subject: More Reasons Why Changing Jobs May Cause Retirement Downsizing [print this page] Changing jobs may cause retirement downsizing, especially for many workers who will depend on their retirement accounts to fund their golden years. This is because retirement plans such as the 401K tend to reward workers who have stayed at their jobs longest, while giving short-term employees very little in terms of account balances. Also, how these retirement plans treat new workers can heavily impact their nest eggs: enrollment in 401Ks from some companies usually comes after a specified time, and how much employees get in matching contributions are dictated by vesting periods. Here are more 401K-related reasons why you may have to downsize your retirement lifestyle if you change jobs:
If you change jobs, you enter and exit retirement plan coverage. There are a significant number of workers who, for whatever reasons, quit and re-enter the workforce (and do the same to their retirement plan coverage) while only receiving coverage for a fraction of the years they have spent at work. Some more unfortunate employees may also find work at companies that do not offer matching contributions. For these workers, it may be more beneficial to opt to sign up with companies that offer decent matches; those that do not have complicated vesting periods and enroll the worker soon after they are hired. If this is not possible, one option is to start your own company or business and save money as a self-employed individual in an IRA.
Different matches can also undermine the efforts of the job hopper to save up enough for retirement. These workers may alternate between jobs that do and do not give employees 401K matches. If this occurs, you can lower your potential retirement savings by thousands of dollars, even if you only work for a year for a company that does not match employee contributions.
401Ks are not equal. A Profit Sharing and 401K Council of America study reports that, on average, companies only contributed less than 3% of employee salaries to 401Ks. This is, by no means, a generous amount. Try to consider that it is an average, and an inaccurate indicator. Some 401Ks only match a dollar in employee contributions with a fourth of that amount. Smaller matches actually lower your overall compensation, so you will have to do the math and ensure that lower 401K matches do not negate the benefits of a higher salary. These are just a few things you will have to consider so retirement downsizing will not be too much of a concern when you are changing jobs.
