Whether you’re a new hire or an old hand, your company’s employee benefits are designed to help you win with money today and in the future—but you have to know how to make them work for you.
Get started by thinking about your New Year’s resolutions and the financial goals you have in mind for 2016. Then, to make sure you’re ready to take full advantage of your options, take a look at some of the big questions to ask yourself during your company’s open enrollment period. You can use your answers to take several steps down the road to money success.
1. What health care needs will you have this year?
First things first: Everyone needs health insurance. One significant medical event could wipe you out financially if you don’t have at least basic coverage. Plus, health insurance is a legal requirement nowadays.
Things get complicated quickly when you try to figure out which plan works best for you and your family. While many health care costs are unexpected, some are predictable—at least in the near future.
- Are you or your spouse planning on having a baby soon?
- Have you been recently diagnosed with a medical condition?
- Are you considering a program to help you stop smoking or lose weight?
- What about the possibility of elective surgery?
If any of these expenses are on your radar, make sure you enroll in a plan that covers these costs so you can protect your health and your wealth. Even if you don't foresee any of those health care costs in the near future, you still need to prepare for the unexpected.
Do you have an emergency fund to cover your share of medical costs?
Choosing the best health care option for you often boils down to the amount of risk you’re willing to take on. A good look at your emergency fund can help you decide how much risk you can afford.
If you already have $1,000 saved in an easily accessible emergency fund, opt for a health care plan with a higher deductible. You’ll save money on premiums throughout the year because you’re able to cover small medical bills that come up (for things like doctor’s visits or prescriptions) yourself.
If you’re just getting started and don’t have $1,000 in the bank, you’ll need to go with a lower deductible health care plan until you build up some savings. Otherwise, you could end up having to borrow money to meet your deductible in an emergency. That’s a bad plan.
If you‘ve fully funded your emergency fund and have enough to cover three to six months of expenses, you can go with an even higher deductible and save more on monthly premiums.
2. What are your 401(k) investment options?
If your company offers a 401(k) retirement plan, it’s a great way to invest for the future. But before you sign up, be sure the timing is right by asking yourself: Where am I in my overall financial plan?
Maybe you’re working on building an emergency fund or paying down debt. If that’s where you’re at, keep up the good work! You’re positioning yourself to take advantage of a 401(k) soon, just not yet. If you don’t have a financial plan, we can help. Our step-by-step plan has helped millions of families get on track with their money and see a brighter future
If you’ve paid off all debts but your house and saved up an emergency fund that can cover three to six months of expenses, congratulations! Now is the time to think about how much to contribute to a 401(k).
If you’re ready to invest in a 401(k), there are still a few steps you need to take before you sign up. To get the most out of your plan, be sure to do some legwork and familiarize yourself with all of the options available to you.
First, find out if your company offers any match to your contributions. If they do, sign up to invest at least enough to receive your full employer match. When it comes to saving for retirement, no one can afford to pass up free money and a guaranteed return on their investment! Once you’re taking full advantage of the match, aim to invest a total of 15% of your pre-tax income for retirement—either through your company 401(k) or other investment options.
Next, get really familiar with the retirement options offered by your company. For example, some companies offer both a traditional 401(k) plan and a Roth 401(k) plan. Both have advantages and disadvantages. The main difference between the two has to do with when you pay taxes. Traditional 401(k)s let you defer paying taxes on your contributions until you withdraw them in retirement. With a Roth 401(k), taxes are deducted from your regular pay before you contribute to the plan, but you won’t owe any taxes when you withdraw the money in retirement. If you need more information check with your company’s human resources department.
Open enrollment is a great time to evaluate your financial progress and to make sure you’re using the best options available. Use your answers to these questions to take action steps toward money success in the new year.