To follow one of the worst weeks in the market this year, last week was one of the best, and a great example of why you should stay invested through ups and downs, and not try to time the market. The Federal Reserve Bank held steady on interest rates, and Friday’s jobs report showed a slowing labor market, as unemployment ticked up to 3.9%.
As earnings season comes to a close, many employers are starting open enrollment, time to select new benefits. There are four big areas to look at for benefits, starting with health insurance and associated savings accounts. We are big fans of High Deductible Health Plans, because premiums are normally lower than other plans, and you have the ability to save in a Health Savings Account, which is the only triple-tax preferred savings vehicle.
The math we use to compare plans is simple: take the annual premium plus the deductible, less any contributions your employer will make to your HSA. A quick check of your maximum annual out of pocket, and to make certain your doctor is still in network is also important. Fund the HSA as much as your budget will allow and, if possible, pay copays and other expenses out of pocket.
Contributions to an HSA are tax free, the money grows tax free, and distributions for medical expenses are tax free. If you have an HSA, check out your investment options to help the money grow. If you have a High Deductible Plan and HSA, you can also have a limited Flexible Spending Account, or FSA. This is only for dental or vision expenses and use it or lose it.
In the same group are Dependent Care Accounts, used to pay for childcare on a pre-tax basis. This includes before- and after-care, and day camps in the summer.
The second area to consider is disability insurance. This protects your ability to earn a living, and pays benefits if you are injured or ill, and unable to work. This is different from worker’s compensation, which only covers you if you are injured on the job. Most people need disability insurance, as losing the ability to work and earn a living would be financially catastrophic. If your employer gives you the option, pay this premium with after-tax dollars; if you end up needing the insurance, the money comes to you tax-free.
Third, look at employer-sponsored life insurance. This is especially important if you are unable to obtain insurance personally due to health concerns. If you’re healthy, it’s wise to compare the cost of a personal policy, as you can lock in premiums, and retain your coverage if you change jobs.
Fourth are all the miscellaneous coverages. We aren’t big fans of specific disease policies, like cancer or heart attack, unless you have a genetic predisposition. Same goes for Accidental Death & Dismemberment; it’s like betting the farm you’re going out in a fiery blaze of glory.
Your action item this week is to write your holiday budget. Black Friday is rapidly approaching, and having a plan can help keep costs in check.
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CovingtonAlsina is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.