If you work for a larger company, benefits are often a big perk but one I see not being maximized very well. Since now is the time that you will start making elections, the following are the top 7 things to consider when picking your enrollments.
Life Insurance – Life insurance is key to protect your family but I too often see shortages in coverage. Use your benefits period to increase your coverage. Usually you can increase one level higher without any medical exams. For example, if you have 2 times coverage (2 times salary), bump it up to 3. Group term is one of the most economical ways to increase life insurance coverage.
HSA Contributions – With the increase in high deductible health plans, HSA’s have become more popular. The key benefits about HSA’s is that they are tax deductible, grow tax deferred, and can accumulate over time (unlike a FSA which you had to use each year). If possible, contribute the maximum to your HSA. Even if you do not use it all now, it is highly likely you will use it as you age and our medical costs rise.
Savings Rate – If you have a 401k or similar program, benefits enrollment is a great time to increase this rate by at least 1% (if you are not already maxing it out). Doing this each year will consistently raise your savings rate without you really noticing it.
Retirement Plan Allocation – While this isn’t really part of your benefits enrollment, it is a good time to recheck your overall allocation and make sure it is in line with your goals and your overall risk tolerance. With the market growth we have had this year, you may have too much in equities and need to rebalance.
Disability Insurance – Your greatest asset is your income but most people are not insuring against this. Many companies offer this as a standard benefit but some have an additional cost. If you are single or the sole income or primary income earner in your family, you should have disability coverage.
Stock purchase programs – If your company has a stock purchase program, this is often a great benefit. Most of them are set up so that the stock purchase is discounted from the original market price the original market price resulting in an immediate unrealized gain in value. You can either sell the purchases later after the required holding period to replenish you cash flow, or hold for potential long term gain opportunities. Note that the stock price will fluctuate, and there are tax considerations with stock purchase programs, so you may want to discuss this with your tax advisor.
Deferred Compensation – For key employees, deferred compensation may be an available benefit. Participating in this program can result in huge tax savings. Especially if you have stocks vesting each year, a deferred comp program is a great strategy. There are nuances to these plans that you need to be aware of so I suggest talking with a financial professional before making this election.
All of these benefits should fit in with an established financial plan considering your long term and short term goals. We would be happy to discuss being the financial professional partnering with you on reviewing these decisions. Live Fully. Plan Wisely.
There is no assurance that the techniques and strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal.