The Essentials: 3 Things to Consider During Open Enrollment
It’s November and most likely your company is in open enrollment right now. This is a good time to evaluate the upcoming year and plan ahead. Here are 3 things to review during your enrollment period.
1. What insurances do you need?
I often refer to insurance as buying a big bucket of money for when you need it. Insurance is an essential piece of a financial plan because if you have long-term financial objectives, you need to consider how to reach these goals even if life doesn’t go as planned.
During open enrollment it is important to really think about what you may need in the upcoming year. It is also important to review any changes in offerings.
Make sure your medical insurance works with your medical providers and review the best option for covering your needs. Often there are minor differences between plans in the cost of doctor visits and preventative care. It is also important to check deductibles. If you don’t usually need medical care, don’t be too worried about high deductibles and make a plan for saving money to pay for any out-of-pocket expenses.
Also, consider contributions to Flexible Spending Account and Health Savings Account offerings. These plans can be a great way to pay for medical care in a tax efficient way.
Often group insurance is offered for no cost or just a small premium. Some plans also offer supplemental insurance for a cost. Typically, the basic group insurance is not enough to cover your needs, so it is important to consider how to supplement it. However, make sure to compare your supplemental offering to the cost of purchasing individual coverage privately. If you are healthy, the cost of a term policy can be much more competitive than supplemental life coverage.
Accidental Death & Dismemberment
This is a type of insurance that is typically very low cost. Be careful not to pay too much for this benefit as it makes more sense to have a life insurance policy that pays out whether the cause of death was accidental or not.
Disability Income Insurance
Only about half of working adults say that they have enough savings to cover 3 months of living expenses in the event of their income being interrupted. Make sure to consider what it would take to keep you from performing your work duties and get enough disability income insurance to cover your loss of income.
2. Do you need to adjust your retirement savings?
You still have a few pay periods left to contribute to your company retirement plan for this year. It is a good time to consider your tax situation and adjust your deferrals if you need to get more money in the plan before the end of the year.
When planning for next year, consider increasing your retirement savings if possible. As the image below shows, even a small increase can make a difference. Also, if your plan offers the ability to make Roth contributions, take advantage of it to tax-diversify your retirement nest egg.
3. How do your withholdings affect your take-home pay?
Evaluate how any changes in benefits will affect your cash flow. It is a good time to take a look at your budget and make changes for the upcoming year. If your take-home is increasing, make sure to pay yourself first. How much can you save toward future goals? Set up automated savings as soon as your paycheck hits your bank account.
Also, it may be a good time to take a look at your tax withholding. If you normally get a large refund, consider lowering your withholding to put more money in your pocket each pay period.
“Don’t put off till tomorrow what you can do today.” – Ben Franklin
We typically don’t look forward to financial decisions and it is easy to procrastinate. Set time aside to get this done. It is also easy to just keep things the same because that fits in our comfort zone, but try to stretch yourself and push your savings up. Small increases each year can really help your future.