Open enrollment is here. Itâs the time of year when your employer gives you minimal notice to select your benefits.  But letâs be real, many of you simply opt-in to the preselected options from last year. Stop!  There is a strategy involved when selecting your benefits (especially if there are two of you!).
Itâs one of our favorite (and busiest) times of the year. Not just because we get to see various employersâ dynamic graphic designs within their fancy benefits booklets (they get better and better each year), but we get to help you realize cost savings, protect your family adequately, and maximize your wealth in this small 2-3 week window. Â
Cheers to no longer feeling helpless when selecting benefits! Hereâs what we are seeing for 2022.
Cost is important when selecting the best medical plan option. When analyzing the cost of a medical plan we recommend calculating the least amount youâll pay and the most you'll pay for during the year. The least you will pay for your medical plan can be found by annualizing the medical premium paycheck cost and subtracting employer contributions to a health-related account such as an HSA. The most you will pay is taking the least amount you previously calculated and adding in your out-of-pocket maximum.
For example:
Least amount youâll pay:
Medical plan premium per paycheck: $25
Add: Annualized medical premium per paycheck: $25 x 26 (paid biweekly): $650
Less: Employer Health Savings Account contribution: $500
Total: $150
Most youâll pay:
Medical plan premium per paycheck: $25
Add: Annualized medical premium per paycheck: $25 x 26 (paid biweekly): $650
Less: Employer Health Savings Account contribution: $500
Total: $150
Add: Out of pocket maximum: $8,000
Total: $8,150
Cost isnât the only determining factor when selecting the right benefits. You will have to make sure your providers are still in-network within your plan if you decide to change medical plans.
When reviewing whether or not to maintain individual coverage or add your partner and children, youâll need to assess your partnerâs benefits if they are employed. We help our clients by running side-by-side comparisons in order to find additional cost savings.
If youâve read our previous blogs on open enrollment season, you will know that Health Savings Accounts (HSA) are our favorite type of account. HSAs are only eligible with a high deductible health care plan. In 2022, the IRS qualifies a high deductible health care plan as one with an individual deductible greater than $1,400 and for a family plan $2,800. HSA contribution limits for 2022 are $3,650 for an individual and $7,300 for a family.
HSAs offer triple tax advantages. The funds deposited into the account (typically from payroll) go in tax-free.  The deposit is made with pre-tax dollars which helps reduce your taxable income.  Once the funds are deposited into the account, you have the ability to invest the funds and let them grow tax-free.  HSAs require a certain cash balance to be held before investing. We see that range anywhere from $300 - $2,000. It does depend on the plan itself. The main purpose of the plan is to be used for medical expenses, so we recommend clients maintain the minimum requirement for cash or their annual deductible in cash within the HSA. The funds in the HSA can be distributed at any time tax-free as long as they are used for qualified medical expenses.
The other benefits of HSAs compared to other medical savings accounts such as Health Care Flexible Spending Accounts (FSA) are that your HSA can carry forward every year. With an FSA you have to spend the amount youâve contributed in the calendar year or within your company grace period -- typically 3 months into the next year or $500 into the next year. Your HSA also remains in your ownership even if you leave your employer. This is an added benefit for all of those that seek new opportunities every few years. Â
Learn about other tax savings strategies (not involving benefits) here.
If your employer offers this type of account and you have children under the age of 13 or a child that canât care for themselves, then this is something to consider. This type of account can be used for expenses such as babysitting, child care, preschool, and summer camp. A household can contribute up to $5,000 in 2022. The contributions made to this account are pre-tax. Funds within this account must be used within the calendar year. This account is allowed in tandem with an HSA! The other feature of this account is it can be used for elder care and home nursing expenses for adult tax dependents. This may not apply now, but itâs something to remember as I know many of you in the millennial and gen-X generations have expressed concern about caring for your parents in the future.
Your employer may provide life insurance in an amount associated with your salary (1x, 2x, 3x, etcâŠ). For example, if you make $150,000 and your employer pays 2x your salary, then you have $300,000 in employer-provided life insurance. Employers also allow you to purchase additional coverage. Continuing with the previous example, your employer allows you to buy up to 6x your salary or up to $1,000,000 (whichever is lower). At a base salary of $150,000, you can purchase up to 6x your salary or $900,000.
When analyzing your total life insurance needs we need to take into account your relationship status, income, years until retirement, and future growth rates. We like clients to maximize insurance through work first because it tends to be cheaper than going out on the open market. That said, you must realize that your life insurance is then tied to your company. As one of our clients says, âSomething about eggs and something about baskets, right?â. Exactly.  Itâs best to have some coverage with work, and some coverage outside of work.  The coverage outside of work will stay with you whether youâre employed or not. Â
Read our blog, 3 Questions to Ask Before Buying Life Insurance to better understand how much life insurance you should have.
You have to ask yourself -- What is my most valuable asset?
Your paycheck. Can you afford your house, your future travel, your retirement savings without it? Probably not. Protecting your income is very important for you and your loved ones. Employers offer group disability insurance typically with a baseline of 60% of your income with a cap on a dollar amount such as $15,000 per month. Employers typically offer buy-up plans that employees should consider. An ideal coverage amount is 67% .
Itâs important to note, that just as with life insurance, disability insurance does not stay with you should you leave your employer.
If you have not drafted your estate plan, then we advise opting into legal insurance coverage. The typical premium we see for this coverage is $20 per month or $240 per year. This coverage grants access to approved attorneys that will complete your estate plan at no cost -- unless your estate is complex, then additional costs may apply. Hiring an attorney outside of legal insurance coverage will likely cost $1,000 or greater in order to have these documents drafted. There you have it, that's a cost savings of $700+.
We are starting to see more benefits available to employees in regards to personal and mental health. Make sure to review your benefits enrollment if youâd like help with caring for an aging parent, enrolling in personal fitness classes, enrolling in an Employee Assistance Program for relationship issues, and access to a therapist. Employers are recognizing the importance of well-being in our everyday lives and we must take advantage of what they are offering.
If you, a friend, or a professional colleague would like a second opinion on open enrollment and financial planning then donât hesitate to reach out. Weâd be happy to make a difference in your well-being for 2022 and beyond.
Disclaimer: This article is for informational purposes only and is not a recommendation of Fyooz Financial Planning, Natalie Slagle CFPÂź, or Daniel Slagle CFPÂź. Past performance may not be indicative of future results and may have been impacted by events and economic conditions that will not prevail in the future. Therefore, it should not be assumed that future performance of any specific security, investment product or investment strategy referenced in the article, either directly or indirectly, will be profitable or equal to the corresponding indicated performance level(s). No portion of the article shall be construed as a solicitation to buy or sell any specific security or investment product or to engage in any particular investment or financial planning strategy. Any reference to a market index is included for illustrative purposes only, as it is not possible to directly invest in an index. Indices are unmanaged, hypothetical vehicles that serve as market indicators and do not account for the deduction of management fees or transaction costs generally associated with investable products, which otherwise have the effect of reducing the performance of an actual investment portfolio.
