Employee Benefits Season – What Should I Sign Up For?

We’re in the midst of the typical signup season for employee benefits.

This can often be an overwhelming process. There are a myriad of retirement plans and insurance policies available, and sometimes it’s unclear as to what needs to be selected. It’s hard to find the balance of signing up for what’s needed while also maintaining a steady cash flow for the household. So, what should you sign up for? While this post won’t cover every available option, it does cover the big ticket items.

Health Insurance

Most employers offer group health insurance, and there are typically different options to sign up for. There’s usually an option that offers a lower deductible with a higher monthly cost, and another option that offers a higher deductible with a lower monthly cost. While no one knows what exactly will happen over the coming year, you can try to project what your typical healthcare costs will be under each plan. If you typically don’t have many medical issues throughout the year, the lower monthly cost with the higher deductible may be the best option. If you know that you will incur high medical costs, you’re likely better off choosing the higher monthly premium (but lower deductible) option. Health insurance decisions can be even more confusing when comparing to a spouse’s options. Make sure to compare every option!

Bonus Tip – Employers often offer an FSA (Flexible Spending Account) or HSA (Health Savings Account) along with the health insurance options. As a best practice, it’s wise to try to build up to your annual out-of-pocket maximum in one of these accounts. These accounts can be a great tool because they allow users to contribute pre-tax earnings, and as long as the funds are used for qualified expenses, they aren’t taxable when distributed. Both of these accounts have contribution limits, and the FSA has a “use it or lose it” feature. Make sure to keep those in mind!

Life Insurance

Life insurance is a need if you have someone that is financially dependent on you. Group life insurance can often be obtained for a very low monthly premium. Typically, employers will allow you to obtain 1- 5x your annual salary as a life insurance death benefit. As a general rule-of-thumb, it’s wise to have the proper amount of coverage on an individual life insurance policy that’s separate from your employer. In the event you separate from service (and incur a health change), you’ll still be properly covered. Make sure to reach out to one of our planners to help you determine the amount of coverage you need. (Note – Lockshield Partners does not sell insurance)

Disability Insurance

Some employers offer either short-term disability insurance or long-term disability insurance, and sometimes both are offered. From a financial planning perspective, long-term disability insurance (LTDI) is a critical piece of a strong foundation. LTDI provides a benefit after a 3-month elimination period (could be longer or shorter) and will typically pay a benefit until you reach retirement age. LTDI is important because it provides income protection if there’s an extended stay away from employment due to illness or injury. Short-term disability (STDI) pays a benefit immediately and will usually pay up to 9 or 13 weeks. Surprisingly, STDI is typically more expensive than LTDI as a group benefit. If you’ve established your emergency savings, you likely do not need STDI. As a general rule-of-thumb, 60% of gross salary is the amount that you want LTDI to cover.

Retirement Plans

There are many different types of employer-sponsored retirement plans, ranging from 401(k)s to Simple IRAs to pensions. In this post, we’ll focus on defined contribution plans (plans that give employees the option to participate). Many employer-sponsored plans allow employees to contribute and receive an employer-match if a certain percentage is contributed. It nearly always makes sense to contribute enough to receive the full match – it’s free money! Employer plans often have the option to make pre- tax or Roth contributions. At Lockshield, we are huge fans of Roth-based accounts due to the flexibility that they provide long-term. Before deciding which bucket to contribute to, make sure to reach out!

Bonus Tip – Increase your savings rate by 1% per year. Although it may feel like a tiny change (and you’re likely to not notice it), increasing your savings rate each year can have an enormous impact on your long-term future value.

Although signing up for employee benefits can feel like a daunting task, it’s an efficient way to implement a lot of important pieces for your financial plan. As always, make sure to schedule a time with one of our planners to help you implement the proper benefits!

Clark Hayden, CFP®*

Financial Advisor, Partner, CFP®