It is legitimately blowing my mind that this year is almost over. Like what is it, the end of October? Halloween was basically yesterday. And tomorrow is Thanksgiving and Christmas is this weekend. Am I right or am I right? The next couple months will go crazy fast!
So, with it being the end of the year, now is the time that most companies have open enrollment where you can review and change your benefits. We are talking health insurance, vision and dental options, 401K and other retirement options, HSA accounts, etc. It can all be super overwhelming, but it’s a good time to be able to automate some retirement savings, and we are here to walk you through it!
So here are three tips and things to consider when for looking at your open enrollment. Hopefully it will provide some reassurance and not make you feel like you want to stress barf.
Know your medical needs
When choosing your medical insurance, it is good to think of what you might have coming up. For us, there were YEARS that it made sense for us to keep the same insurance because we knew we would be doing fertility treatments or birthing babies. Last year was the first time in a decade that we didn’t have to consider that! That being said, we realized that aside from routine visits, we are all relatively healthy and don’t need super comprehensive coverage and could opt for a higher deductible plan.
So when signing up for yours, think about what you might have coming up for the year. Kids with problematic tonsils? Chronic allergy or asthma issues? Possibly adding a baby to your family? A knee or shoulder that has a pending surgery? Those might all be things that prompt you to choose a plan that potentially has lower copays and deductibles, so that you aren’t needing to pay so much out of pocket. Those plans will likely be more expensive and because of that you’ll have more deducted from your paycheck, but you can determine what works best for you.
The same goes for dental and vision coverage. Our dental insurance is EXPENSIVE. But we also have five kids, so it will pay for itself when everyone gets their cleanings. And in future years as kids will be in braces and such, it just makes financial sense. However, I would look closely at what your annual maximum for the dental coverage is and see how much you are paying for your premiums. There are situations in which it makes more sense to pay out of pocket for your dental care than it does to have dental insurance.
Max your HSA
Not every company offers an HSA (and it is different than an HRA, so read fine print!) but if you have access to one…USE IT! A Health Savings Account, or HSA, has long been tauted as the triple threat as far as tax benefits go. You put money into it tax-free, it grows tax-free, and you can pull money out of it for health expenses tax-free. What the what? I know, it’s basically the magical unicorn of investment accounts.
For 2022, single persons can contribute $3650 or $7300 for family plans. When we first started ours, I thought we would just put in enough to cover our annual deductible. I figured that was what it was for, to just cover current medical expenses. What I didn’t realize, is that most companies allow you to invest your contributions too. For us, anything above $2000 in the account gets invested. Another thing that I didn’t realize, is that there currently isn’t any rule for WHEN you use the money you put in. So it isn’t a “use it or lose it” situation. A lot of people in the Financial Independence Retire Early community will use this to fund their medical expenses once they’ve retired and don’t have traditional health benefits anymore. Genius!
We count this towards our savings rate. We max it out yearly and love that it is tax-free! There might come a day that we have a medical emergency that we will need to use it for, but until then, we keep investing it so that the money isn’t just sitting in an account doing nothing. All you need to do to ensure the same for you is log in to the company website that holds your HSA. When you see your balance, you’ll have the option to move money to an investment account. Once there, you can choose stocks you’d like to invest in. We always choose index-type funds that are pretty straight forward and dependable. Making this automated investment might take a few minutes to set up, but once it’s done, you’re golden! Set it and forget it! (And then retire with medical funds!)
Review finances and make changes to 401K
Most open enrollment refers primarily to health benefits and HSA, but it is a good time to look at your retirement contributions and make a game plan for next year. So here are a few thoughts on your 401K.
First and foremost, see if your company matches retirement contributions. And maybe you’ve heard the Dave Ramsey commercial where he says don’t take the match? I’m here to tell you in my humble and not-billionaire opinion, that he is DEAD WRONG. It’s free money! TAKE IT!
Okay, with that out of the way, let’s dive in. When Philip first started working for his company and was making barely over minimum wage, we started small, just contributing enough to get the company match. And then when he graduated and had a grown up salary, we still put in enough to get the match. Why? Because we had mountains of student loan debt that we were trying to pay down. And while Philip had increased what he was putting in, it wasn’t until two or three years ago that he started maxing it out. But the nice thing about retirement saving is that it is a bit of a snowball. So while those early contributions were small, it was enough to get the ball rolling. So just start somewhere.
For 2022, you can contribute $20,500 to a 401K. For us, we have decided that maxing it out is an easy way to automate a big chunk of our savings. The automation has made saving so mindless for us, it’s been really helpful.
So look at what your current investments are. See if you can stretch them a little further. Because get this: if you were to increase your retirement savings by $1000 a year, it would only decrease your paycheck by about $38. But do you know what you’d get in return? Assuming it’s invested for 20 years with an average of 8% returns, that $1000 can turn into over $45,000. Um, yes please? Now think if you have longer to invest that? And can invest more? See what you might feel comfortable investing this year, it will make such a difference!
My plug for automating savings
A few months ago I had a friend reach out to ask about finances. In our conversation she asked, “Do you really only focus on the savings rate percentage rather than the percentages of like, housing, food, entertainment, utilities, etc?” And the answer? A solid YES.
For us, we figure that as long as our overall savings rate is as high as we want it, we aren’t concerned about the breakdown of percentages in our monthly expenses. It is so helpful to not have to think so hard! So basically, whatever gets deposited into our checking account has already trickled down through the filters of taxes, insurance benefits, 401K, and HSA contributions. Which means, the bulk of our savings has already been done! I stress less about how much I’m spending in each specific category of our life.
Now that being said, that is also a product of paring down so many of our monthly expenses previously. Phone bills are paid annually to Mint Mobile at a fraction of our previous cost. We pay our auto insurance every six months and we cut that almost in half. We don’t have a monthly car payment. There are a lot of things we’ve been really intentional about, so now we can relax a bit on the other things. On fun things! Of course I’m always looking for a deal or to save where possible, because of course I am. However, I don’t have to stress about every last dime because I know our retirement is taken care of already.
Now you try!
I’m excited for you to tackle 2022! It feels so good to know that small changes can amount to big dividends later! Automate your savings so you can kick back and enjoy more and worry less.