I love so many things about fall in Nebraska. I love driving down our neighborhood street and seeing the changing leaves. I love experiencing the (sometimes) mild weather, and seeing the neighbors’ doorsteps become decorated with bales of hay, cornstalks, mums and pumpkins. Even though our football team seems to be terrible as of late, I even enjoy watching the Huskers. Mostly, though, I like the food. It seems I’m always in the mood for pumpkin bars, apple pie, pumpkin spice lattes, apple cider doughnuts, cinnamon ice cream (wow that’s a lot of sugary treats), chili, or soup. I also smoke more meat this time of year compared to any other time of year since the weather is nicer. Watching football with the windows open, and sipping a brew while pork is on the smoker is one of my favorite weekend pastimes.
While fall is the time for football, pumpkins, and colorful foliage, it’s also time for many of us to…. select work benefits! Yes, this is a financial planning blog, not a food blog. So, it’s time to get down to the topic at hand – things to consider when selecting your work benefits. Here’s a brief list of some of the more common work benefits, and what you need to consider when making your selections.
Retirement Savings Contributions
We’ll start off with a benefit that many employers let you change throughout the year, but that you should reconsider at least once a year. If your employer offers a retirement plan like a 401(k), how much are you contributing? Usually it makes sense to at least take advantage of a match, but can you afford to do any more than that, either in your work retirement account or an IRA? If you got a raise in the past year, you might consider increasing your savings. Increasing your rate of savings each year is a great way to avoid “lifestyle creep”, which is the tendency to spend more simply because you earn more and not because you actually need more.
Also, reconsider whether you’re contributing to Roth (post-tax) or Traditional (pre-tax) if you have the option. You can read all about that decision here.
Health Insurance
Many employers offer some type of group health insurance plan, and some allow you to choose what plan you want. Usually the trade-off is either a lower deductible at a higher monthly premium, or a higher deductible at a lower monthly premium. The biggest factor on which works for you is your expected health expenses next year. The higher your projected expenses, the more likely it is that you’d come out ahead with a lower deductible plan. If you go to a specialist for chronic health issues on a regular basis, or if you have other regular medical expenses, a high-deductible plan might not be a great idea for you. But you also need to consider other factors. Can you afford a higher monthly premium that comes with the more expensive plan? Can you afford a hospital visit if you choose the plan with a higher deductible? One last thing to note – sometimes the decision of which health insurance plan you select isn’t that hard. I’ve actually seen some options offered by employers that NEVER come out ahead of the other options offered by the same employer. In other words, some options are both more expensive per month, AND have a high enough deductible that you’d always be better off choosing the other plan. That’s not common, but it can happen.
Health Savings Account Contributions
Often times, the decision of a health insurance plan goes hand-in-hand with Health Savings Account (HSA) contributions. HSAs are available with high-deductible health insurance plans. Basically, they’re a way to save for medical expenses in a tax-advantaged way. If you’re eligible to contribute, and you’re not doing so, or you’re not maxing out your contributions, consider contributing more.
Are you already maxing out your HSA? That’s awesome! Now, what are you doing with that money? Are you spending it on qualified medical expenses? Or are you actually saving it? This might sound odd, but if you’re young enough, there can be significant tax benefits of keeping that money in your HSA, and paying for those medical expenses out-of-pocket. If you can afford to pay for medical expenses out of pocket AND max out your HSA, consider doing that.
Disability Insurance
Disability offerings vary widely by company. If you’re deciding whether to buy group disability insurance or avoid it completely, and you don’t have any disability insurance already, consider buying it. Disability insurance is considered to be a basic insurance product, and disabilities can have a major impact on your finances. Of course, not everyone needs it because of the amount of money they already saved, or because of a spouse’s income. But don’t ignore the discussion.
Other employees are deciding between having their employer pay for the insurance, or paying for that group policy out of their paycheck. Why would you pay for it if your employer is offering to pay it for you? If you make a claim in the future, and your employer was the one paying the premiums, that payment to you in the future is taxable. If you were the person paying the premium, the future claim benefit is tax-free.
Life Insurance
Many employers offer some sort of group life insurance at no cost. If you’re making a decision, the decision is probably whether you want to elect to purchase group insurance. This is a big decision. First, you need to know how much insurance you need. Check out my article here for the factors you need to consider. Then, the decision becomes obtaining group coverage through your employer, or a private policy directly with an insurance company.
The advantage of policies through your employer is that generally, group policies require little to no underwriting. In other words, you’re automatically approved. However, many employers only allow you to get, say, $500,000 of coverage without any application process, and you may need to go through underwriting if you want any more than that. For many people, that’s not enough coverage. Another disadvantage of coverage through your employer is that the policies aren’t portable. If you quit, you lose the insurance. Some people might think “so what, I’ll just get new insurance through my new employer, or I’ll apply for coverage with an insurance company once I quit”. That might be possible, but it might not. If you get diagnosed with a medical issue between now and then, you might not be eligible for insurance, so it might actually be to your advantage to get a policy now, while you’re still healthy. I’m not saying it’s likely, but it is something to think about.
My final comment on this decision is that if you need, say $1 million of life insurance, it might be cheaper to buy all of that directly through an insurance company. Sometimes, employees get some insurance through their employer, and some through a private policy. If you consolidate those policies, it might be cheaper.
Stock Options
There are so many different types of stock options that I don’t have time to cover them all here. Usually they’re complex enough that they need their own blog article. But if you have the option to purchase company stock at a discount, consider doing so. Or, if you get a company match in the form of stock when you purchase company stock, that’s another appealing benefit. I don’t know what company you work for, so I’m not going to recommend you purchase or sell a particular stock, but understand those discounts or match contributions are money left on the table if you don’t take advantage of them. With that said, often times it makes sense to sell that stock and diversify after you’ve owned it for a certain period of time. Otherwise, you might end up having too much of your financial success concentrated in one company – your income depends on that company, and your investment portfolio depends on that company if you buy and hold that stock instead of diversifying.
Extras
The benefits above are usually the basics. Benefits above and beyond these include things like Accidental Death and Dismemberment (AD&D) policies and Cancer Insurance. Those types of policies aren’t fundamental, basic policies. They can be great if you’re extremely risk-averse or if you’re at a high risk of cancer, for example. But don’t assume that just because your employer offers a policy, you should pay the money and enroll in the benefit.
Dental and Vision policies might not be absolutely necessary because the cost of going to the dentist twice a year or optometrist once a year isn’t insanely high. But they can be a great way to encourage you go actually go to the dentist or optometrist for preventative care, and eye insurance can offer nice discounts on glasses, contact, and sometimes even laser surgery.
