Key takeaways

  • Almost 30% of your total compensation can come from benefits – making the right elections can have a big impact
  • Benefits are an essential piece of your overall plan and can help you protect what matters most, lower your taxes, and save money
  • To make smart, informed decisions, you need a proactive strategy that takes into account your plans for the next 12 months
  • You need to review the core insurance benefits – health, disability, and life – every year to ensure they are adequate
  • You need to take advantage of other benefits – like retirement and voluntary programs – to make the most of open enrollment

Open enrollment season is a critical period when you will make decisions that are essential to your health and wellness – personally and financially. And it only comes around once per year. It’s a very small window for some very big decisions that will impact your life and your money for the next 12 months.

Somewhere between 30% to 40% of overall employee compensation, on average, is made up of workplace benefits. This means one-third of your total compensation can be affected by the decisions you make during your open enrollment period. With this kind of money on the line, you need a plan to help you make smart, informed decisions with your benefit elections.

Let’s explore workplace benefits and why they are an essential piece of your overall financial plan.

What are Benefits and Why They Matter

Workplace, or employee benefits, are simply non-wage forms of compensation – like offering health insurance and paying part of the premium. Your employer offers these benefits in addition to your regular pay – your base, bonus, and even stock compensation.

Whether you are starting a new job or making your annual elections, benefits are important for two main reasons. First, they have become a critical part of compensation packages as employers look to attract and retain the best talent. Second, benefits are a great way to get the insurance protection you need, to lower how much you pay in taxes, to save you thousands every year, and to help you prepare for retirement.

Here are some questions to help you prepare for open enrollment season.

Three Essential Questions to Make Smart Elections

Around 70% of employers opt for what is known as passive enrollment which means they don’t proactively help you plan for, opt-in to, or make benefits decisions. Said another way, it’s up to you to make the right elections. Here are three essential questions to help you get them right.

  1. Have any benefits changed since last year? Options often change year to year so you need to know what changed and how it affects your choices.
  2. Are there any life milestones or big events planned for the next year? The key is to make decisions based on your plans for the next 12 months and not the last 12.
  3. Are you ready to make elections when open enrollment begins? Have a plan before you have to make your choices. Rushing to make decisions during a short window of time will lead to uninformed decisions that can cost you money.

These three questions will have you on your way to making smarter, more informed decisions. Now let’s look at the benefits and the choices you need to make.

The Foundational Benefits

The core benefits offered by employers come in the form of insurance – which protects your health, your income, and your family in the event of an emergency. Let’s take a look at each and how you can get the right protection.

Health insurance - Health insurance comes in all shapes and sizes and with many acronyms – PPO, HMO, FSA, HSA. The main decision you need to make is whether you will go with a traditional health plan – with a higher premium but a lower deductible – or a high deductible health plan (HDHP) – typically with a lower premium and a higher deductible.

Which plan is right for you? It’s a personal decision that depends on where you are today, any life milestones you are planning for – like starting a family – and your overall health. In many cases a HDHP with a health savings account (HSA) can be a smart choice, but you have to be prepared for the higher deductible. If a traditional plan makes sense, you need a plan for how you will use your flexible spending accounts (FSAs) for both healthcare and dependent care.

And keep an eye out for dental and vision plans. They are inexpensive benefits that can save you money.

Disability insurance - The second main benefit offered protects your income in the event you can’t work due to a disability. There are two types – short- and long-term – and both can play an important role in your overall plan. Long-term disability is a must, and you want to cover around 60% of your total earnings. Short-term is optional. If you have a healthy emergency fund, a second income in the household, or a plan for a short disruption in income, you can pass on it. If a short income disruption would create issues, sign up for short-term disability.

Life insurance - This final benefit protects you and your family from the unexpected loss of a life. If you are single and have no dependents, group life insurance may not be necessary. If you have a partner, children, or dependent adult, group life is something you need to consider. Employers generally offer two types of coverage – basic and voluntary. 

Basic insurance is often a small amount of coverage – like $50,000 or 1 times your salary – that is offered to all employees whether you opt in or not. Voluntary coverage is optional coverage above the basic amount. It’s often offered in multiples of your salary – from 2 times to 6 or 8 times your annual pay. If additional insurance makes sense, you will want to compare the coverage and the cost to an individually owned life insurance policy – one that’s not offered by your employer.

Retirement and the Rest of Your Benefits

While you are allowed to make changes to your retirement plan throughout the year, open enrollment provides an excellent opportunity to review your contributions and your investments. Make sure you are contributing enough to get your full employer match, and increase your contributions if you can – even a 1% increase can have a big impact. And take the time to review your investment selections to ensure the right level of risk.

Outside of retirement, there are a growing number of ancillary – or optional – benefits being offered as employers try to meet the evolving needs of their people, and you need to know how to make the most of them.

Benefits will vary from company to company, but they can include student loan repayment assistance, tuition and graduate school support, health and wellness benefits like gym memberships, and even free or reduced legal services. These benefits can be worth thousands of dollars per year.

And don’t overlook other benefits like paid time off for a nice vacation or two, paid leave for when you need to handle personal or family matters, relocation assistance for that next big move, and even child care programs.

Open enrollment season offers a great opportunity to elect essential benefits that protect your health, your income, your loved ones, and your future financial security and independence. Having a plan and making smart, informed decisions around your benefits will not only protect what matters most, but it can reduce your taxes and put more money in your pocket. Your benefits are one facet of a much bigger financial picture, and they are an essential piece to your overall plan.

A financial plan that looks at all facets of your life can help you make smart, informed decisions when it comes to your workplace benefits. Learn how a CFP® Professional at Facet Wealth can help you make the right elections and navigate these decisions with clarity and confidence.