Benefit Bonanza

The Fed is meeting this week in what is being called “the second most important FOMC meeting of the year” (last month’s was the most important); third quarter Gross Domestic Product (GDP) is set to be released this morning; reports on personal income and spending tomorrow; then the October employment results on Friday, all of which are interesting, but do you no good as you sit before the open enrollment benefits folder that is begging your attention.

Corporate America uses the month of October to scare you into making some important decisions for the year ahead. While economic data certainly impacts your life, the specific benefits that you choose are likely to help you save or make money with far less energy than is required for studying the economy and adjusting your portfolio accordingly. Still, you may find yourself befuddled be by the number of decisions that you are facing, so let’s make sure you take advantage of the benefits bonanza.

Let’s start with the easiest one: retirement plan enrollment. I still can’t recommend a better way of saving for retirement than through an employer-sponsored plan. You should attempt to maximize your contribution to the plan limit, assuming that your cash flow can absorb it. If things are a bit tight, then at the very least, contribute the amount that will provide you with your employer’s match. If you are new to the company, you will also need to choose an allocation for your retirement plan contribution. Most plans default to the lowest risk option if you do not choose one, which is probably not the best choice for a long term investor. If you are unsure how to allocate, most plans will provide a risk assessment tool to guide you. Additionally, many plans now have “destination”, “target retirement” or “lifestyle” funds, which generally do the allocation work for you, based on either the type of investor you are or when you plan to retire.

OK, next is the health insurance plans. For this choice, you need to anticipate what your needs will be, including whether your doctors are part of a specific plan, how much money you are likely to spend on prescription drugs and how often you see physicians. Remember that changes in your life, like marriage, the birth of a child, or the diagnosis of a chronic disease, could change your needs from year to year. It is important to note that employees tend to focus more on health benefits than anything else. But other insurances are equally important. While you may receive a standard 1-2 times your salary for life insurance, many employers allow you to purchase up 7 times, at a reasonable group rate. Additionally, check out whether long term disability or long term care insurance is available-both of these are expensive when purchased privately.

If your company offers a way to save on a pre-tax basis for any of your benefits, than use it. But remember that these plans are “use it or lose it,” so be careful how much money you set aside. Finally, many large employers have expanded benefits to include commuting costs, adoption assistance and even low-cost legal assistance. While the universe of expanding benefits can seem daunting, utilizing them can help you achieve many of your long term financial goals.