For a lot of working people, open enrollment is approaching (October through November). This usually means boring emails from your HR department and having to make a bunch of decisions to make that you may not be sure about. According to the Department of Labor, benefits through work account for 31.8% of the cost of your total compensation. So, let’s say you make $100,000 per year. You actually cost your employer closer to $131,800 per year due to benefits.
While employers want to offer great benefits that meet the needs of employees and encourage them to stay, they also want to minimize costs. Depending on the size of your company, you could have basic plans or cool perks. The key is to only pay for what you need and to take advantage of any benefit that is going to make your life easier.
The Big One: Health Insurance
Typically, this is the most important benefit you get through work. Most companies will offer a range of options including: HMO, PPO (usually two levels) and a HDHP. There are pros and cons to each plan, and this is where looking at your family and health are critical factors in making this decision. Cost is also a big factor. Few employers pay for the full cost of healthcare, but some do! If you have a PPO, the monthly cost can get as high as $1,300 per month out of your paycheck. HMOs and HDHPs are much lower, but HMOs require you to use their health network only, and HDHPs can have high deductibles.
HDHP’s (high deductible health plan) tend to be the least expensive option for employers to offer its employees. According to the IRS, the minimum deductible for a family with an HDHP is $2,700 per year. The actual deductible can be significantly higher than this. With an HDHP, you are offered a Health Savings Account (pre-tax savings that rolls over year to year). Some employers will contribute to this H.S.A. to help offset the cost of the out of pocket expense and deductible.
If you have two working parents, splitting health insurance costs can make the most sense, especially if one employer covers the cost of an employee completely but not the entire family. While figuring out the best option for your family takes effort, it could save you thousands of dollars per year.
Retirement options include 401(k) (pre-tax and Roth), 403(b)s, Simple IRAs and potentially SEP IRAs. We all want to not have to work for a paycheck someday, and maximizing retirement contributions is the most tax efficient way to do that. If you make a lot of money today, saving pre-tax is the way to go. If you keep getting tax refunds, then save in a Roth 401(k). Even if your company does not match, you should try to maximize your contributions every year ($18,500 for 2018 for those under 50).
You name it, and it is out there. Other benefits include legal plans, fertility or adoption assistance, cancer coverage, reimbursement for health clubs, parking, and even babysitting, and pet insurance. These are great, and I highly recommend taking advantage of anything that will make your life more fulfilling, but the most important one is Disability Insurance (DI).
For 20 year-olds, 25% are likely to be out of work for at least a year before hitting retirement age. For 40 year-olds (depending on the source), this increases to over 40%. The likelihood of dying before 65 is only 14%, so it is more important to make sure you have good disability insurance over life insurance. If LTD (long-term disability) is offered, enroll for the maximum (range 60-66.6%). If it isn’t offered, ask HR to add it. If you are self-employed, look into independent policies. The most coverage you can get is usually 70% of your compensation. The more the better, but they don’t want to encourage you to stay out of work.
With record low unemployment, keep your eyes open for new benefits being offered this year as employers try to sweeten your package and keep you happy!