For many of us, the benefits provided by our employer are an afterthought. We are highly interested in our salary & bonus amounts, but health insurance? Long term disability? Roth 401(k)s? We see the open enrollment deadline looming, select options quickly, then move on with our lives, but that could be to our detriment.
For many workers, decisions around employer sponsored benefits have a substantial impact on their comprehensive financial plan. It is important to understand your benefits and select appropriate options that support the financial health of your family.
Many employers offer a high-deductible plan (HDHP) coupled with a Health Savings Account (HSA), but other options may include a more traditional Preferred Provider Organization (PPO) and/or Health Maintenance Organization (HMO) plan. Each offering has pros & cons – size of doctor network, premium cost, out-of-pocket maximums, etc. But how do you decide? It comes down to “doing the math”. Analyze previous years’ expenses & anticipated future medical needs, then compare the total expected out-of-pocket cost of each plan. Depending on your family’s personal health needs, there may be an option that makes the most sense for you.
Health Savings Accounts
In many cases, an HDHP plan is the most cost-effective option. If this is true for you based upon your personal assessment, consider maximizing your contributions to the HSA. Some key attributes to remember:
- Contribution limits in 2021 are $3,600 for self-only, $7,200 for family coverage, plus a $1,000 catch-up option for employees age 55 and older.
- HSAs offer a unique triple-tax free benefit. Contributions, earnings, and qualified withdrawals are not taxed.
- There is no limit for how much you have in an HSA and the account can be invested, allowing it to grow for your family’s needs for many years.
Life & Disability Insurance
Many families are dependent on their primary earner’s income, but how can a family continue to thrive if the primary earner becomes disabled or suffers a loss? Life and disability insurance are designed to protect against this significant risk.
In many cases, combining group & independent insurance coverage is sensible. Independent coverage can offer advantages over group plans:
- You keep the insurance even if you leave your job
- Coverage can be less expensive (depending on health and other risk factors)
- You can often lock-in premium rates for a longer period of time
- Disability benefits are tax-free if you pay the premiums.
Many employers offer one or more retirement savings vehicles, such as a 401(k), 403(b), 457, and/or SIMPLE IRA plan. Employers often match a certain percentage of an employee’s contribution. You must decide how much to contribute, what tax option to choose (traditional/pre-tax, Roth, or after-tax, as available), and how to invest the funds. But where do you begin?
You can find blanket advice such as “save as much as you can”, “save at least 10-15% of your income”, “use Roth if you are younger, pre-tax if you are older”, etc. For investing, the easiest option can be to utilize a “set it and forget it” Target Date fund, and then diversify further once your retirement plan balance grows to a certain level. But… is this “blanket advice” good for everyone?
The answer is a resounding “no”, because every family has unique circumstances. For example, what if a family is facing a potential layoff and has little savings? That might be a time to pull back on retirement contributions and stockpile cash. What if you are planning to retire in 5 years at age 55, but have minimal investments outside your retirement plan? You may need to consider alternative savings vehicles to prepare you for a successful retirement.
Some benefit packages include other benefits, such as stock options, flexible spending accounts, employee stock purchase plans, education assistance, and many others.
Putting it All Together
Your employee benefits form the backbone of a healthy financial plan, so make sure you use them to their maximum potential. We know that every individual’s financial situation is different, and we recommend seeking advice from your trusted financial advisor if you have questions about your company’s benefits. They can help you better understand what your company’s benefits offering could mean for your personal financial plan.