If you’re like many Americans, your employer offers key benefits that provide valuable protection for you and your family. And you’re probably familiar with open enrollment season – that time each year when you may be able to choose your health insurance provider, explore tax-advantaged accounts like Health Savings Accounts and Flexible Spending Accounts, review and update retirement plan contributions, and elect employer-offered protection products, like disability and life insurance.
These “worksite benefits” are offered by your employer typically at a discounted group cost, with the option to further supplement those benefits with voluntary benefits (usually paid by you) that provide additional coverage for health and income. What many employees don’t realize, however, is that Open Enrollment season also offers them the perfect opportunity to look beyond their employer-sponsored benefits — to consider their entire protection strategy and financial picture.
Your financial wellness depends on a strong holistic plan that covers all aspects of your financial picture. While employer-provided benefits are a great start, it’s important to keep in mind that those benefit options are not ordinarily designed to protect all aspects of your financial well-being. Fortunately, you can also purchase individual products, such as disability insurance, life insurance and annuities, typically sold through a financial professional, that complement the benefits available through your workplace. Doing so can help to give you more complete financial protection and reduce the risks you or your loved ones could face without them.
Some risks to look out for
It’s important to concentrate on at least three risks to your financial well-being:
- The risk of losing your income
- The risk of losing your life
- The risk of outliving your retirement savings
There are steps you can take to address each of these three risks. Doing so can help to protect both you and those you care the most about.
Protecting your income during your working years
The ability to earn a living is one of the most important things in life. Income is essential to your livelihood and closely linked to your overall financial well-being. But when it comes to protecting your income, many working Americans may not realize the need to make it a priority.
It’s easy to underestimate the potential effects of a disability. Yet, here’s a sobering fact: “The perfect storm of medical bills, loss of income, illness and injury — all consequences of a disability — are the leading cause of personal bankruptcy in the United States.”[i]
According to The Guardian Life Insurance Company of America® (Guardian), roughly 50 percent of people who leave work because of an illness or injury have trouble paying their bills. Not surprisingly, workers who struggled financially during and after a leave from work had lower financial wellness scores and were more likely to report that the experience had a major or devastating effect on their household.[ii]
Even if your employer offers disability income insurance, there may be an income gap. One in 5 workers who made a disability insurance claim were surprised to learn that their employer-sponsored disability plans replaced only a portion of their salary, not 100 percent, based on Guardian’s research. Higher-income employees were also dismayed to learn that bonuses and/or commissions were not included in the calculation of their disability income benefit payments.
While no disability insurance plan will ever replace 100 percent of your income, purchasing individual disability income insurance from a financial professional will boost the amount of your money you will receive if you can’t work. If this is important to you, you’ll be able to “weather the storm” a little better if you become ill or are injured.
Protecting your loved ones if something should happen to you
If you have family or others who depend on you for financial support, purchasing life insurance from a life insurance professional is among the most important steps you can take for the financial wellness of your loved ones. Even if your employer provides you with this important coverage, it may not provide enough to financially protect those you care most about. And, in many instances, you will lose that coverage when you leave your employer. That’s why purchasing your own individual life insurance policy to supplement any workplace coverage you may have is a smart move, depending on the type of policy you buy.
Keep in mind the valuable protection role that life insurance plays: If something should happen to you, your policy’s death benefit will help ensure that your survivors can maintain their lifestyle, avoid financial hardship or bankruptcy, and continue to pay essential bills such as their rent or mortgage, health insurance, college tuition and car loans. Simply put, life insurance is one of easiest and most affordable ways to protect your loved ones should they lose your salary.
Protecting your income in retirement
The risk of outliving your retirement savings is a real one. While people who qualify for Social Security benefits in retirement can expect to receive a monthly benefit for the rest of their life, 80 percent of those participating in the 2019 Retirement Confidence Survey reported they would also rely on money from an employer-sponsored retirement savings plan, such as a 401(k), for income in retirement.[iii]
One problem with that approach is these individuals risk running out of money in retirement, since the retirement income generated from a retirement savings account depends entirely on the individual’s account balance, the performance of the account’s investments and the withdrawal strategy used.
Eighty percent of survey respondents plan to work during retirement to supplement their income, yet only 28 percent are ultimately able to do this.
As with disability income and life insurance, there are steps you can take to help protect your income in retirement. In addition to contributing as much as possible to your employer-sponsored retirement savings plan, you may wish to consider purchasing other products from a financial professional, such as bonds and CDs, which can provide somewhat predictable returns, with possible tax advantages, and can help round out your investment portfolio.
Another option to consider is an annuity. By paying an insurance company a specified amount of money, you receive regular payments for a set amount of time, or for life. There are many different types of annuities that can provide you with cash flow right away (immediate annuities) or at some point in the future (deferred annuities).
Make the right moves for your financial future today
During open enrollment, it’s a good idea to consider your overall financial wellness, and address not only the benefits your employer provides, but protection products that can supplement those valuable benefits. Doing so will help you to address the risks to your financial well-being head-on. You have the power to make the decision to go with what you truly need based on your goals or concerns. Go through your options and be sure you can explain what you are buying. It all has to be clear and valuable for you.
If you need assistance in addressing any of these risks, a qualified financial professional can help you understand your options — and put you on the path to enhanced financial wellness.
Rachel Barrow leads the Product Marketing team for Individual Markets at The Guardian Life Insurance Company of America®. She has been with Guardian Life since 2009 and in the insurance business for over 20 years. Rachel and her team produce educational tools and resources focused on strategies to help individuals, families and small business owners achieve financial security. Check out her previous post: Time to Invest in You: Ways to Make Your Retirement a Reality
Guardian, its subsidiaries, agents and employees do not provide tax, legal, or accounting advice. Consult your tax, legal, or accounting professional regarding your individual situation.
Guardian® is a registered trademark of The Guardian Life Insurance Company of America©. Copyright 2019 The Guardian Life Insurance Company of America.
2019-86981 (exp: 9/2021)
[i] Medical Debt as a Cause of Consumer Bankruptcy, 2014 Maine Law Review (https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2515321), Posted Oct. 27, 2014; last revised Nov. 11, 2015
[ii] Source: Income Protection: The Role of Disability Insurance in Financial Wellness, The Guardian Life Insurance Company of America, New York, NY, May 2019 https://www.guardiananytime.com/gafd/wps/portal/fdhome/insights-perspectives/emerging-trends/income-protection
[iii] 2019 Retirement Confidence Survey Report conducted by the Employee Benefit Research Institute and Greenwald & Associates, April 23, 2019 https://www.ebri.org/docs/default-source/rcs/2019-rcs/2019-rcs-short-report.pdf