Financial Planning Friday: 5 Steps to Maximize Your Benefits at Work

October 6th, 2017 by Anchor Bay Capital's Investment Team

It’s October which means open enrollment season for your benefits at work is approaching.  Choosing the right benefits can be intimidating for anyone, and often I get the question, “Am I doing this right?”  Since every work place is different, there is no single blanket recommendation that can be made for choosing benefits.  However, whether you are an employee at a large company or a self-employed individual doing it on your own, here are 5 steps to make sure you make this next year work for you:

1. Review the past year.

This is a great time to pause and look back at what has happened over the last year.  Specifically what changes have you experienced in your household that would determine a changing need in your benefits?  Begin by asking yourself these questions:

  • Has your income changed?
  • Did you get a tax refund this year?
  • What percentage of your income are you saving for retirement?
  • Did you come out of pocket for medical expenses this year?
  • Do you want to keep your same medical providers?
  • Have you had changes to dependent needs/childcare, dental/vision needs, or the amount of your debts?
  • Has your employer changed their policies?

2. Pay yourself first.

Since you are working to earn money, make sure you are keeping as much as you can!  If you received a large tax refund this year, you may want to adjust your tax withholdings.  This is an easy adjustment that could put more money in your pocket throughout the year that can be used for your financial goals.

Next, review how much your company contributes to your retirement plan.  If there is an employer contribution that depends on what you contribute, like a match in a 401(k) plan, then you want to make sure that you are taking advantage of this.  This is FREE money!  Let’s say that your gross income is $100,000 and your company will match 100% of your contributions to your 401k up to 5%.  This means that if you only put 3% in your 401(k), you just left $2,000 on the table.  Don’t walk away from the free money!

Also, remember that any money that you put into pre-tax benefits lowers your taxable income.  This effectively sends less money to taxes and puts more money to work in your benefits.

3. Calculate your out-of-pocket costs for health insurance.

As you reviewed the previous year, you should have been able to determine how much you pay on a monthly basis for recurring health and medical needs.  If you have a predictable need such as prescription costs, dental visits, and regular doctor visits then you want to keep these in mind while you evaluate your insurance options.

Also, think about what predictable expenses you will occur in the coming year.  For example, if you have a pregnancy, you would want to evaluate the out of pocket costs associated with the entire pregnancy.  Your goal should be to minimize the amount that you pay in premiums along with out of pocket expenses like deductibles and co-pays.

  1. Start by narrowing down which plans work with your provider network.
  2. Then add up the annual cost of premiums for each option.
  3. Next, calculate how much you would come out of pocket for your normal recurring needs under each option.
  4. Finally, add your out of pocket costs to the annual premium and this would give you the annual cost of each option.

4. Don’t skim over the other perks.

Many benefits packages have evolved into comprehensive offerings that cover a variety perks from the normal things like group life insurance to more creative benefits like discounts on travel and retail purchases.  There is not enough time to go into detail on each benefit in this newsletter, but that doesn’t mean that you should ignore your other options.  Take time to evaluate each benefit and ask what it is really offering you.  Sometimes supplemental benefits can be more costly than buying the same coverage outside of work, so don’t choose something that you don’t need.

5. Ask for help!

You are not supposed to be an expert on benefits, so don’t expect to know all the answers.  Seek out help from your HR department if you have one.  Get all the information before you make your elections.  It is also a great time to meet with your Certified Financial Planner™ professional to seek advice on what to do!