Are You Reviewing All of Your Work Benefits as Part of Your Financial Plan?
You probably have some understanding of health benefits you get through work. But does your employer offer life insurance? How much? Is it enough to take care of your family well into the future if you were to die? Are you still covered if you switch jobs?
If you become disabled, does your employer provide disability income insurance? How much? Will it cover all of your household expenses? Would your spouse need to find extra work to make ends meet?
Feeling stumped? Like many people, you may not fully understand how your employer-based benefits work and how they fit into a larger financial plan that supports your long-term goals. That could leave you with a false sense of security.
Evaluating your work benefits plays a critical role in financial planning. By knowing what benefits you get from your employer and how they fit into your broader financial plan, you’ll be better poised to make strategic and informed decisions.
Make sure to compare employer-sponsored health insurance benefits in detail. The cost of premiums, deductibles and other out-of-pocket expenses can vary significantly. Some employers offer tax-advantaged savings accounts, such as health savings accounts and flexible spending accounts that allow people to set aside tax-free funds to cover certain health care costs.
If your employer doesn’t offer health insurance, you can purchase coverage for yourself and your family in the private market through a broker. It’s also worthwhile to review the plans offered in the state and federal online health insurance marketplaces created by the Affordable Care Act because you may be eligible for tax credits to offset the cost of premiums, depending on your income.
Planning for Retirement
Many companies offer employer-sponsored retirement plans, such as a 401(k) or Roth 401(k), and some will match a fixed percentage of employee contributions up to a certain point. If possible, contribute at least enough to earn the company match—that’s free money that could significantly impact the bottom line of a retirement fund. Find out how long you need to stay at your job to be able to take the company contributions when you leave.
You may also want to consider how your employer-sponsored retirement plan fits into your overall retirement plans. A 401(k) alone is unlikely to pay for your retirement. It’s important to diversify your retirement savings into a number of different buckets. Additional options include IRAs, investments, deferred annuities and possibly even permanent life insurance.
Many employers offer disability income insurance, which replaces some of your income if you’re unable to work due to illness and injury. You’ll be in a better position to maintain your lifestyle without depleting your savings or putting off other financial goals if you have disability income insurance.
Most employer-sponsored plans will cover only a portion of your income, perhaps 60 percent. So it’s important to determine the amount of income you’ll receive if you become disabled and how long the benefits will last. Some companies allow you to increase your coverage at an added cost if you decide that you need additional protection. If that’s not an option, you can supplement your employer’s coverage with an individual policy that narrows the gap between the employer’s plan and your monthly take-home pay.
Evaluating Life Insurance
Many employers offer life insurance as a benefit. Life insurance can allow your family to maintain its standard of living if you die. It’s important to understand the value of the coverage being offered and whether the plan fully meets your needs.
In most cases, employers offer a baseline amount of life insurance and give employees the opportunity to purchase additional coverage through the employer-sponsored program (also known as “group life insurance”). Determine your basic coverage, and ask if you can increase the coverage with or without a medical exam. It may make sense to purchase additional coverage through your employer.
However, you’ll want to consider what would happen if you leave your employer or if the employer changes your plan. When you’re older, life insurance costs more. Purchasing individual life insurance will provide protection regardless of where your career journey takes you.
There are many advantages to having work benefits, but understanding how they fit into the big picture can be confusing. A financial advisor can help you assess the value of your benefits and how they impact your long-term goals. Reviewing your work benefits could be the first step in developing a comprehensive plan that leads to a sound financial future.