Is your open enrollment deadline weighing down on you? Do you feel a persistently anxious feeling because of it?
Of course you do. Benefits have gotten not only more complicated, but more numerous. The benefits booklet (PDF or website) has turned into a novella. An unbelievably boring, stressful novella.
You’re Not Insane. All This Choice Makes Us Unhappy.
There is a persistent notion that more choice is better. So, employee benefits—which used to include health insurance and life insurance and 2 weeks of PTO—now include legal services and transit passes and dental insurance (3 choices) and 30 investment options in your 401(k).
What’s the problem with this approach? With this seeming abundance and generosity on the part of your employer?
The problem is that more choice makes us unhappy. There’s lots of research out there showing this, as this Ted Talk entertainingly demonstrates.
As in so many other realms of your life, artificially restricting your options can actually make you happier and more productive.
Read the Whole Thing, Even If You Don’t Understand It or End Up Ignoring Most of It.
I don’t suggest you ignore the benefits available to you. For one, many of them are free. No choice involved there. (Although you still probably feel some stress around “needing” to take advantage of them.)
So, I suggest you approach benefits in this way:
Step #1. Read the description of all the benefits available to you. Just once. Who am I to know if one of the many is particularly applicable to you? Or if your life will change in a few months and all of a sudden you’ll say, “Oh right…I’ve got that benefit that’d be really handy right now.”
Step #2. Focus only on the few benefits that can have an outsize impact on your life.
Boom! All of a sudden you have only, say, 3 choices to make, instead of 20. Don’t you feel better already?
Spend Your Time and Anxiety On These Benefits
Make these choices thoughtfully and then channel your inner George Costanza and call it a day.
This is the bogeyman of benefits choices, right? And for good reason: health insurance is expensive, and health care is expensive, too.
When my husband used to work for Hewlett Packard, HP offered a tool named “Alex” that helped you decide which plan would be best for you, given your expected health care needs. I loved it. If you have such a tool, I encourage you to use it. Otherwise, take a look at this article (or similar; I’m sure there are 100s out there), which leads you through a fairly straightforward process for choosing a plan.
And please do take a moment to consider a high-deductible health care plan (HDHP, with Health Savings Account (HSA)). You pay a much lower premium, in exchange for having a much higher deductible. The higher the deductible, the more you have to pay the doctor right out of your pocket before your insurance kicks in.
I find most people look at that high deductible and run screaming. However, the difference between the premium you pay for the HDHP plan and a lower-deductible plan, like a PPO, can be so big that unless you had, well, catastrophic health care problems, you would save money on the HDHP.
If you do choose a HDHP plan, consider putting aside into either the HSA or simply a bank account some of that money you’re saving on the premium, so you can spend it on the medical bills which will be coming 100% out of your pocket for a while.
Three things to know about disability insurance:
- The earlier you are in your career, the more important disability insurance is.
Why? Because it protects your income. At an extreme, if you become fully disabled at age 25, and can no longer earn income, you are losing out on far more money than if you worked fully until age 40, and then became disabled and couldn’t earn any more money. You’d at least have earned all that income in the intervening 15 years.
- A lot of people become disabled at some point in their working life.
More than 25% of 20-year-olds will become disabled during their working life.
- Private disability insurance is expensive.
So expensive that most people will simply not buy it on their own. “Group” coverage, like that offered by your employer, is so much cheaper. For free, if you’re even luckier.
Now, I don’t know your situation. And financial decisions depend on your personal situation. But most people are so radically underinsured against disability, that I’m going with the averages here when I say:
If your employer gives you any choice in the matter, it’s almost certain you should take advantage of the group disability insurance coverage through your company, and pay up for the highest “replacement rate” possible. Many companies, for example, give you coverage of 60% income replacement and allow you to pay more to get 70% replacement.
With most of my clients, I simply get them on the employer disability insurance train ASAP, usually at the highest possible “replacement rate.” And then later we worry about dialing in the exact amount of disability insurance that’s appropriate for them and possibly getting a supplemental individual policy.
Flex Spending Accounts (FSAs) If You Have Significant Health or Childcare Expenses
This benefit is all about saving on taxes. Any money you put into an FSA avoids income tax.
I think you should only spend time and worry figuring how much to put into your FSA if your qualifying FSA expenses are going to be many thousands of dollars in the next year. Childcare expenses usually qualify as such, or if you know you’re going to have an expensive medical procedure (Lasik, anyone?).
But if your FSA expenses are, say, $1000 or less each year, yes, saving income tax on $1000 is nice. An extra $300 in your pocket. But most likely it isn’t going to change your life in the least.
401(k) Contributions and Investment Choices
Now, don’t get too wrapped around the axle around this. Normally, you can make changes to both the amount you contribute and how it’s invested throughout the year.
That said, open enrollment is an excellent reminder that you should be paying attention to your investments, oh, about once a year. And if you’re not already saving at least 15% of your income for retirement, can you increase your 401(k) contribution by 1% this year? Eventually, you’ll max it out ($18,500/year starting in 2018), but let’s take the “slow but steady” path to getting there.
At least make sure you’re contributing enough to get your full employer match, if you have one.
Don’t Worry About Giving Short Shrift to These Benefits
And then there are the 20 other benefits that tend to make our eyes glaze over and make us want to give up. You know what? F**k it. If you choose a reasonable health insurance and disability insurance and are saving to your 401(k), you’re good.
In particular, I think you can give scant attention to:
Frankly, in my experience, this doesn’t provide much benefit. It’s more pre-paid expenses than it is insurance. Insurance is supposed to protect you against catastrophic loss, that is, loss you can’t afford.
Well, if the most you get out of your dental insurance is a max of $1500 a year, that’s not really insurance. Sure, it can still give you some financial benefit if what you pre-pay is worth more than the benefits you get from your dentist, but this isn’t a make or break choice.
If no one depends on your income, then you needn’t worry about life insurance at all. On the other hand, life insurance is Extremely Important if you have anyone who does depend on your income. But life insurance through your employer is not the solution here.
If you get life insurance through your employer, that means the insurance goes away (or has to be converted to another policy, possibly a less good one) when you leave your job. Nope nope nope. Life insurance is supposed to just Be There until you don’t need it anymore.
So, if you need life insurance, get a private policy that doesn’t depend on you staying with your employer. Unlike disability insurance, private policies for term life insurance can be quite affordable.
If you get free life insurance through your company, great! Not gonna complain. But I don’t think you should rely on it when making life-insurance choices.
You probably have a billion little benefits available to you. Sure they can help out, but they’re nice to haves, not must haves.
I have a client who recently started working at Google. She discovered that she can use the “personal education reimbursement” for part of the fees she pays to her running coach. So, hey, a few hundred dollars back in her pocket is great. But again, keep it in perspective: it’s not much compared to her savings ability from her healthy income.
In this here crazy modern life of ours, we have lots of money decisions to make, and too little time and energy and education to make them all well. So, don’t deplete your time and energy trying to get all of these innumerable decisions right. Focus on the Big Decisions and get them right. Starting with open enrollment.
Sign up for Flow’s Monthly Newsletter to stay on top of my blog posts (and the occasional video), and also receive my guide How to Start a New Job (and Impress Yourself and Everyone Else) for free!
Disclaimer: This article is provided for general information and illustration purposes only. Nothing contained in the material constitutes tax advice, a recommendation for purchase or sale of any security, or investment advisory services. I encourage you to consult a financial planner, accountant, and/or legal counsel for advice specific to your situation. Reproduction of this material is prohibited without written permission from Meg Bartelt, and all rights are reserved. Read the full Disclaimer.