If you don’t take advantage of your employer’s 401k matching offer because your health insurance premiums eat up all the paycheck you’re willing to part with, you’re not alone, according to a new study.
Most people choose a more expensive health plan than they actually need, and people who spend too much are 23% more likely not to contribute to their employer-matched retirement savings plan because of it, a study released Tuesday by the TIAA Institute shows.
“This is one of the first empirical studies to conclusively show that high health insurance premiums can crowd out retirement savings,” Olivia S. Mitchell, director of the Pension Research Council at the Wharton School of the University of Pennsylvania, said in a statement. The Pension Research Council helped sponsor the study.
The study, which identified common mistakes made by employees during benefits enrollment at a major university, found that virtually 100% of the sample should have opted for the low-cost plan because it is always more likely to lead to lower overall costs.
Instead, a majority of employees opted for the medium or high-coverage plans, and employees who did not choose the low-coverage plan overpaid for health insurance by an average of nearly $1,700 annually, the study. Data was collected between 2014 and 2017.