Retirement Savings: Is Job Hopping Good or Bad for Your 401(k)?
Once considered a glaring warning on a resume, job hopping has become more common as worker and employer loyalty continue to be at a premium. Given the current employment situation, switching jobs regularly to increase your pay or advance your career might seem like an excellent short-term motivator, but you’ll need to consider how it will impact your retirement savings too.
A work history peppered with frequent short employment stints has become more accepted by hiring managers but you’ll always need to prove your motives and loyalty to potential employers as you search for an ideal position. However, switching too much might cost you retirement income, employer match contributions or the opportunity for fully vested benefits.
What You Can Gain…
A higher salary is one of the main reasons employees job hop and a real earnings increase can kick-start your retirement savings. For workers who have never had the opportunity to participate in an employer profit-sharing plan, the chance to build long-term savings through 401(k) contributions might be the primary catalyst for switching jobs.
A significant increase in income and the opportunity to contribute to individual retirement accounts means you’ll need to put some of that increased income toward your savings. 401(k) plans allow you to contribute to your retirement fund automatically with pre-tax dollars, making it an easy way to save and reduce your taxable income for an immediate tax benefit.
…And What You Can Lose
However, if you’re switching jobs too often, you may not have time to build significant savings in a workplace-sponsored plan. Many companies have a waiting period before eligible employees can participate, so you could be losing valuable funds for your future savings.
You never want to lose out on money in retirement and benefits while you are working by impulsively and repeatedly changing jobs. When it comes to an employer contributing matching 401(k) funds, many companies have a vesting schedule. With each year of service, you’ll get to keep a certain percentage of the company’s match.
But if you leave before becoming 100% vested, you relinquish any unvested balance. Before you leave your current job for pastures new, look at getting your full retirement 401(k) plan match, restricted stock units (RSUs) or any other company equity your employer offers.
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Additionally, some employers offer “use-it-or-lose-it” benefits, which may include time off and flexible savings accounts for medical, dependent care or commuting expenses. Hopping too quickly can force you to leave money on the table. Also, every time you start a new job, you’ll need to start over with your new employer’s health care plan, doctors, providers and rates.
Employees will continue to hop from job to job if the economy is healthy and higher wages can be earned. There are many other reasons for choosing to job hop over climbing the traditional job ladder too, but always make sure to consider the impact of any career decision made in the here and now on your life down the line.
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