How To Benefit From Your Benefits

Fall is the time for many of us to enroll (or re-enroll) in our employee benefits. It can also be a great time to review our overall financial plan, including decisions on healthcare coverage, retirement savings, life insurance and the other many benefits available. The information is often confusing, but we still must make the selections.

First, it’s important to understand that we are trying to predict the future. What will my health costs be for this upcoming year? Will I, or anyone in my family, injure themselves? How will the stock market perform? If we knew the answers to our questions, we would find it very easy to make these decisions, but we don’t so we have to make reasonable predictions knowing that most decisions are reversible or changeable annually.

Next, we have to be thoughtful consumers of benefits instead of purchasing products or services we don’t need. A lot of employers provide a vast number of benefits. Some are necessary to protect ourselves from unforeseen circumstances and to build our financial future, but some are add-ons or supplementary products that you might not need. Just like with every item in your budget, you should weigh the cost and need for each benefit and understand the opportunity cost (what you could do with that money instead).

Last, we want to make decisions based on facts by gathering all the pertinent information. Most of this information can be found on your company’s employee benefits website, but if you don’t understand some of it, get guidance from your human resources department or a qualified financial coach if you have a financial wellness program available to you. Here is some guidance on two of the most common major benefits decisions you will make:

Choosing a Healthcare Plan:

· Gather the facts and compare all the components of each plan: premium, deductible, out-of-pocket, copays and coinsurance. You may be tempted to take the lowest premium policy so it impacts your paycheck the least, but it could end up costing you more in the long run.

· Make sure the plan you choose covers the needs of you and your family. If you have a primary doctor, specialists or other providers, ensure that they are in-network. Otherwise, the costs of using out-of-network providers could be higher. You will also want to check how the plan covers prescription costs and services such as chiropractic care, mental health care and others.

· If your final choice is a high-deductible healthcare plan (HDHP), you may want to consider contributing to a health savings account (HSA) to use tax-free for medical expenses. If you don’t have an HDHP, you can contribute to a flexible spending account (FSA). Just remember that FSAs are use it or lose it, so don’t contribute more than you plan on spending.

Contributing To Your Retirement Account

There are basically three decisions to make regarding your employer retirement account. Keep in mind that these changes to your employer retirement account can generally be made at any time throughout the year, not just during open enrollment

1. How much to contribute: If you are in your early career, strive to get ahead early and take advantage of the power of compounding growth. Contributing 15-20% (including any employer contributions and matching) would be a good target. If you can’t do that right away, start by contributing at least what your company matches to get that free money and set up an automatic increase, so you get there over time. If you are in your mid or late career, you should check your retirement readiness using a calculator. Most retirement plan providers have one on their websites, but if you don’t have access, you can use this one: www.ffcalcs.com/retirement_estimator.

2. Which type of account to fund: The decision between pre-tax or Roth contributions depends on individual factors and circumstances. This calculator can assist in projecting the outcome: Roth 401(k) vs. Traditional 401(k) Calculator (dinkytown.net). In general, the younger you are and the lower your income, the more Roth contributions likely make the most sense because you have a lot of time for the investments to grow tax-free, and you expect to be in a higher tax bracket when you retire. But for people close to retirement and in a high current tax bracket, the pre-tax would probably work out better mathematically, especially if you expect to be in a lower tax bracket when you start using the money. Those in between could consider splitting the contributions between the two options.

3. How to invest: If you are a hands-on investor, you can make your own investment decisions. This takes time, knowledge and a desire to manage your funds. Some hands-on investors find it useful to complete a risk tolerance assessment such as this one: Risk-Tolerance-Worksheet.pdf (ffhub.com). Most people are hands-off and choose one of the “target date funds” or “managed funds” available to them. These funds combine the different asset classes for you, may reduce risk automatically as you get closer to retirement, and rebalance regularly so you don’t have to worry about day-to-day management.

Your enrollment decisions must be made in a timely manner so gather the facts, weigh the options and make your best choices. Use the time that you are focusing on financial decisions to look at the big picture as well. You’re going to get a lot closer to your goals with a little bit of effort every year.