Why Changing Jobs May Cause Retirement Downsizing

Changing jobs can result in retirement downsizing due to inadequate retirement plan balances

. The EBRI, or Employee Research Benefits Institute, has pegged that the average American worker spends around 5 years at a particular job, thus resulting in low 401K account balances that ultimately generate small nest eggs. Also, most retirement savings plans come with waiting periods which need to be completed before newer employees can enroll in a plan and receive matching contributions from their employers. These plans also reward tenured workers or workers who have stayed at the same job from a long time, while giving employees who have stayed for the short term very little or nothing at all.

Investor Solutions founder and retirement writer Frank Armstrong says that quitting your current job after two years may forfeit all 401K matches after, and considerably affect their chances at retirement security for the worse. Here are some reasons why changing jobs can cause small nest eggs and the possible downsizing of your retirement lifestyle:

After signing up for a new job, you may not be able to enroll in your employer-sponsored retirement plan immediately. Some workers may have to wait for three months or so before they are qualified to enroll in the company 401K. You might also miss out on periodic sign-up periods that can come per quarter, and have nothing at all in terms of a retirement account or balance for half a year or more. Data analyst Liza Brings, 54, says that many people say they want to stay at the same job until they retire, but statistics show the statement to be lip service. She also says that, aside from lost opportunities with retirement accounts, job-hopping also causes the worker to miss out on pay raises (which they can use for investments or put towards saving for retirement). Lawyer Richard Bean, 55, started working for his current employer at the beginning of 2010 and was able to enroll in the 401K soon after, but will not be getting matching contributions for twelve months.

Longer-term workers may have ready access to their 401K plan contributions, but employees who work for comparatively shorter periods might not be able to keep the matching contributions from their employers. A Profit Sharing and 401K Council of America survey also found that less than 38% of all 401Ks allow immediate vesting, or keeping the 401K of the employer match soon after it is deposited in the account. Some 401Ks will only permit workers to keep the employer matches after these employees stay for upwards of three years with the company, while some businesses use a gradual vesting method wherein increasing percentages of employer matches are retained depending on job longevity. This means that quitting work prior to being vested could come at a loss of several thousand dollars worth of matching contributions.

Postponing when you resign from a job to take full advantage of waiting periods and vesting schedules could mean the difference between boosting your nest egg significantly or inadvertently eroding it due to lost contributions. These are just a few things seniors should realize, as changing jobs could result in retirement downsizing.

by: Katherine Smith

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