Starting a new job can be an exciting time. There’s no doubt that most are anxious to begin their new role and start learning and performing at their new company. This is even truer after extended absences from the workplace. However, before you can jump right in to your new role, there are always those paperwork hoops that we must jump through to sign employee contracts and make elections on our employer-provided benefits. It is at this time that all job changers should slow themselves down to thoroughly review all options before making any decisions they may regret later.
Whether your benefits include health insurance, disability insurance, life insurance or retirement planning options, it is vital to make proper elections up front, especially since you may not be able to change your elections more than once per year, if that.
When choosing a health insurance plan, don’t just look at the monthly premium amount. There are other factors you need to consider. Do you see your doctor frequently? Do you take expensive, brand-name medications? Are you expecting to have a child in the next 12 months or do you have small children? These are all factors that would indicate you should choose a health insurance plan that pays a higher percentage of your healthcare costs. The only problem is that these plans are likely to have higher premiums. But again, if you answered yes to any of the above questions, that may be the most preferred option for you.
Another option may be a high-deductible plan, which can be utilized in combination with a Health Savings Account (HSA). This could be a good option if you answered “no” to all of the above questions and you are the type of person that rarely sees the doctor. This will mean that your monthly premiums won’t be as high, but if you did have a healthcare expense, you’d have to come out of pocket more in that instance. You can also save money toward an HSA plan, which would allow you to use pre-tax dollars to pay for future healthcare expenses. And, if you don’t have any healthcare costs, you can carry over your balance from year to year.
With disability insurance, you may have the option to elect short-term and/or long-term coverage. Short-term coverage usually lasts between nine and 52 weeks and may provide a percentage of your pay if you are unable to work due to a short-term disability event. Be sure ask yourself some of the same questions mentioned above when evaluating if you should elect short-term disability coverage or not. The main event that affects many people is pregnancy. But, don’t assume you can hold off on coverage until you’re pregnant and then sign up. If so, you would be highly unlikely to solidify any coverage at that time.
Another option is long-term disability coverage. This would kick in if you experienced an event that caused you to be unable to work for a period of more than six months typically. The key to evaluating whether or not to purchase or elect this type of coverage is first to see what your company offers. You may find that your company will pay you 50-60% of your paycheck in the event of a long-term disability event. If this is sufficient for you, then don’t purchase any more. However, if not, then you may want to explore purchasing more coverage through your group plan or through a third-party provider.
Life insurance, similar to disability coverage, is something that your company may offer to you for no cost. Many companies provide employees with life insurance benefits equal to a multiple of their salary. If the amount you are receiving at no cost is sufficient for you, than there is no need to purchase additional coverage. If not, then you should look into what it would cost to purchase additional coverage through your plan and compare that to what it would cost to purchase coverage elsewhere. Group life insurance plans may provide much lower premium options, plus, you will not have to qualify with good health.
One thing to consider when comparing group life coverage to third-party coverage would be the ability to keep coverage once your terminate employment with your company. There are group plans that allow the retention of coverage as a benefit, which is something that can be a significant benefit, especially to someone who is generally unhealthy or uninsurable.
When you are selecting how much of your paycheck you want to save toward your 401(k), make sure you know how your 401(k) works first. The worst thing you could do here is to leave what I call “match money” on the table, or not take full advantage of your employer match. If your employer will match your contributions up to 5%, then you need to do everything you can to contribute 5%.
Secondly, if you don’t elect an appropriate contribution percentage up front, you may get used to receiving a certain amount of money each paycheck, which could make it hard for you to increase your contributions down the road, especially since many people will not review their contribution amounts nearly as frequently as they should. If you shoot too low and let your plan sit for a few years, you might have missed out on a few years of additional funding that you might need down the road.
Lastly, it’s important to make proper asset allocation choices. This is perhaps equally as important to choosing your contribution amount. For the unsophisticated investors out there who are in a hurry to start performing on the job, imaging you chose a “stable value fund” because, well who doesn’t like the sound of that? But, after 20 years, that stable value fund will likely not have averaged as high of a return as a well-diversified portfolio that includes allocation to equities. This is something that can also severely hinder your financial progress down the road.
The Bottom Line
Taking the time to make proper selections within your employer-provided benefits package is crucial. A wrong choice could end up costing you and a right choice could significantly boost your financial plan. The next time you find yourself in that position, be sure and educate yourself on all of the options and seek qualified help in order to maximize the benefits you are offered.
CarsonAllaria Wealth Management does not give tax or legal advice. Please seek tax and legal advice from either a qualified tax specialist or an attorney.
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