Ep # 53: Don't Fall Into Open Enrollment. Tackle It Head On!
Be forward looking with any family or medical changes that may happen in the next year - 3:30
Health Savings Accounts, Flexible Spending Accounts - 5:03
Other insurances to consider - 7:04
Quick run down in disability - 10:39
Retirement savings, 401ks - 13:56
The roll that open enrollment plays in big picture planning - 18:55
Watch the full video on YouTube:
Benjamin Haas 00:03
Hi everyone and welcome to A/B Conversations where we will help you CFP your way out of it. A podcast where you get into the minds of a Certified Financial Planners on how we think and feel about everyday financial planning questions and what should really matter most to you. A healthier financial life starts...now!
Adam Werner 00:30
Hey Ben. It's October.
Benjamin Haas 00:31
It's October, new season, new month. We know the Eagles are not great but maybe not horrible. We're not playing postseason baseball here in Philadelphia and all the Fall decorations are out in my house. Oh, yeah, basketball.
Adam Werner 00:49
Sixers start in 2 weeks. That'll be fun to see what happens there with Ben Simmons.
Benjamin Haas 00:55
Less than number 25.
Adam Werner 01:00
So what are we going to talk about today?
Benjamin Haas 01:02
Well, in the theme of new season, Fall, end of the year, what usually kicks off our last three months is when presented with the opportunity, wink, wink, nudge, nudge, to talk about benefits for those that are still working: open enrollment period! And I mean, I'll let you maybe frame this up. I think this is definitely one of those parts of a financial life sometimes easily overlooked.
Adam Werner 01:32
Yes, that's definitely the case. I would agree with that wholeheartedly. Yeah, I think in our realm, where we are, our bread and butter, as we kind of alluded to in past podcast is the retiree folk or the pre-retired segment of the population. So maybe this open enrollment conversation doesn't necessarily have to apply. I think that's where for us, our younger clients or just those that are getting close to retirement, factoring in the benefits that they have available, making sure that it does actually line up with all of the other pieces of their financial life. Making sure that the benefit elections that they make or maybe have not made up to this point, fit into that grand scheme and that they're not duplicating effort in certain arenas.
Benjamin Haas 02:21
Right, because I think, to tie your comment and my comment together, again, some of this is just life. You get a new job or you're presented with a new benefits package. Maybe you're moving, maybe there's trainings going on, a new schedule, new people, it's kind of easy. I'm giving people the excuse to go, oh look, let me check a couple boxes on these things, get it over with and then another year goes by and you think to yourself, well, did it work? Well, it didn't not work. So I'll just renew all those same elections and that may not be the best way to go about it so this is this is twofold. Let's give a little education around what are those things that are typically involved in the decision-making process, open enrollment. Some things that we would want people to focus on and then also make the point here that this is a part of what we can do for you. Review some of those options within the context of what do you really want to accomplish, to just make sure you're being as efficient as possible with what's being offered to you and how that can help maybe negate what needs to come out of your pocket or what needs to be in your own financial plan, developed, outside of work.
Adam Werner 03:30
Yeah, and acknowledging that not all company benefits are equal from company to company, right? Some are very different, where going outside of the company plan for whatever that benefit may be, may be advantageous. But yes, certainly we are open to going through that and at least reviewing. I think the most obvious for most people, when they think benefits through work, it's the medical coverage. It's the health insurance portion of that. Obviously, that's not something that we do, we offer. The medical insurance side of things, but just a little bit of thought in advance can go a long way. If you know that next year, or let's say, let's use us as the example. Our wives, if either one of them is pregnant or could become pregnant.
Benjamin Haas 04:26
This is not a scenario out there.
Adam Werner 04:28
And it's not in my in my house either but if you knew you were going to spend on a birth, a surgery for example. You knew something was coming up that may influence you to choosing if you do have different options within the medical plan, maybe a lower deductible plan, knowing that you're going to use it you're potentially going to max it out. The tradeoff being there's going to be slightly higher premiums. It's just how many different ways can you get to the end result. If you have the idea of what you're going to spend from that standpoint.
Benjamin Haas 05:03
So that is a great example of being very thoughtful and forward looking. This is what we want to do in planning. When I also think about medical, I would go into sometimes there are options to have some sort of health savings account. Maybe there are flexible spending accounts. I don't think we need to go into the nitty gritty details but there's a way where you can take advantage of maybe more control over what that expense might be to you, maybe socking some money away for future health savings. If you know you're not well, you're not anticipating more children, you're not anticipating surgeries in your example, right? I don't really think we'll use out deductible - healthy family, great thing. So it's to at least understand what all your options are to truly be thoughtful and not just check a box.
Adam Werner 05:48
Yeah, we've talked about the HSA, the health savings account in other iterations of the podcast and that's one of the until the IRS says, hey, we're going to close this window on this great tool. It really is one of the best ways to save tax deferred, you're getting a tax break up front, it grows tax deferred over time, and then if you use it for healthcare expenses in the future, it's tax free. So theoretically, it's money that you will never pay a dime of tax on and it doesn't really get much better than that.
Benjamin Haas 06:22
And it may be one of the few things in financial planning that we can usually confidently say, this is probably good for everyone. To get some money set aside, use it when you need it and if you don't need it, it's only helping things later in life. So yeah, medical plans good to review. The only other situation I had in my notes was, again, when you have husband and wife, when you have a two working, dual income? When you have dual income family, two different health care plans, it is sometimes to assess is one really better than the other where you don't need to both just default to your employer plan.
Adam Werner 07:00
Yes, that's a that's a very good point.
Benjamin Haas 07:04
Other insurances, open enrollment?
Adam Werner 07:07
So the other one that comes to my mind is the life insurance side of things. Group Life is typically, well, let me take a step back. More often than not, what we see is there's usually some sort of nominal employer provided coverage, whether that's, one time your salary or one and a half to two, whatever that ratio is, but there's usually some nominal employer provided coverage, if you do nothing, you're going to get this this base amount of coverage. Then there usually is the option for voluntary life insurance coverage over and above that and that's usually capped to some degree as well. But where we see that really come into play is Group Life Insurance is typically much cheaper than most other types of life insurance that you can get outside of the company plan because you are being pooled with many and other employees. So from an insurance standpoint, it is one of the cheapest ways to get essentially temporary coverage. It's not portable, if you either retire, you quit, you're fired, whatever the case may be, once you leave that employer more often than not, that coverage then also stops so it's important to keep that in mind, too.
Benjamin Haas 08:28
Yeah, so there's the con but where I see us, oftentimes giving some more detailed advice in this space is not just to compare the cost but to think situationally again. Like you brought up with the medical benefits and what may be going on next year. You've got a child going off and starting college, this may be a four-year window where beefing up your life insurance just temporarily because you're able to make those adjustments on a year-to-year basis may be a real good and efficient way to say God forbid something happens, here's a little bit of extra life insurance for my survivors, for my kids to get through that phase of life, knowing that you could just reduce it again when that phase of life is gone. I think it is to be thoughtful about pairing the benefit with specific things going on in life.
Adam Werner 09:13
Yes, definitely and that ability to adjust that in any given year. Open enrollment time period is flexibility that really doesn't exist elsewhere when it comes to insurance. So that's a great point I wanted to hit home on. So how about disability insurance? Another benefit. We often talk about the biggest potential for someone's financial future is their ability to earn an income. I think people often default to well, if I'm not here anymore, I want to make sure that there's a life insurance or proceeds to take care of my family but what if you don't pass away and you just can't work. You're incapacitated to whatever degree. Having some sort of benefit to help replace that lost income is huge.
Benjamin Haas 10:11
Adam Werner 10:12
And so, again, varies from company to company, sometimes it's provided, sometimes it is voluntary, I'd say more often than not, it's voluntary. But that's a key component that we often see overlooked when it comes to the benefit side of things is that disability insurance coverage in general often gets pushed to the side.
Benjamin Haas 10:39
Yeah, and so as to not make this a podcast on disability, which I guess we could do because there's enough talk about here. I'm gonna rattle off a couple things. You make sure you hit on anything else that would be on that. If it is coming through a group plan, it's important to know that those benefits would be taxable to you. There usually is a cap to the percentage of income that's being protected, let's just say 60% of your salary. At the same time, there's usually a waiting period where you're not going to get those benefits on day one. You have to be defined as disabled by somebody and sometimes that needs to be looked into, is that the employer's doctors, is that your own? All the way down to again, just trying to be thoughtful on it's far more important to us to make sure the income is protected when you're like a solo income family. When the family is really relying on that one income versus maybe it's two incomes, maybe you have a decent cash reserve that can get you through those spotty times in life. I think there's just a lot of external factors that go into that advice as well. I'll pause there as there might be more.
Adam Werner 11:45
So just one other thing that I would note there. Similar to the life insurance that we kind of talked about, if you were to leave that company, it is not portable more often than not, it would end as soon as your employment would end. So the disability realm is oftentimes where we see going out and getting your own individual coverage outside of the employer, while it may not be as cost effective, you control that. It's not tied to your employer so at any point, if your job title stays very similar and you just move from company to company, that policy can continue in its form without having to start over from scratch every time.
Benjamin Haas 12:27
I think the last thing that now is triggering in my mind when you control that there are certain triggers, I would say within a policy that you can control as well. Meaning am I able to collect benefits, if I can't do my job, versus any job that's out there? Two incredibly different things. So yeah, I'll just say in the span of open enrollment and then maybe how that ties into your own plan. There are a lot of nuances here to be discussed but at least in the spirit of open enrollment, understand what's available to you. Understand that, just like you said, with Group Life Insurance, Group disability, oftentimes would be probably a little more cost effective to at least get that first bit of benefit whether that's 50% of your salary, or 60, or something like that.
Adam Werner 13:16
Yes, we often see that the group benefit paired with an individual benefit or an individual coverage outside.
Benjamin Haas 13:26
Okay. Anything else on insurance?
Adam Werner 13:30
Benjamin Haas 13:31
Group benefit, then my mind, also, of course, goes to retirement benefits. Hope, I know this can span the gamut to on what type of company you work for. Is it a really small business? Is it more of a corporate, large entity, but more often than not, we would see that there's some sort of retirement plan being offered so what are the considerations? How do we talk about it with our clients? Open Enrollment.
Adam Werner 13:56
Yeah, I think we often talk about it in terms of, if you're getting towards this part of the year, we're just reviewing your plan number one. We've often talked about and we hear from a lot of clients that when they get their raise, whatever that may be. They're viewing what they're contributing to that retirement plan and if they don't see it in their paycheck, they don't feel like they're apt to spend it. Yeah, just increase the savings that they're doing and it's money in, money out, and you never really see it or feel it or are tempted to actually use it for the day to day living that can often be tempting to want to have a little extra.
Benjamin Haas 14:42
Yeah, so I start with and maybe this isn't necessarily an open enrollment thing but when you get a new job, make sure that you're signing up for the plan. We would always say if there's free money, if you're being incentivized to contribute. You put in 3%, we'll match it - whatever those formulas are. Take the free money but to your point, you may be able to adjust some of the things within your plan at any time within the year. But open enrollment is a good time to go back and just make sure there are a couple basic things that you're double checking. To me, yes, what are you contributing? What are those investment selections? We're seeing more and more that companies are adjusting what's available from time to time. Beneficiaries. Make sure, this is one of those things that when you open the plan here, I said my spouse. 10 years later you haven't looked at it. Maybe you're no longer married to that person, maybe you've had a couple children. You do not want to put yourself in a situation where, God forbid, your heirs are going to be surprised by the name you had listed as a beneficiary and I speak from experience. One client that kind of forgot about that one.
Adam Werner 15:55
Yeah, and I know we've talked about this before too but just to reiterate, the beneficiary designations supersede any estate planning documents, your will. So if you name somebody on as a beneficiary of an account, it doesn't necessarily matter how your will is written or who you're leaving money to in your will, the financial institution will follow that beneficiary designation first.
Benjamin Haas 16:18
And again, we I think, would see this more often with an IRA or something that you just write a little bit more attention to. You establish this 401k at the company 15 years ago and I haven't looked at the beneficiary designation since.
Adam Werner 16:31
So one other thing to add on the 401k side. We've seen this increasing the last handful of years. It used to be typical that the 401k, if it's a 401k, was all just a pre-tax option. You got the deduction for contributing the funds, it grew tax free, you pay taxes when you take it out. There is a now more commonly a Roth 401k option, which changes it up a little bit. You're putting in your contributions with after tax dollars, you're paying the taxes on them today, it's going into that same 401k type platform but it's being segregated the side by its tax title. It's growing tax deferred the same way it was before but now when you go to use it in retirement, you're able to take that out without paying the taxes. So we're certainly seeing in our clients and it typically happens with smaller companies that are adding these features over time. It would just be one thing to check,or maybe there would be an announcement that if that became an option, it may be something to look into based on your situation.
Benjamin Haas 17:37
Yeah, and like many things here the answer to should I do it or shouldn't I do it? This one is definitely is it depends. Maybe it's a phase of life thing I think, especially if you don't qualify for the Roth IRA outside of the plan then maybe it becomes even more attractive to look within it. But I think there's a lot that goes into it but absolutely a great point to make. It's not only getting into the plan, knowing what you're deferring, getting the match, knowing the investment selections, getting the beneficiary, but having to decide what part of your savings is going pre-tax or post-tax is a is another thing to consider and I would say on an annual basis. Is there other inputs based on your other income, your other investments, your other tax inputs that are going to help us determine what to do and when. I don't want to spend a whole lot of time on I have kind of the one-offs. Depending on the company, maybe you have some stock options. Maybe when you start with a company, there's pension decisions. I think those are maybe not as important for the podcast today but they need to be lumped into this conversation on if you have these types of decisions to make, once again, please reach out to us so we can get into some of the nuances of that.
Adam Werner 18:55
Those especially and for all of these benefits and maybe we alluded to it earlier, we would just want to make sure that any of the benefits that you have elected, that they fit into your overall planning strategies. Like you said, our hope is to be as efficient as possible. Remove any duplication of effort or expense and just make sure that you do have the box checked on those items that that are very important when it comes to the life insurance, the disability all have those things. God forbid something happens. You want to make sure you have the coverage.
Benjamin Haas 19:36
Yeah, it's highly unlikely somebody's going to come to us in the future and go, I really want to work with you because you'll help me with my open enrollment. It's far more exciting to think about big picture planning, retirement, educating kids, the legacy planning and charitable work that we love to do too. This falls firmly in that camp of while those are the fun things to talk about. There are a lot of fundamental things that we think are really important to check the box on and as we said, to start this podcast, this is one that can sometimes get forgotten. But as I hope we illustrated in multiple ways, year by year, life can change. People go through transitions, it's relationships, it's kids, it's moving, situations, careers. Let's make sure we don't miss something in this category.
Adam Werner 20:24
Very well said and if that seems too daunting because there could be a lot of moving pieces. We're here, lean on us. We can at least give some education. Shine some light on your options and point you in the right direction.
Benjamin Haas 20:39
Thanks so much, we can be the fallback option on that.
Adam Werner 20:44
Oh, man, I see what you did there.
Benjamin Haas 20:46
Oh, it's so bad. It's so bad.
Adam Werner 20:49
I mean, that was pretty seamless.
Benjamin Haas 20:51
Tune in next week for another bad dad joke.
Adam Werner 20:56
They're only bad if you don't laugh.
Benjamin Haas 20:58
As always, thanks for your insights and hopefully everyone enjoyed it.
Adam Werner 21:04
Benjamin Haas 21:06
See you soon. Hey everyone, Adam and I really appreciate you tuning in. Please note that the opinions we voiced in the show are for general information only and are not intended to provide specific recommendations for any individual. To determine which strategies or investments may be most appropriate for you. Consult with your attorney, your accountant and financial advisor or tax advisor prior to making any decisions or investing. Thanks for listening!
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