This year, don’t just check the same boxes on your HR forms – make sure your benefits are aligned with your financial goals
Every year, the descent of autumn brings us leaves changing color, pumpkin spice invading the grocery shelves, and open enrollment offered by your HR department. While many employees just check the same boxes on the enrollment form each year, there are a few areas worth spending a little time on, especially at a point when COVID-19 has disrupted so many of our lives.
Here are a few key areas to review during open enrollment to make sure that your benefits planning is in tune with your financial plan at this stage of your life:
Take Stock of Your Family Situation
Health insurance is generally extended to an employee’s entire family, although it costs more than an individual policy. As your dependents grow older and move on to their own careers, don’t forget to remove them from your policy once they have access to insurance to their own.
At the same time, keep in mind that many lower- or entry-level jobs do not come with employer-sponsored health insurance. Just because your child is working now, it still might not be time to kick him or her off your insurance. You are legally permitted to keep a child on your own health insurance until they reach the age of 26.
On the flip side, you might consider how your family may be growing as we move into the next year. If you are expecting a new family member, now is a good time to compare the benefit plans of all working members of your household to see if one offers a more fitting family plan.
Review Life Insurance Beneficiaries and Amounts
As life goes on, you may add (or sometimes subtract) members of your family. Make sure your life insurance – or any other aspect of your benefits that names a beneficiary, such as your employer retirement plan - reflects any new grandchildren, in-laws, or other adjustments to your heirs.
Another decision to keep in mind: As your children begin to support themselves, you may not need to carry as much life insurance [See “How Much Life Insurance Do You Need?” for more information on that topic.] This may be an opportune time for you to consider whether to ratchet down the amount of life insurance you’re carrying.
This is also a good time to confirm your disability coverage, especially for younger employees, who are more at risk for becoming disabled than they are likely to pass away. Changes in family size can also affect the amount of coverage you need in the event of disability.
Check the Allocation on Your 401(k)
A balanced, diversified 401(k) account is important to your financial wellness. How much you invest in each of the different asset classes should be based not just on your appetite for risk, but on your stage in life; the older you get, the more conservative your investments should become. If you are unsure how to construct a well-diversified account, talk with your Financial Advisor.
In the age of COVID, it also makes sense to think about not just maximizing your benefits but using them to provide a financial cushion. If you have a spouse in a particularly volatile role (such as one that’s commission-based), consider reallocating savings from a 401(k) to a taxable account in order to build up more accessible emergency savings.
Take Advantage of Tax-Free Accounts
Money saved tax-free in a flexible spending account (FSA) can be put towards health or dependent care spending. This is a good time to review your spending in these areas for the past year to see if these accounts would be useful for you. It’s easy to think you’re not paying much out of pocket for health costs - until you total up unreimbursed prescription copays, and new pairs of glasses, and other easily forgettable items. Remember, though, the money must be used by the end of the year or it’s forfeited.
If you are enrolled in a high-deductible health care plan, you may be eligible for a Health Savings Account (HSA). Money goes into the account pre-tax, grows tax-free and, when used towards medical expenses, it is not taxed. And unlike an FSA, money in an HSA is not “use it or lose it”: What you contribute to a Health Savings Account now can even help pay for medical expenses in retirement. This makes it a very attractive long-term retirement savings vehicle.
Respond to Any Other Major Life Changes
Reaching milestones in your life usually has some effect on your benefits plan, whether that’s kids moving out of the house, or a marriage or divorce, or a death in the family. These things generally have an impact on your insurance and savings plans. If you’re not sure what the ramifications will be for any of the major changes you might be going through, your Baird Financial Advisor will be happy to talk you through them.