This article was written by Amy Barnes, CFP®, CIMA® at Firebrand Wealth Management.
It’s the time of year to make sure you are maximizing all those corporate benefits. It’s also a very busy time for most, and it can be tempting to let last year’s elections roll forward to the next. Don’t fix it if it’s not broken, right? But you may be missing out on meaningful benefits and tax savings, so I encourage you set aside a little time, warm up some acronym soup (yes, there’s some jargon) and review these key areas of your benefits:
First and foremost you want a plan that gives you access to the right doctors and services for you, at a price you can afford. This differs from household-to-household. And while there is no one-size-fits-all plan, studies have shown that most employees at large companies choose plans that aren’t the best financial fit.
One type of plan I find to be a good fit for most of my clients is the High Deductible Health Plan (HDHP) offering a Health Savings Account (HSA). Some employees are thrown off by the potential for higher out-of-pocket costs; however, the higher deductibles are often off-set by lower premiums and that shiny employer match (free money!). Do the math; your benefits site may even have a calculator to help you crunch the numbers.
Then don’t forget the magic of triple-tax-savings with HSAs: pre-tax contributions lower your taxable income, the money can be invested and grow tax-free, and you can withdraw tax-free for qualified medical expenses. These accounts, if not used up every year, can become a significant retirement and tax savings strategy in your portfolio. And remember, the money rolls forward; you do not lose any unused portion at the end of the year like flexible savings accounts (FSAs).
Nearly half of the U.S. population is under-insured, and women are twice as likely as men to lack life insurance altogether. Most employers offer a free (to you) basic life insurance option, usually one or two times your base salary.
The cost to increase your coverage via your employer’s supplemental offering (on top of basic coverage) is pennies-on-the-dollar less expensive compared to buying a private policy. You can often increase benefit coverage to $500,000, or even $750,000 at some companies, without needing a medical exam. Why increase coverage? Think about what it would cost to pay off your mortgage or other debts, send kids to college, and provide ongoing financial support to your partner or other loved ones. Life insurance payouts are tax-free.
And additional coverage isn’t just for couples and families: if you are single, consider if there is a loved one or close friend you’d like to be able to support financially. Many of my clients have aging parents, some of whom have not saved enough for retirement. Paying a little extra for supplemental life insurance could mean helping your parents afford long-term nursing care in the future if you’re not around.
Disability coverage is often the most overlooked insurance, especially for higher wage-earners. Unfortunately, group disability coverage through employers is consistently low compared to your take-home pay: on average, most plans will cover 60% of your base salary (not bonus, not stock compensation) if you suffer a long-term disability and can no longer work. And this 60% of your salary is taxable most of the time.
What can you do? First, some employers offer a lower base coverage amount at 50%, so check if you have the option to pay a little extra to get you to 60%. Rarely do employers offer supplemental coverage beyond this. And so it is paramount for single-earner households to review if this coverage amount could support you (if single) or your household. If not, private disability policies can help cover some of the gap.
Take your time to review all your benefit choices, and include your partner or other family members in the discussion where appropriate. If you’re already working with a financial planner or advisor, leverage their expertise and collaborate with them to help make your decisions easier.
If not, reach out to any of us in the Western Washington Financial Advisors Network to learn more about our services and decide if now is the time for you to start working with a financial planner.
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