Over the past three weeks, we've covered choosing a health plan, HSAs vs. FSAs, and disability insurance. This week, we're putting it all together.
Benefits are valuable, but they only work if your current cash flow works first. Once your take-home pay covers your everyday needs, the question becomes: where should each additional dollar go?
Below is the general order of priorities we use when helping households make open enrollment elections. It's a framework, not a formula. Your situation may call for a different sequence.
1. Build a starter emergency fund
Before committing money to longer-term accounts, set aside a starting cushion for unexpected expenses. Emergency savings should be stable and easy to access, not invested for growth. Good places to hold it include checking or savings accounts, money market accounts, CDs, and Treasury bills.
2. Choose the right health insurance
Everyone has to elect something, so treat this as your foundation rather than a line item. As we discussed in Part 1, look beyond the premium: consider your network, deductible, coinsurance, and out-of-pocket maximum.
3. Capture your full employer match
If your employer matches contributions to your 401(k) or 403(b), contribute at least enough to receive the full match. Those are dollars your employer adds on top of your pay, and passing them up means leaving part of your compensation on the table.
4. Finish building your emergency fund
Once you're capturing the match, keep building your emergency fund to its full target. How much you need depends on your household:
| Household | Recommended emergency fund (months of essential expenses) |
|---|---|
| Two incomes, no children | 8 months |
| One income, no children | 12 months |
| Two incomes with children | 16 months |
| One income with children | 20 months |
| One income with a startup business | 24–30 months |
Note: These recommendations are approximately 30% above our typical recommendations due to the current economic climate.
5. Protect your income with disability insurance
Your ability to earn an income is often your largest financial asset. As we covered last week, group long-term disability coverage typically replaces only part of your pay. If your employer allows it, paying the premiums with after-tax dollars can make any future benefits tax-free. Supplemental coverage may be worth considering to close the gap.
6. If you're married or have children, make sure you have enough life insurance
Group term life insurance is convenient, but the coverage amounts offered through work are often far too low to replace your income. If anyone depends on your earnings, life insurance is essential. The recommended coverage often looks surprisingly large because it's designed to replace your future earnings over the years your family would need them. A licensed insurance agent can help you determine the right amount.
7. Fund your FSA or HSA for this year's expected expenses
Elect pre-tax contributions to cover the healthcare costs you expect this year. If your employer offers a dependent care FSA and you pay for childcare or eligible adult care so you can work, consider funding that as well.
8. Between ages 50 and 57, evaluate long-term care insurance
Long-term care coverage is generally not cost-effective in your 40s, but premiums rise with age, and changes in your health can affect whether you qualify at all. That's why we typically recommend evaluating coverage between ages 50 and 57, whether through your employer (if offered) or an individual policy.
9. If eligible, maximize your HSA
We prioritize the HSA ahead of an IRA because, for qualified medical expenses, it can offer a tax break on contributions, tax-free earnings, and tax-free withdrawals — a combination neither a Roth nor a traditional IRA provides.
10. If eligible, contribute to a Roth IRA
Roth IRA contributions are subject to income limits, so confirm your eligibility each year.
11. Increase your 401(k) or 403(b) contributions
With the steps above in place, direct additional savings toward your employer retirement plan, up to the annual contribution limit.
How much should you be saving?
As a general guide, here's how we think about annual retirement savings at different stages of life:
| Career stage | Minimum | Target |
|---|---|---|
| Early career (~20–34) | Full employer match | 10–15% of gross income |
| Mid-career (~35–49) | 10–15% of gross income | Maximum plan contribution |
| Peak earning years (~50–65) or income $400K+ | Maximum contribution (plus catch-up if 50+) | Based on a personalized retirement projection |
The bottom line
Open enrollment is more than a benefits checklist. It's a once-a-year chance to align your paycheck with your priorities. Get the order right, and each dollar has a job.
If you'd like help working through your elections, or a second opinion on your household's priorities, we're happy to help.
This article is for educational purposes only and is not personalized investment, tax, legal, or insurance advice. Tax laws change and individual circumstances vary; consult a qualified professional before acting on any strategy discussed here. Investing involves risk, including possible loss of principal. Benari Capital LLC is a registered investment adviser. Registration does not imply a certain level of skill or training.
Insurance products are offered through Benari Insurance Agency LLC, an Illinois resident insurance agency (CA Lic. 6014147; IL Resident). Benari Capital LLC and Benari Insurance Agency LLC are affiliated through common ownership. Individuals associated with Benari Capital who are licensed insurance agents may receive commissions or other compensation from the sale of insurance products, which creates a conflict of interest. You are under no obligation to purchase insurance through Benari Insurance Agency LLC.