How to Make the Most of Your Employee Benefits

Chances are that every year you get a packet from your HR department telling you it’s time to sign up for your employee benefits for the next year. Which you promptly recycle. Many people do not fully understand how to take advantage of their employee benefits. As a result, employees leave some good options on the table. Don’t be like most people! Your employee benefits can be a great opportunity for you to improve your wealth health. Here are some of my top tips for making the most of your employee benefits.

Health Insurance 

Which health plan is the best for you really depends on how often you go to the doctor and how well you are able to absorb big, unexpected medical costs. If you work in the public sector and have excellent, inexpensive health insurance, feel free to skip to the next section.

For the rest of us, what follows is a simplified way of thinking about your health insurance options. If you are single or married without kids, healthy, and never go to the doctor because you’re too busy making bank, you might be better served choosing a higher deductible plan; but only if you can take advantage of a healthcare savings account.  If you have kids, or are planning on having kids, you probably want choose a plan with a lower deductible and out of pocket costs. Why? Let’s face it, kids are basically germ petri dishes. Cute and lovable petri dishes. (In fact, you may want to go wash your hands real quick.)

Have an FSA or HSA available at work but don't understand it? This can help.

Retirement Savings Plan 

Depending on where you work it could be called a 401(k), 403(b), 401(a), 457 or something else. Here are the basics you need to know. If you have a retirement plan at work that offers a match, you will generally want to participate to at least get the match. How much should you save? What funds should you invest in? These are questions that many people need custom advice from a CERTIFIED FINANCIAL PLANNER ® to answer, but to get you started consider the following:

If you aren’t saving anything in a retirement account, start now. Start with 3% and work your way up to at least 10-12% over the next year or two.  (It’s easier than you might think, check this out) The more you save when you are young the easier it is to meet your savings goals because you have the power of time and compound interest on your side. (You can watch this video to learn about the “Rule of 72” to give you an idea of the power of compound interest.) Take a step forward and start saving, even a small amount, now. Literally, right now, sign in to your employee benefits website and get started.

Are you already saving for retirement? That’s great! Most people need to save more for retirement than they are currently saving. Already saving 5%? Great, bump it 7% now and to 10% at your next raise. You may be surprised at how little your take home pay is reduced when you increase your 401(k) contribution.

Are you paralyzed by this decision and don’t think there is any room in your budget to start saving? Most plans allow you to change your contributions as often as every month. Start with a basic contribution, say 3%, and see how it feels. I bet you really won’t notice the difference now, but your slightly more wrinkly yet incredibly awesome future self will thank you for it.

I can’t give you investment advice specific to your personal situation in a blog post. However, I will point out that more and more 401(k) plans offer target date retirement funds as part of the plan. Some of these are well structured (and some of them aren’t), but they can at least give you an idea of how other people who are retiring around the same time you hope to retire are investing their money. Your Human Resources Department may be able to point you to a provider who has been hired to help advise employees on their retirement plan options. If not, you can hire an adviser on your own.

Be sure to read: Is Your 401(k) Plan Ripping You Off?

Life Insurance

No one likes to talk about death, so I won’t. OK, maybe just real quick! Look, if you have a family of any size who would seriously miss your paycheck if you were gone, you have got to get some life insurance. The good news is that typically you can get some pretty cheap group life insurance at work. A lot of employers provide their employees with 1x their salary in group life insurance. For example, if you earn $85,000 a year and while you are employed you meet an untimely demise, your beneficiary will receive a one-time payment of $85,000, minus any taxes owed. Most of the time you can choose to increase your life insurance at work to two or three times your current salary for a few bucks a month. This is a good deal, take it.

A common situation to be aware of - if you have a partner who stays at home or only works part-time, you may be able to get some spousal life insurance coverage at group rates as well. This is typically not as great of a deal as the life insurance available for employees, but it’s worth checking out. Think about it, even if you currently live off of one salary, if something were to happen to your stay-at-home partner it's highly likely you will face higher expenses. You may have to contend with new childcare or eldercare costs, you might eat out more, hire a cleaning service, etc.

One life insurance coverage you should probably skip- life insurance on your kids’ lives. Unless your kid is a child star or supports the family financially there is no income to replace with life insurance. For most people, insurance is a tool to replace lost future income. Put the money in your 401(k) instead. You can insure pretty much anything for the right price, but just because you can do it doesn’t mean you should do it.

Disability Insurance

According to the Social Security Administration¹, 1 in 4 working 20 year olds will experience a disability before they reach retirement age. This can wreak havoc on your wealth health. Sure, you may be thinking, but I’m healthy and don’t need it. The reality is, people are way more likely to suffer a disability that puts them out of work than they realize.

There can be some disadvantages to getting a group disability insurance policy through your employer. That being said, a private disability insurance policy can easily cost into the thousands of dollars. Most large employers offer inexpensive, basic long-term disability coverage of 50-60% of your base salary.

Make sure you are enrolled in group disability coverage at work. If your employer allows you to pay a bit more to increase your coverage, you should do it. Generally the maximum amount of disability insurance coverage you can buy is 66% of your income. Your benefits may also be taxable if the premiums are paid with pre-tax income. You should still enroll.

It is worth noting that many people who work in specialized fields should explore getting a personal disability insurance policy. These workers tend to be high-earners and would benefit from a disability policy that specifically covers them for their own occupation. A Fee-Only financial planner can help you evaluate your options to make sure you are getting the right coverage.

Other benefits employers may offer that many people don’t use include a Healthcare Savings Account (HSA), Dependent Care Savings Account (DSA) and Flexible Spending Accounts (FSA). A Daycare Savings account allows you to set aside money pre-tax to pay for qualified childcare expenses. Remember, you will need your daycare provider’s tax ID Number to claim this benefit.

Who knew that your boring benefits booklet could actually help you increase your financial security so quickly? These are easy tools to help protect and grow your financial independence. If you have questions about your specific benefits, reach out to your HR department.

You may also be interested in these articles about employee benefits:

Can You Save Money On Taxes By Using an HSA or FSA?

Is Your 401(k) Plan Ripping You Off?

Have a strange employer benefit that you aren’t sure if you should take advantage of? Send me an email with the details, your question could become my next blog post!

1. https://www.ssa.gov/disabilityfacts/facts.html

While I try to only include links from reputable sources I make no guarantees as to the accuracy of any material found via links. For further reading on disability causes and odds:

http://www.disabilitycanhappen.org/chances_disability/disability_stats.asp