have no idea if any offer is fair unless you talk to the competition. Do you only go to one dealer when you buy a car?

If more tax free compensation puts more in your bank account, that is the way to go in my opinion.

sarahc331 · Apr 19, 2013

There are two major points you need to consider. The first is your desire to work overtime. I've had contracts that provide for a separate OT rate and others that go based on the standard time & a half rate. The lower your base rate is the lower your OT rate will be (if based on 1.5x). If you like to work OT then I would recommend taking a higher hourly rate or requesting a separate OT rate.

The second issue is retirement. Keep in mind that social security is based on your 3 highest earning years. Your "tax free" money doesn't get reported to the IRS and therefore does not get factored into those calculations. So yes it means more money in your pocket NOW, but will potentially influence your later years.

My recommendation: there is a calculator on pantravelers.org that will allow you to compare the different offers and help you decide which is better for you.

Oh, and having the right recruiter helps too. There is more room for negotiation than they will lead you to believe.

NedRN · Apr 19, 2013

Good post. I'd like to add that SS retirement is now based on lifetime earnings, not just a few high paying years as in the past. If low taxable earnings as a traveler is done for many years, it will affect your benefits. Disciplined workers who invest those tax savings will come out far ahead at retirement. I worked out an example once with a very conservative projection on growth and the difference was staggering: on the order of millions of dollars extra over 20 years or so.

Of course, disciplined saving and investing is very rare, and most Americans are better off with forced savings such as Social Security. The majority of people who end up with significant net worth at retirement usually have it because they bought a house. Now that is an expensive savings plan! Most of the lifetime savings are eaten up in mortgage interest.

Here is an interesting point just to show how wrong headed it can be to try to pump up your Social Security earnings. FICA is 15.3 percent of your taxable income (both the employee and the employer contributions). It is pretty much a zero gain, you get back what you contribute eventually, but without any growth (other than inflation protection). So no one thinks it is a good investment but that is not what it is designed for, it is a safety net and it does work for that.

But here is the kicker, to get that minimal 15 percent benefit, you have to pay income taxes on your compensation. That is usually about 33 percent when you add federal and state income taxes. So to get that 15 percent minimal benefit, you have to pay about 48 percent in taxes (some of that is hidden payroll taxes)! Not a good deal at all. I, along with virtually all tax professionals, recommend minimizing your taxes, not increasing them! So max out those tax advantage plans while you travel. And try to develop a rational and disciplined savings and investment plan.