OPTIMIZING BENEFITS: OPEN ENROLLMENT STRATEGIES FOR PILOTS

Tim:[00:01:05]Well, folks, welcome back to another episode of the pilot money podcast, hanging onto that name for a few more shows. And I think we’re getting close to selecting the new name for the new show. So stay tuned. Glad to have you guys here with us. My name is Timothy P Pope certified financial planner, specializing in the planning needs of professional pilots.
[00:01:24]I cannot believe that. We essentially have two more months of 2024. It’s like, wow, where did the time fly? So it is fall time. That means in our practice, we’re doing fall reviews. That means at home, you are seeing email messages from your airline and your company about open enrollment. And that’s what we’re going to talk about in today’s episode is open enrollment. Open enrollment. It’s that time of year where you get to review and choose for the next year. Your benefit package and companies are providing just very generous benefit packages, right? From your own health insurance vision, dental life insurances right down to the vet insurance for your pet, right? [00:02:08]So if you have a furry friend, companies are offering insurance to them as well. And so when open enrollment comes, that is your time to choose. And it’s important to make decisions that work with your overall financial plan, because you’re essentially locked into the decisions that you make until next year’s open enrollment. There’s a handful of circumstances that would allow you to change your benefits mid year such as, if you get married, or if there’s a divorce, or if a new baby was born in your family, or maybe you adopted if there’s a death in the family job change, that’s another one.
[00:02:47]So there’s, there’s all these circumstances that if they happen to you, you can change your benefits. But outside of that, typically, once you choose them, you’ve got to wait for the next year. So let’s talk about some of the common benefits in your open enrollment package. I’m going to share with you some of my thoughts around these. We have received an email. So Matt, thank you for the email requesting an episode where we set the company benefits side by side with the union benefits. So we’re going to do a deep dive on that topic in a future episode. So thanks for requesting that. So when most folks think about open enrollment, we’re thinking about medical benefits.
[00:03:25]And I mean, most of your airlines are going to have like, three to five medical plans for you to choose from. Okay. So, it’s a lot. And if you’re looking at it and you’re not, you know, what is this deductible? What is this out of pocket maximum? What is this co share or co pay? What is this tier one or two or three drug kind of thing? So You know, you’re looking at this, and if it’s not something that you’re super familiar with, it can seem Greek, but with medical plans, I think they come in a couple of different flavors, and I know as a pilot, one of the things that you’re thinking about is how do I reduce my taxes? I’m in this high income W2 position.
[00:04:07]How do I reduce my taxes? Well, with the medical plans, there is a plan that has an HSA benefit. Okay, and I’m going to walk through how this works. I’m not saying that you should go run out and grab the HSA because it’s not for everybody, but the HSA is one of those ways. It is a tool that you can use to lower your taxable income. And here’s the thing. It’s, hard to forecast. your health going forward over the next year, to be honest. And so when I work with clients that think about HSA we’re going to start with, do we have any known expenses, If someone in the family, do they have a known medical condition that requires a bit more care?
[00:04:47]Does someone in the family have a specific medicine that’s more expensive, but on your current plan, you know you have a relatively small copay, but if you were to switch. that would jump up. So those are things to know. Maybe you are expecting a baby next year, right? So you’re going to have all these doctor visits and then you’re going to deliver at the hospital. Babies aren’t free, we’ve had our fair share. We’ve got a handful of kids, right? So, if you have these known expenses, then sometimes that is enough to say, look, maybe next year, the HSA is not for us. HSA by the way stands for Health Savings Account, And the thing with the HSA, is it is tied to a high deductible health plan.
[00:05:25]Typically, what you see is you’re going to see lower premiums on your high deductible health plan. But if, and when you have to use the insurance, you’re going to be on the hook for a larger portion of those first dollars before the insurance company is going to kick in. Right? So that’s your deductible. Sometimes you can also see higher out of pocket maximums as well. So in a worst case scenario, how much would you have to pay before the insurance company takes all of the health care costs after that? So we want to check, right? And if you don’t have any known costs that are going to present an issue, we take a look at the individual and the family deductibles, just to make sure that those are within the scope of reason.
[00:06:08]And then we cross check the emergency fund. So if you had a worst case scenario, would you be able to satisfy this out of pocket maximum? If you’re doing your emergency fund well, yes, you should be able to satisfy your health insurance deductible. You should be able to satisfy your out of pocket maximum as well. So what makes the HSA attractive is one, we get a tax deduction. Whenever we make a contribution, right? So in 2025 the family contribution limit is going to be 8,550 dollars. All right. So we can pass go no income tax, no payroll tax. We can reduce our income by eight 8550. The individual contribution limit is going to be 4,300.
[00:06:48]The nice thing is. And this is my preferred method of using the HSA if we make those contributions. We can invest those dollars that we contribute to the HSA. And then sometime later, after the money has grown, then we can use those dollars for qualified medical expenses. So, every year, we can do that. Or almost every year, Fidelity publishes a study, healthcare costs, right? If you’re a couple, you’re, you know, you’re retiring at age 65, the probability shows that you can spend 285, 000. At least that was the number like a year or two ago. 285,000 on healthcare. So chances are that you’re going to use this HSA money. Why not get a tax deduction on the front end? Why not allow it to grow tax deferred? And then it comes out tax free as long as we use it for a qualified medical expense. So, you can think about the HSA kind of like a Roth IRA for health expenses. However, it’s even better because the Roth IRA, the money that you’ve put in there, you don’t even know that.
[00:07:55]You’ve paid taxes on the money that you’ve put in the HSA. You do not pay taxes on and you’re not going to pay taxes on as long as you use it, you know, for qualified medical expenses. So that’s the thing with the HSA, you’ve got to have a high deductible plan. Typically, we’re going to see lower premiums unless you’re at net jets and you’re going to see no premium high deductible plans and you have access to an HSA. So at that point, you’re just looking at the deductible and the out of pocket maximums. We want to make sure it makes sense for us, right? So do a cross check. Do we have any known expenses? Are we expecting any future expenses next year? Are there any medicines or treatments or therapies that would run up a bill?
[00:08:32]And if all of those things come clean, then maybe the HSA makes sense for us. Now, what happens if you decide the HSA is not for you? There’s still a medical plan there. It’s called the FSA. So a flexible spending account. It’s similar to the HSA, but it has several
key differences, right? Contributions are much lower.The FSA has a use it or lose it provision, so you can’t invest the money in the FSA. Typically, you have to use the dollars. By the end of the year, or if your plan allows a grace period, then you know, you have to use it by mid March of the following year. You do get a tax deduction for the money that you put into the FSA, but you’re also going to need to use the money soon. And the case where, you know, maybe it didn’t make sense for me to do the HSA because I didn’t want to move to the high deductible plan, but I’m still looking for a tax break. Maybe I’m looking at the FSA. If you have kids, they do after school or you’ve got daycare costs or things like that.
[00:09:23]The dependent care FSA you can also use, but again, contributions are lower. You have that use it or lose it provision and can’t invest the funds. just make sure it makes sense. Like for me, I’m thinking, look, if you’re using this money anyway, then we might as well get the tax reduction on, on it. If you’re not using that money. In that manner, then I wouldn’t necessarily go run out and sign up for these plans. So medical benefits, a big takeaway, see HSA and the FSA see which ones work for you and then plan accordingly. The other thing that you’re going to have the opportunity to sign up for is the insurance benefits in terms of life insurance.
[00:10:00]Okay. So each of the major carriers, you get a base group coverage. So United gives you a multiple of your hourly rate Southwest American Delta gives you, just a chunk of life insurance benefit. And so if the company pays for that, you just have to pay the imputed income on the amount that’s over 50,000. And then you’re going to get this opportunity to do voluntary life insurance, right? So you can plus that up. You can either do it with a company, you could do it with the union and then you can get, you know, insurance for your spouse and for your kids and so on and so forth. So I like to just look at that.
[00:10:35]I mean, most pilots, depending on where you are, depending on what your goals are, most of you guys, end up needing more life insurance. And then the question is, where do I get it? Right? If you’re just going to work, you’re flying your jet, you’re coming home, not in the guard, you’re not doing business aviation, you’re not flying GA on the side. Most, any insurance company is going to work for you. and the universe there is huge. You start to do military, you start to do other GAs. Now we need exclusions and now we’re going to look for something special. With the insurance benefit, the other thing I’d say too, is if your spouse has had difficulty getting their own insurance, maybe they have health issues that come up on the screenings.
[00:11:10]What you could do is you can sign them up for the spousal. insurance. And typically there’s a maximum amount that you can do that does not need a health screening. So get that. And then every year you could increase it. It might be like by a hundred grand or 200 grand or whatever. And you can just increase it incrementally year by year. And that way you can avoid the health screening. If your spouse has had trouble getting life insurance because of something that comes up on the health screening, I would not recommend you come in and apply for the maximum. They will send you the health screening, you’re going to go through everything and then that issue will still show up.
[00:11:47]So that’s the thing with life insurance. The other thing too is, you know, if you say, well, look, you know, I need more insurance and you can look at what the company offers. You can also look at what the union offers. What I’ve usually found particularly with both the company and the union, but especially on the, some of the union benefits, life insurance is when you extend out the premiums for whatever life insurance you want the numbers are just glaringly, they get very, very expensive because what the union does is they will put you on a group term. And so they have these age brackets and then the cost of insurance just goes up the older you are, the more it is. So if you’re somebody who has, maybe you’ve
retired from the military. Did not get a survivor benefit on the pension and you’re planning to solve that issue with life insurance. You’re probably not going to want to plus up the life insurance with the union benefit. There’s no way you’re going to hold that policy for as long as you would need to, to make it make sense.
[00:12:45]And so, run the premiums out, see if it makes sense to hold that kind of policy or if it makes sense to hold something yourself outside of life insurances, there’s going to be other things like hospital indemnity and, other insurances in my, everybody’s case is different, but typically when I look at these things, I just say, look, I mean, probably it doesn’t make sense to go just because the company’s offering to go sign up for it. So let’s just make sure there’s a use case. We actually need some of that stuff before we sign up for it. moving on legal benefits. That is something to look at. It’s fairly cost effective. You know, research shows 60 percent of Americans do not have estate documents. Guardianships for minor children living will and your last will testament, right?
[00:13:30]So all of those documents work together to create your estate plan. Legal benefits are extremely affordable and there are. Cases where you might want, like, I really need a specialist to work in this case. Maybe we’re working through a special needs child case, right? So how do we set benefits up for them for their long-term success? So maybe we want a specialist who deals with special needs children. Maybe the case is, this is a second marriage. There’s substantial assets. There’s Children from the previous marriage, and we need things to flow specifically.
[00:14:03]So maybe we get somebody that specializes, right? And the legal benefit is a really good place to start. And so definitely look at that if you haven’t taken advantage of it, or if you’ve taken advantage of it and you had your documents drafted, many years ago before you moved to this current home, or before you had your last kid or something like that, right. It might be time to update that. So take a look at the legal benefits there. In terms of just open enrollment overall, it’s a really good opportunity to coordinate benefits between spouses. So if you’ve got two incomes coming in, don’t always assume that one company just provides substantially better benefits than the other.
[00:14:43]They might have individual strengths and so you can use the open enrollment period as an opportunity to just coordinate those benefits between companies and see which ones. From which company would suit the family better and also how they flow into your overall financial plan. I mean, last year we were working with a couple, they had up until that point, just divided and conquered. And it was really interesting. I mean, they ended up saving when we were done coordinating benefits between the spouses. They were saving five figures per year which was super cool to see. Chances are, that may not happen to you. It doesn’t happen to everybody, but that was super cool to see that just, you know, organizing and coordinating the benefits had such a big impact.
[00:15:24]And like I said, there is value in these benefit packages and it really depends on how you select them. The last thing I’m gonna leave you with is use open enrollment as an opportunity to just review your 401k. You can actually update your 401k elections. You know how much you’re contributing throughout the year. You can change whether you’re going from pre tax to post tax throughout the year, but it’s a great time to look at it. How is your 401k set up? How much are you contributing? Is it time to switch from Roth to go pre tax because your incomes have been increasing or we expect your income to increase next year? Did your company add any new investment options or remove any investment options from the menu? Check your beneficiaries on the 401k and on all the life insurances.
It’s a really good time. It’s not spring cleaning, it’s fall cleaning, I guess. Just take a look at the open enrollment, at the benefits, at your elections, and do they make sense for you? So. One thing I didn’t cover. Maybe we should do a deep dive on this at some point is all the long term disability.
[00:16:28]You know, you have the company disability and then typically you have through the union or other insurances that you can plus that up. Right. And so. Does it make sense for you to do that? And if so, which one should you choose? I found that it depends. Do you only fly for the company? Do you do other things? Do you have other revenue sources that also include flying? And so that usually will help you. impact the decision there or at least how I advise a client. So with that, that is open enrollment, complete your due diligence, right? Make sure you don’t leave any tax savings on the table.
[00:17:02]Be proactive, understand how the benefits factor into your overall plan and then choose wisely. So with that, thanks for tuning into this episode of the pilot money podcast, and we’ll see you on the next one.