The holiday season might look a little different this year due to the pandemic, but another year-end tradition will still be around for a lot of us to enjoy — open enrollment season. Although everyone’s open enrollment period can differ depending on their employer, most seem to fall at the end of the year somewhere during the months of October to December. If you are currently going through that, or will be soon, here are some tips to help you maximize the employer benefits offered to you. Even if your employer’s open enrollment period is not coming up at the end of the year, you still can find these tips useful as a check-in for where you stand or suggestions for your next open enrollment season.
Retirement Benefits:
Saving for retirement can oftentimes be low on the to-do list, but planning for your future should be a top priority. While it may seem like you have plenty of time, the reality is that most of us need to consistently save throughout the course of our careers to truly be ready for retirement one day. The great thing about this, though, is that the earlier you start, the better off you’ll be, due to the beauty of compounding returns over time. Even if you’re not as early in your career as some, there is no time like the present to start maximizing how much you’re putting away for your future needs. These days, most employers will offer some sort of retirement savings vehicle like a 401(k), 403(b), 401(a), or 457(b) for you to invest in. Some may still offer a traditional pension, but unfortunately, these are becoming less common in today’s retirement landscape. Below are a few ways to help you maximize your employer’s retirement benefits.
1. Take full advantage of your company match.
If your employer offers one of the retirement savings vehicles listed above, there’s a decent chance they are also willing to put some money into it for you. While every employer differs in their rules around matching contributions, most employers offer a match as a way to incentivize employees to save more for retirement. For example, if your employer offers to match 100% of your contributions up to 5%, this means that you must contribute 5% of your salary in order to receive the additional 5% from your employer. If you only contribute 2% of your salary, then your employer will only contribute 2% as well. In this scenario, you are missing out on an additional 3% of free money that you could be getting from your employer, simply by not contributing enough to receive the full maximum matching contribution. The bottom line here is to understand what your employer’s rules are and contribute at least enough on your end to fully max out how much they are willing to put in for you. Otherwise, you are leaving free money on the table!
2. Pick a long-term investment strategy and stick to it.
Contributing a portion of your salary to retirement is step one; step two is deciding how to invest that money once it is deposited into your account. Again, every employer is going to differ in the options they make available to you, so it’s important to understand what the investment options are in your plan. Find a long-term allocation based on your goals and risk tolerance, and stick to it over time. While it’s important to monitor your account as time goes by and make adjustments as retirement draws nearer, the last thing you want to be doing is trying to time the market. Saving for retirement should be viewed as a long-term objective, so it’s important you don’t react emotionally and make poor decisions in times of market downturns. If you do, it can severely dampen your outlook and your ability to retire down the road.
3. Consider Roth contributions if available in your plan.
Roth contributions are taxed up front and, assuming you’re at least 59.5, tax free upon withdrawal in retirement. This can be beneficial, especially for younger workers who have decades to let their investments grow or those who expect to be in a higher tax bracket later in life. If you’re unsure, that’s OK. If nothing else, combining pretax and Roth contributions will give you flexibility in retirement when it is time to start withdrawing money.
Insurance Benefits:
1. Health Insurance
There is typically a trade-off between deductibles and premiums when it comes to health insurance plans. Some plans have higher premiums but require you to pay little out of pocket. Other plans have lower premiums but require you to pay more out of pocket. The latter is typically referred to as a high deductible plan. It’s important for you to think about your likely health care needs for the coming year when deciding what type of plan to select. One of the main benefits associated with high-deductible plans is the ability to contribute to a Health Savings Account (HSA). An HSA is a triple tax-advantaged account in that it allows you to contribute pretax dollars, grow those savings tax-free by investing within an account, and eventually withdraw them tax-free for qualified medical expenses in the future. If eligible, you can contribute up to $3,600 in 2021 for single coverage and up to $7,200 for family coverage. If you don’t have a high deductible plan, you should see if your company offers a Flexible Spending Account (FSA). You can contribute up to $2,750 pretax in 2021 to an FSA, but these contributions don’t carry over year to year like they would with an HSA.
2. Life Insurance
Many employers offer some type of group life insurance coverage. You may have a small amount of coverage paid for by your employer with the option of purchasing additional group coverage. This group coverage option can be a good deal for some but not for others. If you are older or have health issues that make you costly to insure, a group rate may be less than what it would cost to obtain coverage on your own. If you’re young and in good health, you may be able to obtain cheaper coverage on your own. You also should consider how long you plan to stay with this employer when coming to a conclusion regarding this supplement benefit. Keep in mind, if you leave your current employer, you likely won’t be able to bring your group coverage with you.
3. Disability Insurance
Employers may offer short-term and/or long-term disability insurance to employees. Similar to life insurance, a particular amount of disability insurance may be employer-provided while the employee may have the option to purchase additional group coverage. Also similar to life insurance, your individual circumstances may allow you to purchase cheaper coverage on your own. If your employer does pay for some disability insurance coverage, you should see if they are willing to identify the premiums associated with your coverage as taxable income. This would be especially advantageous if you were to go on claim because the benefits associated with your coverage would be tax-free. If the cost of coverage is not identified as taxable income, the benefits received would be taxable to you. You should also examine the definition of disability, the waiting periods associated with coverage and how long benefits would be paid if you were to go on claim.
Employers are also getting creative in ways they try to retain talent by offering ancillary benefits. They may offer options such as legal help, student loan assistance, education assistance, commuter benefits and dependent care assistance. It is always advisable to understand all of the benefits available to you to make sure you are taking full advantage of them. ❖
Billy Bruns, CFP®, with MAI Capital Management, can be reached at 513.579.9400 or by email at billy.bruns@mai.capital. Greg Ross, CFP®, also with MAI Capital Management, can be reached at the same number or by email at greg.ross@mai.capital.
MAI Capital Management, LLC (MAI) is a privately held independent investment advisor registered with the Securities and Exchange Commission and headquartered in Cleveland, Ohio with regional offices in Columbus and Cincinnati, Ohio as well as offices in California, Florida, New Hampshire, New York and Virginia. MAI’s Cincinnati office is located at 625 Eden Park Drive, Suite 310,
Cincinnati, OH 45202. For more information, call 513.579.9400 or visit www.mai.capital. The opinions and analyses expressed herein are subject to change at any time. Any suggestions contained herein are general, and do not take into account an individual’s or entity’s specific circumstances or applicable governing law, which may vary from jurisdiction to jurisdiction and be subject to change. Distribution hereof does not constitute legal, tax, accounting, investment or other professional advice. Recipients should consult their professional advisors prior to acting on the information set forth herein. In accordance with certain Treasury Regulations, we inform you that any federal tax conclusions set forth in this communication, were not intended or written to be used, and cannot be used by any taxpayer, for the purposes of avoiding penalties that may be imposed by the Internal Revenue Service.