Financial Planning with Your Employee Benefits

Financial Planning with Your Employee Benefits

Benefits are a big part of many peoples’ financial planning. Without benefits offered in the workplace, many people would not be prepared for retirement or health costs or many other life situations that arise. Many employees have come to rely on these benefits in place of doing their own research, analyzing alternatives, or meeting with financial planners on their own.

Utilize the tax savings

Beyond financial security, many employee benefits are valuable for their tax-shielding ability. Retirement, medical, and insurance benefits provide some of these tax savings. You might consider how to handle the tax savings that you originally got from any tax-deferred benefits. They won’t magically end up in your hands, so you must calculate what they actually are and then set aside that amount of money, perhaps in a special account for just this purpose, so that you can direct how it is used.

You, the financial planner

You still must do a certain amount of financial planning for your benefits. If insurance premiums rise, you might be asked to contribute more, so you may need to refigure how your coverage is set up. Can you afford to increase a deductible? Can you reduce coverage, and if so, do you have a way to pay for what is not covered in the event that something unfortunate happens? In cases like these, it may be helpful to set aside a separate fund or redirect a tax refund to build up money for just such a thing.

Another planning issue involves reimbursement plans, such as the popular flexible spending account. You must determine how much to put into the plan, which means you must accurately estimate what you will spend in the coming year on expenses. This can be hit or miss for some people, so it pays to plan your medical care to the extent possible. Also, you must consider that in some cases, you may forfeit a portion of unused funds at the end of the year. Therefore, a certain amount of financial counseling may help you make the most of how you plan your benefits.

The downsides

Consider some downsides of your tax savings. The monthly payout that you get from Social Security at retirement is based upon your earnings during your working years. Redirecting wages during your working years into an employee benefit plan can shield it from taxes, but this may result in a slightly lower benefit at retirement. And funds paid out of a benefit plan for dependent care costs interfere with your ability to take the child care credit on your tax return. In these cases, you might sit down with a counselor or financial planner and do some math to determine how to get the most out of the money you are spending.

Although company benefits can put our minds at ease, sometimes we get the nagging feeling that they are not competitive with what’s out there. Is your company’s health insurance plan better than one that you could buy on your own—even an individual one? What about its life or disability insurance? In these cases, some research on your part might uncover better deals outside your company.