Over on his personal blog, Platform for Good, our cofounder Shawn has written an excellent post on the advice he gave his daughter as she readied to select benefits through her employer for the first time. It’s chock-full of insights from an adult life spent contemplating how to make the best choices for your present and your future, organized into five helpful tips for making your benefits choices. Get on over there and give it a read!
If you’re in the FIRE vanguard, retiring in your late 20s to mid-30s, you’re (hopefully) living the dream healthy enough to enjoy your retirement to its fullest. If you’ve planned your housing, transportation and other common living expenses well, they will be quite manageable within your budget until it’s time to shuffle off this mortal coil.
But keeping that coil tightly wrapped gets harder with each passing year. Don’t risk your financial health by compromising on your physical health — get insurance. And not just the cheapest insurance. Make sure it’s good enough that it doesn’t leave you with huge bills if something bad happens. Such decisions and expenses should all be part of your FI plan, even if it means a few extra years of saving to be fully prepared for a long, healthy life of early retirement freedom.
Here are some tips for that early retirement health care party…
It used to be that your employer presented you with a single health plan and you had a simple decision: take it or leave it. Maybe, if you were lucky, you could pick between the wonderful worlds of HMO and PPO, with one promising low costs if you don’t get any bright ideas about having options, the other promising you that you can do whatever you want so long as you pay for it.
These days, we’re in the age of “healthcare consumerism,” which among many other things means that you’re on the hook for more of your healthcare costs. It also likely means that your employer is making a consumer-driven health plan (CDHP) available to you, which is the combination of a high-deductible health plan (HDHP) and a health savings account (HSA). If these are new or confusing terms to you, you’re not alone. Health insurers specialize in actuarial risk, not marketing and communication, so they often think that the best way to get you to understand a confusing phrase is to make it an acronym. Ugh. Calling something a “CDHP” and saying it’s there to help you understand and control your healthcare spend is like promising a better understanding of your personal finances and then handing you an abacus and saying “OK, have fun!”
But, as Bob Marley might say, don’t worry about a thing, ‘coz every little thing’s gonna be alright…once you read through this primer on which health plan is best for you, your family, and your goals of financial independence.
How we think about a topic affects our decisions. When it comes to the benefits that an employer offers us we can step back a bit and get a different perspective that will help us make better decisions and hopefully improve our lives.
First of all let’s acknowledge that the entire insurance and benefits experience is pretty darn frustrating. It is so tangled up and layered with jargon that we often give up before we begin evaluating our options. When you add in the complexities of government rules and programs it gets even more difficult to comprehend.
Here are some suggestions that hopefully will help you think about your benefits in a better way.
Did you know that your employer uses terms like “total rewards” when strategizing about what kinds of benefits they want to offer you? Did you know that those benefits can easily account for 20-35% of the “total compensation” they give you? Did you know that, cumulatively, employer benefits account for hundreds of billions of dollars every year, and that that expense, which rises 4-7% per year, is thought to be at least partially to blame for keeping your salary increases down?
There is much in the financial independence movement on the importance of saving for retirement, especially maxing out your 401(k) contribution and taking advantage of employer matches. There’s less information about the importance of your other benefits, especially health insurance.
Your employer thinks of your benefits, both retirement and health, as compensation. You should think of them as income — not just how selecting and using them wisely will help you reach your FIRE goals but also to ensure that your FIRE dreams aren’t derailed by bad luck and bad choices.