In the personal finance world, November isn't just the holiday season kick-off...
It’s employee benefit election time (for most people).
The average person skips through their benefits and picks everything in just a couple minutes, you don't want to be one of those people!
According to the latest data from the U.S. Bureau of Labor Statistics (BLS), benefits make up 32% of an employee's total compensation.
That's almost ⅓ of your comp, you want to maximize them!
This guide will help teach you how.
One of the most crucial components of your benefits is health insurance; let's discuss the key parts you need to know.
HMO vs PPO
Health maintenance organization, also referred to as HM is where Doctors, hospitals, and other healthcare professionals have agreed to accept payment at a specific level for any services they perform. This allows the HMO to keep costs in check for its members.
PPO stands for preferred provider organization. A PPO plan allows you access to a network of healthcare providers that you can use for your medical care, just as an HMO, or health maintenance organization. The plan members' care will be provided by these providers at the agreed-upon rate.
Most places offer both options. HMO’s tend to be more affordable but come with more restrictions and less coverage. PPO’s tend to have a higher price tag but come with more options. It all comes down to how much health coverage you use and what you want for you and your family.
When picking your health plan, do not just pick the lowest cost/highest deductible plan. If you are someone that uses a lot of healthcare, this will get pricey as as you have to spend all the way up to your deductible. However, if you do not spend much on healthcare, getting the lowest deductible/highest cost plan might also not make sense. You have to audit how much health care you use to understand what may be the best plan for you!
HSA vs FSA
Most people get these two confused, but they are quite different. FSA stands for flexible spending account. HSA stands for health savings accounts. Both FSA’s and HSA’s have great tax benefits. Both help you pay for health care in a way where you are using pre-tax dollars.
However, with FSA’s they typically are use it or lose it meaning you have to use it on health care costs this year or it is gone (some plans allow you to rollover a small amount). You have to be careful and make sure you don’t put too much money in it since that money will be lost. Now with HSA’s you can put money in on a pre-tax basis, let it get invested and grow tax deferred, then use it tax free on healthcare sometime in the future.
So it's not a use it or lose it account like an FSA.
HSA’s are a great tool for people to build up money for the future.
If you can afford health care costs out of pocket now, let this money grow for the future. I am a big fan of HSA’s, but you do not want to just pick the high deductible plan for an HSA if a low deductible plan would be the best option for you!
Dental plans come in a wide variety, so make sure that you take the time to understand how yours is set up as the specifics will probably influence how much you have to spend out-of-pocket. Preventive treatment, such as twice-yearly cleanings and x-rays, are typically fully covered by insurance policies. Most the time with dental insurance, you pay pretty close to what the costs would be out of pocket as it is pretty easy to predict yearly costs. Dental is typically less advantageous than health insurance, but is something you still want to get.
With vision, if you wear glasses or have contacts, you will most likely want to elect into this as it will help cover routine exams, new glasses, etc.
Most people neglect disability insurance. They think a disability will never happen to them but that is not true. You statistically have over a 30% chance of having a long term disability during your working career. It is one of the biggest risks you face! We want to insure against it and protect your income for the rest of your working career.
Oftentimes, at work you will have the option to elect into short term and long term disability. Sometimes it is paid for by them (if so the benefit will be taxed if you were ever paid out) and other times by you. The goal of an emergency fund is to help protect against short term disabilities, but almost no one has enough cash to cover long term which is why we need to insure it. Think about someone who is 35 and making $150,000 a year. If they were disabled they would miss out on 30 years of income at least $150,000 a year. That is $4.5 million that would be lost. Protect against this and take what the employer has to offer. Sometimes you may still need to go get more externally.
Most employers give you 1-2x your salary of life insurance coverage for free. After that, you can pay to get more, the problem is when you leave your job it does not go with you. So you would need to get reapproved for coverage at whatever your health looks like in the future. Most times, it makes sense to get external life insurance to cover you and your family just in case, but take the free insurance you are given. It is nice to have. A good rule of thumb for how much insurance you need is 10x income if you have kids and both spouses work. Or 20x income if just one works. It sounds like a lot, I know, but term insurance is usually very cheap. Note: If you are in poor health, it may make sense to just buy more through work since it is a group plan.
Employees who care for small children or disabled persons may be eligible for dependent care benefits. You can save pre-tax money from your paycheck in a dependent-care flexible spending account and get reimbursed for qualified expenses related to the care of your kids. These accounts, like healthcare FSAs, function on the "use it or lose it" basis, therefore it's critical to estimate the amount you will need and set that much aside. Dependent-care FSAs are different from healthcare FSAs in that you must pay for dependent expenses up front before requesting reimbursement from your FSA.
Most of the time you can make changes to your retirement plan during the year, but this is a great time to review and ensure you are doing the right things.
For most people, saving for retirement is a top priority, but it is not an easy one. In order to accumulate enough money to stop working, you are going to need to save a lot of money for many years. One of the best methods to save for retirement is through the plan offered by your company. They frequently include a match depending on your company and you also have the option to contribute money on pre- or post-tax basis (Roth). But know that regardless of which you choose, the employer match is always on a pre-tax basis.
Here are a few best practices:
Other Perks To Look Into
Make sure to take the necessary time during open enrollment and pick the best options for you!
This is close to 1/3rd of your compensation, utilize it!
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