It's November which means it is time to pick your company benefits.
I have a huge piece of advice for you, don’t rush through your benefits selection this year. Take the time to understand them and what you need. It is estimated that they make up roughly ⅓ of your compensation.
Let me help you make the most of them:
Health Insurance: HMO vs. PPO
PPO (Preferred Provider Organization)
- Access a large network of providers at agreed-upon rates.
- Higher variety, higher cost.
HMO (Health Maintenance Organization)
- Limited network of providers at agreed-upon rates.
- Lower cost, fewer choices.
Choosing the Best Plan
- Cost of Care: Consider the plan’s premium, which is deducted from your paycheck.
- Usage: Anticipate your healthcare needs for the year and check the deductible.
- Risk Tolerance: Look at the out-of-pocket maximum for catastrophic events.
- Network: Ensure your preferred providers are in-network.
HSA vs. FSA
HSA (Health Savings Account)
- Investment fund for medical expenses.
- Contributions grow tax-free and can be used tax-free.
- 2024 limits: $8,300 (family), $4,150 (individual).
- Funds can be held indefinitely.
FSA (Flexible Spending Account)
- Pre-tax dollars for healthcare costs.
- 2023 limit: $3,050.
- Use-it-or-lose-it policy with a potential $610 rollover.
Pro Tip: If you can afford out-of-pocket costs now, let your HSA get invested grow for future use. But keep the receipts.
Dental and Vision Insurance
- Dental: Covers preventive treatments like cleanings and x-rays. Typically less advantageous but still valuable.
- Vision: Essential if you wear glasses or contacts, covering exams and eyewear.
Disability Insurance
- Short-Term and Long-Term Disability: Protect your income. Employee-paid plans pay out tax-free and are usually low-cost.
- Consider: Short-term disability or a well-maintained emergency fund. Long-term disability is crucial for high earners.
Life Insurance
Most employers offer free life insurance coverage of 1-2x your salary. While you can pay for additional coverage, it doesn't transfer if you leave your job, and reapproval can be costly if your health changes. External life insurance is often a better option to protect your family.
Rule of Thumb:
- 10x income if you have kids and a working spouse.
- 20x income for single-income households.
Term life insurance is generally affordable. If you're in poor health, additional coverage through work may be more cost-effective.
Dependent Care Options
If you care for children or disabled persons, you may be eligible for dependent care benefits. Contribute pre-tax dollars to a dependent-care flexible spending account (FSA) and get reimbursed for qualified expenses. Note: These accounts operate on a "use it or lose it" basis, so plan your contributions carefully.
Employer-Sponsored Retirement Plans
Review your retirement strategy during open enrollment. Employer-sponsored plans often include a match and allow contributions in pre-tax or post-tax (Roth) dollars. Here are some best practices:
- Contribute at least up to the match—don’t leave free money on the table!
- Increase contributions as your income rises.
- Choose wisely between pre-tax and post-tax contributions.
- Start early and diversify your investments.
- Understand the vesting period for employer matches.
- Stick to your investment allocation strategy.
Additional Benefits to Consider
- Employee Stock Purchase Plan
- Free parking
- Catered lunch
- Legal assistance
- Tuition reimbursement/support
- Gym memberships/discounts
- Professional development programs
Take your time to understand what you’re being offered. Maximizing your benefits can significantly impact your financial well-being.
