Never Store Your PTO
My suggestion is based on the fact that some companies allow employees to accumulate Paid-Time-Off (PTO) year-after-year, so that they can use it in the future. Also, these companies allow for a “sell-back” of an employee’s PTO to receive extra money and not take the time-off. If this applies to you, I recommend to not store your PTO if you do not need to.
Storing your Paid-Time-Off (PTO) just because you can is not a great financial decision. I can understand if you want to store your PTO for that peace-of-mind during emergencies or for a well-deserving vacation. However, aside from these reasons, I do not believe it makes sense to just let your paid-hours sit in the company’s bank. Here’s why:
PTO is just hours of unpaid money sitting in the company’s bank accumulating interest that goes back to the company. Ideally, it would be better if you kept that interest. Interest rates may not be high right now (2018) but at 1-2%, you’re making a guaranteed $30-$60 from interest (assuming $50,000 salary with 15-days of PTO) each year. At 7-9% average returns from index-fund stocks (S&P 500), that is $200-$260 a year! There’s also the power of compounding year-after-year.
I used to argue that if I spend my saved PTO as late as possible, I am getting more out of my PTO because I will have received a raise by the time I spend it. Several sources show that the average 2017 salary raise is 3%.
Aon Hewitt: http://aon.mediaroom.com/news-releases?item=137470
SHRM: https://www.shrm.org/resourcesandtools/hr-topics/compensation/pages/salary-budgets-2017.aspx
The Balance: https://www.thebalance.com/the-scoop-on-salary-increases-1919079
This means that the average stock market returns are higher than the average raise. Chances are, you will get more if you sell your PTO and invest it in the markets.
I believe that keeping your PTO is a great idea in case of emergencies. But how much is too much? The president of my company has over 1,000 hours of paid-time-off (PTO) accumulated from her tenure at the company. Will you really spend half of a year on vacation? Why not just quit or retire? What about emergencies? Typically, companies provide short-term and/or long-term disability insurance and that can help cover your costs when you’re away. Also, if you cash out your PTO and store it in the bank as an emergency fund, then it should take care of your normal spending while you may be able to take non-paid-time-off. Personally, I’d like to save at least 15 days of PTO because three 1-week vacations annually are enough for me. By the time I take my first week of PTO and wait 3-4 months for the next vacation, I will have accumulated my PTO again.
Do you disagree? Please leave your comments below. Thank you and have a nice day!