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It's Open Enrollment: Are You Making the Most of Your Employee Benefits?

Key Points
  • Employee benefits are an important part of your total compensation. 

  • From health to life to disability insurance and a whole lot more, use Open Enrollment to make sure you understand and take advantage of what's offered.

  • A benefits tune-up this Fall can be the best foundation for your finances all year round.

Dear Readers,

If you're tempted to ignore this year's Open Enrollment period for your employee benefits, stop right there. While it's easy to feel secure because you already signed up last year, times and benefits change. What worked for you in the past may not be the best choice for you in the coming year.

To me, employee benefits play a significant part in your financial life. Staying on top of what’s offered—and maximizing your benefits—is as important as staying on top of your investments. So this year, when you have the opportunity to modify your choices, take advantage of it. Here's a list of benefits you should review to make sure you’re not missing out.

Health insurance: One of the most important to review yearly

You never want to be complacent about health insurance, especially in the current environment. Healthcare costs—and insurance premiums—are going up. If you’re lucky enough to have health insurance through your employer, you’ll probably still have some important decisions to make in order to get the most comprehensive and cost-effective coverage.

For instance, you may have a choice between a Preferred Provider Organization (PPO), which usually offers more flexibility, and a Health Maintenance Organization (HMO), which often has lower monthly premiums and may offer additional benefits in exchange for getting healthcare services within a plan’s network of providers. However, when doing a cost comparison, premiums aren’t the only factor. Also be sure to compare deductibles, co-payments, co-insurance, and out-of-pocket maximums.

High-deductible health plans (HDHPs) are increasingly popular. In fact, they are a requirement for opening a health savings account (HSA), which operates somewhat like an IRA for medical expenses. In 2017, a family can contribute up to $6,750 (increasing to $6,900 in 2018) and $3,400 for a single (increasing to $3,450 in 2018) to an HSA, with a $1,000 catch-up contribution for age 55 plus. Not only do you get an upfront tax-deduction for the contribution from your gross income, but the money can be withdrawn tax-free for qualified medical expenses including deductibles and copayments in addition to prescriptions and fees for medical services. Plus, there’s no “use-it-or-lose-it” annual catch as with an FSA. Your money can continue to grow tax-deferred if it’s not used, and you will often have a number of investment choices.

Finally, coordinate with your spouse or partner. If you have a choice between employer plans, choose carefully. You might even be able to mix and match. For instance, one plan may offer low-cost vision or dental coverage that the other doesn't. All this research takes some effort, but it’s absolutely worth it.

Life insurance: The good, the bad, and the difficult

Group term life insurance is a good news/bad news story. On the plus side, as an employee your basic coverage is generally free or low-cost, and you’re not required to undergo a physical exam to qualify. This can be a plus if your health is less than average.

On the down side, the basic coverage is probably not sufficient—especially if you have a partner or young children who depend on you for financial support. In that case, you could consider a supplemental group policy or a private policy. If you’re in above average health, a private policy could be very reasonable, but in either case you may have to go through additional underwriting that will often include a physical exam.

If you go with a group policy, another consideration is portability. Can you take the policy with you if you leave your job? While group policies are generally portable, there’s usually a short widow of opportunity to keep it, as well as other restrictions.

As you can see, it’s not so simple. If you have the choice of a group policy and you are in poor health, consider taking it. But don’t stop there. Use an insurance needs calculator to help figure out how much life insurance you may need. Then look into how to best supplement what’s offered by your employer.

Disability insurance: Dealing with the odds

Disability is more likely than death. In fact, it’s estimated that more than 1 in 4 of today's 20-year-olds will become disabled before they retire. What will you do if you can’t work?

First, check to see if your company offers disability insurance and what kind. You may have just short-term coverage (up to two years). Even if you have long-term coverage, it may not be enough. Plus, disability insurance through your employer is generally not portable and will lapse when you leave the company.

But don’t let that stop you. By all means, take your company’s policy, especially if it is free. Then, as an extra precaution, consider purchasing a private disability policy to cover at least 55 percent of your salary for 12 months.

Don’t overlook retirement

Annual enrollment is a great time to check in with your retirement goals. Are you on track? To me, contributing up to the employer match is the minimum you should do.

The current annual 401(k) contribution limit is $18,000 (increasing to $18,500 in 2018), with a $6,000 catch-up for age 50 plus. Use this time to increase your contribution as much as you can. 

There may be more

Check to see if your company package includes:

  • A Dependent Care FSA—This lets you set aside pre-tax dollars up to a maximum of $5,000 per year per family as long as both spouses work, are looking for work, or are full-time students.
  • Partner benefits—Some companies offer health insurance to domestic partners.
  • Long-term care insurance—If offered, the most cost-effective time to purchase a policy is between ages 50 and 65.
  • Group legal services—An employer may also offer basic legal services for a low monthly cost.

While we're talking about Open Enrollment, I want to remind anyone with Medicare that October 15 to December 7, 2017, is your window of opportunity to make changes to Medicare Advantage and prescription drug plans.

Yes, it's a lot of detail, but think of it this way: A benefits tune-up this Fall can be the best foundation for your finances all year round.

Have a personal finance question? Email us at askcarrie@schwab.com. Carrie cannot respond to questions directly, but your topic may be considered for a future article. For Schwab account questions and general inquiries, contact Schwab.

Next Steps

Structuring Your Retirement Portfolio
Save on Taxes: Know Your Cost Basis

Important Disclosures

Investing involves risk, including possible loss of principal.

(1017-7CLX)

 

The information provided here is for general informational purposes only and is not intended to be a substitute for specific individualized tax, legal or investment planning advice. Where specific advice is necessary or appropriate, consult with a qualified tax advisor, CPA, financial planner or investment manager. 

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