WRITTEN BY: Gideon Drucker, CFP® AIF® ECA
If you're switching jobs, it's crucial that you get signed up for your company's benefits within the first 30 days....but it's even more important that you make the right decisions for you and your family!)
(Once you're already at a company, you can typically make these changes during open enrollment season in November.)
Below are 4 important factors to consider as you review your own options.
I encourage you to book a 15 minute "Right Fit" call if you are looking for help coordinating your employee benefits with your overall financial plan...as this is something we walk clients through step by step on a shared-screen zoom.
Without further ado, some thoughts:
Supplemental Life Insurance – Do not skip this part! Take the supplemental coverage.
Why? Because it is typically offered at a VERY inexpensive price (because it is based on group rates) and you will not even notice it coming out of your paycheck two months later.
When creating Financial Life Plans with our clients, we do not count this type of insurance when analyzing their long-term insurance needs because it is usually not portable! (IE: once you leave the job you no longer have the insurance) It is also not usually enough to adequately protect your loved ones, but it is a heck of a good start! It’s a great deal…sign up for it!
Long Term Disability Insurance - Sign up for it! Honestly, we can use the same logic as we did for the supplemental life insurance.
It’s extremely cost effective to sign up for your company’s group disability plan.
Long Term Disability Insurance works as follows: You pay a monthly premium while you’re working and If you were to become sick/injured and unable to work, the insurance plan would pay you a specific amount as a monthly income for as long as you’re unable to work (usually until you reach age 65 but each plan is different.)
1 in 4 American workers utilize long term disability insurance at some point over the course of their careers...we want to make sure you are protected in those unfortunate circumstances. Long Term Disability through work will typically cover your income up to a certain dollar amount (sometimes it’s $10k per month, $15k, $20k etc.) and each plan is different.
But these company-directed limits are the reason that we look to get personal disability coverage for a lot of you that have very high incomes. Just as an example, if you make $500k annually and your company disability policy only covers up to $10k per month, you are only taking in about 20% of your normal income…Can you live on that? And more to the point, why would you want to?
That’s why the more money you make the more important it typically becomes to have an independent/personal long term disability policy. (Just for additional context: the payout from disability insurance is income tax-free if you pay the premiums and taxable if paid for by your employer)
Health Insurance Options - Look, we are not medical professionals and you have to make sure that your prescriptions, appointments, and health concerns are covered and cost-effective under the plan that you choose.
I will just point out that High Deductible Health Plan (HDHP) comes with a Health Savings Account (HSA) which is the single most tax efficient investing vehicle in the tax code. For a deeper dive into the mechanics of the HSA specifically, you can read my blog on Health Savings Accounts here .
I’ll just take a second to explain my OWN rationale for choosing the HDHP plan (which I do) for myself.
HDHP plans typically have the lowest monthly premium but the highest deductible. This means that before your insurance plan begins kicking in, you are responsible for 100% of the costs that arise. So if my deductible is $4,000 (instead of, say, $2,000 for a PPO plan) that means that I personally am responsible for paying $4,000 out of pocket before the insurance will kick in and start covering the majority of the costs. I know that going in and I am ok with that.
Why? First off, I typically don’t have much by the way of medical costs each year and so I would rather pay a lower monthly premium (which is guaranteed to save me money each month versus shelling out more for a higher premium plan) even if it means every so often, I have a year where I pay a higher deductible.
In the long run, I believe those differences will work out in my favor.
Even in those bad years where I do have to pay a higher deductible, we’re talking about a difference of $2,000 extra compared to a lower deductible plan….I can stomach it.
But even more importantly, giving myself the opportunity to save money pre-tax into an HSA, grow the investments inside of the HSA tax free, and distribute the money tax free for future medical costs is well worth the possibility that I have to satisfy a slightly higher deductible in the current year.
The growth within the HSA and the tax-free nature of that growth will more than adequately make up for those particular years where I have to satisfy a higher deductible.
Again, that example was about myself! This is, of course, not always the right play, particularly if you have a large family, (For reference, I’m single and responsible for just my own medical insurance) but it’s always worth knowing about and exploring.
401k Contributions - This is actually not something that you have to set up during open enrollment. You can change your level of contributions at any point throughout the year, and the investment set up that you’re electing.
I bring this up because it’s a great time of the year to make sure you’re on track to contribute the amount you set out to at the beginning of the year. You can sign into your 401k portal and see what your year-to-date contributions look like, confirm that you are on track to max-out (or put in the amount that you should be putting in based on your strategy) and make changes for the last 10 weeks or so of the year to end up where you want to be.
If you have an After-Tax 401k on top of your Traditional/Roth it may be a great opportunity to bump up your savings if you’ve already maxed out your regular contributions.
These are exactly the types of conversations we are having with our clients in their end of year review meetings.
A side note for 1099 income earners & small business owners... naturally you don’t have open-enrollment & you need to design your own disability & life insurance plans and then update them over time as your income evolves.
Nonetheless, the same principle applies: Look at these next two months as the perfect time to analyze your existing coverages, retirement account options, and benefits so you can hit the ground running in the first 90 days.
If you have questions welcome your thoughts... and as always you can schedule a 15 minute "Right Fit" call here so we can figure out together if there's more you can be doing now in your financial world.