7 Reasons Job Hoppers Are Worse Off in Retirement
Frequently changing jobs can make it more difficult to save for
retirement. The median job tenure of American workers was 5.1 years at
the same job in 2008, according to a new study by the
Some job-hopping workers move in and out of retirement plan coverage throughout their career and cash out small 401(k) balances when they change jobs, both of which will lead to a smaller nest egg in retirement.
Many retirement accounts also have
waiting periods before new workers may join the plan and 401(k) match
schedules meant to reward long-term employees while giving short-term
employees little or nothing. "You could easily work for a company for
two years and forfeit the whole 401(k) match amount when you leave,"
"It's pretty dismal in terms of the number of years that people who change jobs could be out of the retirement planning system."
Here is why job hoppers may end up worse off in retirement and how to avoid these traps.
Workers don't always get to sign up for the 401(k) plan immediately when they start a new job.
While workers always have access to their own contributions to a 401(k) plan, short-term employees sometimes don't get to keep the 401(k) match.
Only 37 percent of 401(k) plans provided
immediate vesting in 2008, which means you can keep your 401(k) match as
soon as it is deposited, according to a
Hopping in and out of coverage
Some workers move in and out of retirement plan coverage throughout their career.
A mixed-up match
Workers may also switch between jobs that do and don't provide a 401(k) match or work for an employer that eliminates the match.
Going even one year without a 401(k) match could shrink your nest
egg by thousands of dollars in retirement. For example, a 30-year-old
Plus, not all 401(k) matches are created equal
The average company
contributed 2.9 percent of employee pay to a 401(k) plan in 2008,
according to the
A smaller 401(k) match is effectively lower compensation, so you need to make sure that a lower 401(k) match doesn't cancel out the higher salary a new job offers.
The typical 401(k) plan has about 18 investment options, and their corresponding fees vary widely among 401(k) plans.
you switch into a 401(k) with higher fees, your nest egg will grow more
slowly. "The lower fees you pay, the more money you are going to have in
Many workers cash out their 401(k) plans when they leave a job, especially when they have a small balance.
American workers took
For example, a 1970-born 401(k) participant who saved 6 percent of
pay annually beginning at age 21 plus a 3 percent employer match would
Many pension formulas reward long-term and highly paid employees more than workers with a shorter job tenure.
worker who is covered by a traditional pension that pays 1.5 percent of
final earnings for each year of service. Someone who begins working for
the company at age 30 and retires at age 62 with a final salary of
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(c) 2010 Emily Brandon, U.S. News & World Report