Change Jobs Frequently? Could Complicate Retirement Savings
Once upon a time…no this isn't going to be a fairy tale…it was typical that one would get a job directly out of school (at whatever level was completed), and chances were if you did your job well, you would hold on to that job perhaps for the remainder of your working life. Then, upon retirement, you might have accumulated through your service a nice retirement that would provide for you for the remainder of your life.
There was a sense of loyalty on both the part of the employer and employee in many cases. These days - not so much.
I first noticed the trend to more frequently "job hop" in the last '80s or early 90's it seems, but even so there remained a stigma attached to switching jobs, especially if doing so frequently. Such was often frowned upon by prospective employers.
That stigma seems to be on the decline, and as a result, job hopping continues to gain momentum, especially, in my opinion, among so called Millennials, as they seek to find the balance they desire between careers and lifestyle. In fact, job hopping has been labeled the "new normal" for Millennials by many who study the subject.
But despite the perceived benefits of such hopping around (e.g., better compensation, new skills, new culture), it may come with an unintended price affecting workers down the line, that being a negative effect on the amount of money being saved and available for later retirement.
For on thing, job hoppers could be losing out on hundreds if not thousands of dollars in employer matching funds offered through 401(k) plans.
In her article "What Job-Hopping Is Really Costing You" on Inc.com, Zoe Henry writes this:
"For instance, some employers will match as much as 6 or 8 percent of your investment from the day you start working, while others require that you work a certain amount of time (two years, for example) to reach the contribution threshold.
If you don’t do your research, you could unwittingly exit just weeks (or even days) ahead of your employer's match. That may result in thousands of dollars of retirement savings down the drain. A recent Fidelity study found that as much as $203 million was forfeited by employees who cashed out or rolled over their 401(k) accounts in 2013 alone."
Further, she quotes Cindy Hounsell, president of the Women's Institute for a Secure Retirement, "Millennials should know what they're hopping away from, and what they're hopping toward."
Another problem is that often job hoppers fail to roll their existing employer retirement accounts, such as a 401(k), to a new employer's plan or into their IRA. This can be problematic for a number of reasons.
For one thing, having multiple retirement accounts in different places could be costing hoppers in unnecessary fees, often over many years.
For another, not having the funds consolidated in one place can hinder the management of retirement assets since it can become very difficult to monitor performance and know when assets should be reallocated and rebalanced. It is not uncommon for workers to lose track of their investments altogether, meaning they may not be being managed at all.
Another common pitfall is the tendency for those changing jobs to simply take a distribution of their accounts, causing them to pay income tax and a 10% early distribution penalty (11% in Arkansas, including the state penalty). A simple rollover avoids both.
An article posted April 28, 2016 on Fortune.com and written by Lucinda Shen stated, "Millennials today will have to work longer and spend less if they hope for a comfortable retirement"
It remains to be seen if that turns out to be true, but if a job change is in your future, by doing some homework and understanding the factors involved, you can minimize the damage to your future retirement plans by taking a few simple steps.
Or at least you will know all the facts about what you may be giving up before making that move.
