I'm sure you've heard the phrase "start off on the right foot." It's a guideline that can be applied to everything in life, from starting a new career to getting married. But a lot of times, we make initial mistakes that lead to others - we're not only on the wrong foot; we're wearing the wrong shoes.
You probably see this with employees in their benefits plans: They are using their benefits wrong from the get go. Instead of helping them reach financial milestones, like retirement or to pay for costly health care expenses, benefits end up costing employees more or become lost opportunities.
As workplace financial educators, we often see the mistakes employees make with their benefits after it's too late. Mistakes are common because employees are either unaware of or misunderstand their benefits. Here are the five most common mistakes we see.
1. Going for the lowest premiums. Many employees think low-premium health care plans are best because they see an immediate savings. But, in reality, these plans can end up costing employees more later on if they have a major health issue and out-of-pocket expenses cost more.
2. Setting it and forgetting it. Auto-enrollment and auto-escalation in company-sponsored retirement plans are valuable features to both the company and their employees, but they often give employees the idea that everything in their plan is on autopilot; they forget to manage their own increases and other options.
3. Using target date funds with other investment options. Employees often misinterpret their allocation because they use target date funds as one investment option in their portfolio. But target date funds should be used alone or not at all. In this recent video, Target Date Fund Tips on Forbes.com, our planner Erik Carter shares tips on how to use them properly.
4. Buying and selling at wrong times. Employees who are actively managing their investments are often trying to time the market but end up losing value because they are buying at high points, rather than low ones. As much as we would like to "buy low," active trading is a common mistake that often leaves employees short of retirement goals.
5. Unaware of the benefits they have. Probably one of the most detrimental mistakes employees make about their benefits is not knowing what they have. Many companies now have preventative health and financial wellness programs that offer incentives, such as tuition reimbursement and life insurance, which is often less expensive and easier to qualify for through an employer than individually.
Benefits, in the scheme of everyday life, can help employees not only meet milestones and pay expenses but also build wealth. If you've seen mistakes that cost employees, share them with us. As plan providers, you can educate them on common mistakes, so they can maximize their benefits. If you would like a worksheet you can share with your clients and their employees, e-mail us at [email protected].
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