Benefits make up over 30% of a typical employee’s total pay package according to the Bureau of Labor Statistics. It’s crucial to review your benefits choices each year during open enrollment to make sure you’re making the most of everything available to you.
Here are five common mistakes to avoid when you’re reviewing your benefits choices:
Mistake #1: Choosing the wrong health insurance
Health insurance is the most important benefit for most people. A common mistake is not understanding the difference between premiums and deductibles. Premiums are fixed monthly payments (think a subscription), while deductibles are what you pay out-of-pocket before your insurance kicks in.
Generally, a higher premium results in a lower deductible, and vice versa. If you anticipate high healthcare usage, a low deductible plan might suit you better. Conversely, if you’re young and healthy, a high deductible plan could save you money on premiums.
Also, consider your family’s needs. If you have children or other dependents, ensure they’re covered under your plan. Similarly, if you have chronic health conditions, choose a plan that covers your medications and treatments.
Mistake #2: Not utilizing health care spending accounts
Health Savings Accounts (HSAs) and Flexible Spending Accounts (FSAs) are incredibly effective ways to save on medical expenses, but you have to use them.
HSAs, coupled with high deductible health plans, offer triple tax savings: tax-deductible contributions, tax-free earnings growth, and tax-free withdrawals for qualified medical expenses.
FSAs are employer-owned savings accounts with similar tax advantages. However, FSAs are “use it or lose it” accounts, requiring you to spend all your contributions by year-end.
If eligible for an HSA or FSA, consider signing up. These accounts can reliably reduce medical expenses by 10% to 30% (depending on your tax bracket).
Mistake #3: Not maximizing your 401(k) plan
A 401(k) plan is a tax-advantaged retirement savings plan that many employers offer. Your contributions (up to a limit) are tax deductible, and the investments in your plan grow tax-deferred. Compared to private options, like an IRA, a 401(k) lets you contribute up to 3 times as much every year!
If your employer offers matching contributions, even better. Matching contributions are essentially free money, so ensure you’re contributing enough to get all the available matching dollars. For most people making sure you’re capturing the full available match is the highest guaranteed return on your money you can get.
Mistake #4: Not making changes
As your life changes, so should your benefit choices.
During open enrollment, review your benefits to ensure they meet your needs. If you’ve experienced significant life changes, like marriage, divorce, or childbirth, you may need to revise your benefits.
For instance, if you’re getting married, you might want to add your spouse to your health insurance plan. If you’re having a child, you may want to consider a different health insurance plan that better fits a growing family.
Even without major life changes, it’s still advisable to review your benefits choices annually. You might find new benefits available or save money by switching to a different plan.
Mistake #5: Ignoring “smaller” benefits
While health insurance and 401(k) plans get the most attention, most employers offer other benefits, such as dental and vision insurance, life and disability insurance, paid time off, financial wellness, and employee discounts on voluntary benefits.
It’s important to consider all your benefits choices, not just the major ones. For example, if your employer offers a gym membership subsidy, this could save you money on your gym membership. These voluntary benefits are a great way to save money on things you are already spending money on. Don’t ignore them!