I recently sat down with someone who had just taken a new job with a significant raise, only to later find out he was taking home less pay. How? His new benefits were substantially worse than at his previous job. His health care cost more, and his new employer covers a smaller percentage than his previous employer. His new employer has a smaller 401(k) match, so he increased his savings to make up the difference. His old employer offered disability insurance as a benefit. His new one doesn’t offer it at all, so he had to buy disability income insurance privately. Add it all up, and he was taking home about $80 less every month. This is after having gotten a $7,500 raise.
Employee benefits are a critical piece of your overall compensation. According to 2019 Bureau of Labor & Statistics data, employee benefits account for 30% to 33% of total compensation for many employees. “You may find some real value by digging through the tough paperwork to find some lesser-known, yet important work benefits. Many of these revolve around insurance to protect you and your family, while others offer real dollar benefits,” says Pam Horack, a CERTIFIED FINANCIAL PLANNER
professional at Pathfinder Planning in Charlotte, N.C.
With that in mind, let’s walk through some of the common employer benefits, how to decide on utilizing them, and what hidden gems you may find. The first step is to understand each of your employee benefits you have so you can make better decisions during open enrollment.
Health insurance
This is often the hardest spot to make decisions. Some employers only offer one plan, whereas others may offer a dozen options to choose from. If given a choice, your decision generally comes down to whether you want to pay a small monthly premium and have higher out of pocket costs when using the health care system, or to pay more every month to give yourself lower costs when using the health care system.
If you have a chronic condition that requires regular visits, it often makes sense to pay more in monthly premiums. If you’re someone who visits the doctor as rarely as possible, you may want to choose the plan with the lowest monthly premium. Of course, if you end up having a freak accident that requires a hospital visit, you’ll have a much larger bill to pay.
For couples and families, there are additional considerations. If each member of a married couple has options at work, you have double the options to wade through. Generally, it makes sense for couples without children to stay on separate insurance, since most employers subsidize their employees at a generous rate. But, you have to compare to know for sure.
Once children enter the picture, it gets even more complex. Some employers offer generous subsidies to children. I’ve seen multiple examples where it made sense for two married people to have their own insurance, but once kids are factored in, the total cost to put everyone on one plan is less than having one spouse maintain their own separate plan. The additional benefit here is putting the whole family on one plan might mean you’re all working towards one deductible, and one out of pocket maximum, so it can save not only on premiums but also by having you hit your deductible more quickly, so more of the care you use is covered by insurance. Be sure to check, though. Some plans are designed with a separate deductible for each person on the plan.
Easy + Simple + Inexpensive
“The easiest, simplest process for receiving term life insurance. And the premiums were the lowest quote.” —Michael
Learn moreRead more at
Disability income insurance
Some employers provide disability insurance and cover the cost of premium in whole or in part. Others offer it, but you have to pay for it yourself. When considering whether you need short term disability coverage, you may to think about whether a well-funded emergency savings could serve the same purpose. If you have nothing in the bank, it may make sense to pay for the short term disability.
For long term disability coverage offered through your employer, be aware that there is the potential it could be significantly cheaper than buying your own individual disability policy. You do want to know the elimination period (i.e., how long it will take for the policy to start paying), as well as the limits. Group long-term disability will cover a portion of the income lost due to disability. If you’re a high earner, it’s possible the plan will have a limit that may not provide adequate coverage, and you may need to consider purchasing an individual policy to make up the difference to your work plan.
For couples and families, disability insurance is even more critical. If your income were to stop because you were to sick or injured to work for an extended period of time, what would happen to your family finances? For most, bills may not get paid, debts can start racking up, or worse.The urgency and importance is even higher with kids in your household.
Social Security Disability Insurance (SSDI) is another option but generally it’s not an adequate substitute for your own policy because the amount of coverage is offers is often considerably less than the benefit from private disability insurance . The bar for qualifying for disability is high and wait times are long. In addition, five states offer state disability insurance. You should know the details of your state policy, as it can impact what you need. California, for example, offers up to 52 weeks of disability payments, with a maximum payment of $1,252 per week. Disability insurance is an often overlooked employee benefit, but should you need it, one that can have a significant impact on your financial well-being.
Life insurance
Life insurance plans through your employer varies tremendously. Some employers offer a small, flat amount to everyone, such as $25,000. Others use a multiple of your income.
While employer-sponsored life insurance, also known as group life insurance, is a nice perk, it’s best to have your own policy outside of your employer. That way, when you leave the job, you’re not scrambling to get new insurance to protect yourself and your family.
For couples and those with children, having life insurance is vital. Many experts recommend buying a term life insurance policy that’s five to 10 times your pre-tax annual income, with a term length that lasts for at least the number of years until your children are out of college or your mortgage is paid off.
Review your employer benefits to see what coverage they provide for free, but you may want to consider buying an individual policy as well to be adequately covered for a longer period of time than you may stay in the job.
Flexible spending accounts
Flexible spending accounts allow you to save money pre-tax for child care or qualified medical expenses, and then pay those costs with the funds you set aside. In the process, you save on income taxes on those costs. In 2019, the maximum amount you can use in a dependent care flexible spending account is $5,000. For health care, it’s $2,700.
Because these benefits provide tax savings at your income tax rate, their impacts vary significantly based on your income, and where you live. In the following example, we’ll compare the savings for two families, each of whom uses both accounts to their maximum benefit, which is a total of $7,700.
| Example A | Example B | |
|---|---|---|
| Income | $225,000 | $78,000 |
| State of Residence | Minnesota | Washington |
| Federal Tax Bracket & Savings | 24% Bracket $1,848 |
12% Bracket $924 |
| State Tax Bracket & Savings | 7.85% Bracket $604.45 |
0% (Washington does not have state income taxes) |
| Total Savings | $2,452.45 | $924 |
Flexible spending accounts can be a great way to save money, but you should determine the value to you before signing up. They can sometimes be administratively painful, so if you can utilize other tax-advantaged benefits (such as the child and dependent care credit) for a similar amount of money, that may be a better route to consider.
Workplace retirement accounts
Some employers will match a percentage of your contributions to your workplace retirement account. This can be a huge benefit to you since it effectively turns your $1 contribution into a $2 contribution, up to the match limit. Confirm that you are maximizing the matching funds each year. Some organizations increase their match along with your tenure, so if possible, you’ll want to consider increasing your own savings to get the full match you’re eligible for.
When deciding how much to contribute toward your employer-sponsored retirement account, it’s tempting to simply contribute up to the employer matching percentage. However, to take full advantage of the tax-advantages and other features of your retirement plan, you may want to view the employer match as a minimum contribution level rather than a maximum for your retirement savings. Open enrollment or a new job is a great time to think about increasing your savings rate, even if just by 1 percentage point. If you do this annually, you’ll increase your contribution level over time.
Employee assistance program
Many employers offer an employee assistance program (EAP), which can provide free or discounted access to a variety of services, from legal assistance to guidance on parenting. Many EAP’s give a limited number of free visits to a mental health provider, which can be a valuable benefit to someone who may otherwise not be able to afford it. Review all the things your EAP covers so you know if you can turn there first and get free or discounted help for a variety of life situations.
Gym discounts
Some employers may also offer you a discount on a gym membership as part of the health insurance plan you choose. “Companies often pay less for group insurance if their employees are healthy, so paying for a gym membership is beneficial not only for your body, but for your pocketbook, and that of your employer,” Horack explains.
Legal assistance
Ian Bloom, CFP®, and founder of Open World FP in Raleigh, N.C., says “A lot of larger employers offer this, and if you acquire the coverage for one year it can be a very inexpensive way to get a will, powers of attorney, and a living will done.These legal documents can cost $1000 or more as a flat fee, but the insurance/assistance via an employer is usually about $200 a year. If you know you’re going to need those documents, it’s a great benefit to sign up for.”
If you don’t yet have a will, you have many options to create one. As an added feature for those who have put life insurance protection into place with a Haven Term policy issued by MassMutual, the Haven Life Plus rider, included with the Haven Term policy, offers access to a digital will for policyholders and their partners at no cost from Trust & Will. With the service, you can create your will in minutes, store online and update anytime.
Education reimbursements
Education reimbursements are a wonderful benefit for those looking to grow their professional skills. Employers are allowed to provide up to $5,250 in tax-free reimbursable for education to their employees if they choose to do so.
Student loan repayment assistance
This is a relatively new benefit, and isn’t commonly offered because at this time, there is no tax advantage to the employer to do so. However, if you work for a company which does offer it, it may be worth looking into, to help you reduce our student loans. Each company designs its program differently, so read the fine print to see exactly how much you could qualify for.
Pick the benefits that work best for you and your family
Employer benefits are an opportunity to dramatically increase your take home pay if you take full advantage of them.
Both your life and your employer benefits change over time, so don’t assume what you chose last year is good enough without reviewing what’s offered now. It’s well worth the time to review them each year to determine what benefits you can take advantage of, and how they can potentially save you money.
Ryan Frailich, a CERTIFIED FINANCIAL PLANNER professional, runs Deliberate Finances, a fee-only financial planning firm which specializes in helping young couples and educators plan for their financial lives. When not working, Ryan is exploring New Orleans, running with his dog Dodger, or building block towers with his young son. Opinions are his own. This article is sponsored by Haven Life Insurance Agency.
Haven Life Insurance Agency (Haven Life) offers this as educational information only. Haven Life does not provide tax, legal or investment advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal, or investment advice. You should consult your own tax, legal, and investment advisors before engaging in any transaction.
Haven Life Plus (Plus) is the marketing name for the Plus rider which is included as part of the Haven Term policy. The rider is not available in every state and is subject to change at any time. Neither Haven Life nor MassMutual are responsible for the provision of the benefits and services made accessible under the Plus Rider, which are provided by third party vendors (partners).
The post How to maximize your employee benefits during open enrollment appeared first on Blog | Haven Life | Life insurance & Personal Finance Tips.
from Blog | Haven Life | Life insurance & Personal Finance Tips https://ift.tt/2Urzguk
This is dummy text. It is not meant to be read. Accordingly, it is difficult to figure out when to end it. But then, this is dummy text. It is not meant to be read. Period.
ConversionConversion EmoticonEmoticon