Keep Jumping from Job to Job? It May Be Destroying Your Retirement Potential

A piggy bank on top of a pile of cash.
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Ever since the onset of the pandemic in 2019, there have been a few trends in the job market and worker behaviors that have greatly shifted the landscape of the employer-employee relationship. 

There was the Great Resignation, or the mass exodus of employees in a number of industries who were looking for better pay, more opportunities for work-life balance and chances for advancement. Then came the ideologies of “quiet quitting,” or doing the bare minimum to get by and being “over-employed,” or working more than two full jobs at once, often necessitated by rising inflation.

But if you’re one of the many who are engaging in the trend of “job jumping” or “quick quitting,” i.e. finding new employment every couple of years in order to bank on better salaries and benefit perks, you may be ruining opportunities for gainful retirement investments.

The reason is that transitioning to a new job repeatedly won’t give your contributions time to vest — not to mention the very real occurrence of forgetting you even have a retirement account with your former employer. According to MarketWatch, citing data from Capitalize, there are roughly 2.8 million 401(k) accounts that are left by the wayside every year. As of May 2021, that equated to about $1.35 trillion in forgotten investments.

Are You Retirement Ready?

There’s also the issue of missing out on a lot of potential for “free” earned money by switching jobs too frequently. Much of this hangs on the intricacies of employer matching for retirement funds — a number of companies require you to work for them for a certain amount of time before they start matching your retirement contributions. 

As MarketWatch notes, some places of business have gone as far as to necessitate three to five years with the company before they start matching on your behalf, and other companies have instituted something known as “cliff vesting,” where contributions are fully vested on a specific date rather doling out shares on an annual basis.

Considering that “job jumping” has increased significantly in recent years — in March 2022, short-tenure rates of employment of less than a year peaked at 9.7%, according to LinkedIn — this could end up being a big problem for many American workers without them even knowing it. Unlike in generations past, when workers were given pensions that motivated them to stay with companies for years if not even their entire career, MarketWatch reports that the responsibility now falls on the employee to best manage their retirement plan.

So How Can You Maintain Your Retirement Portfolio?

There are some expert tips to take stock of when you switch jobs to ensure you’re getting your full retirement investment potential. As U.S. News & World Report notes, the one thing you don’t want to do is to cash out your 401(k). If you are under age 55, doing so will incur a 10% penalty and the amount cashed out will be taxed as well. 

There are some better decisions, all of which will depend on individual circumstances and shopping around for the best investment strategy. While you can always leave the contributions you’ve made in your old employer’s 401(k) plan, doing so will require a bit more maintenance as you’ll have to monitor the old account and your new one or new ones if you’re job jumping that often. There’s also the issue if your former employer gets bought out and the terms of their retirement plans change, making this a more risky decision, says MarketWatch.

Are You Retirement Ready?

Another option is to invest the old employer retirement funds in an individual retirement account, or IRA, which allows you more flexibility and the chance to better play around with the investment portfolio, but this choice leaves out the possibility of an employer match. 

And finally, if you want to roll over your old 401(k) into the plan with your new employer, that’s another great option but always opt for a direct transfer from one account to the next, says U.S. News & World Report, rather than getting the funds distributed to you directly as that will then bring the early withdrawal penalty into play if you don’t fully manage the transition in a set, short period of time. Also, it’s important to note when you are eligible to start saving into your 401(k) with your new employer and do the transfer as of that date.

Another important tip from the experts with U.S. News & World Report is to wait on switching jobs until your retirement contributions have been fully vested. Sometimes this can be a matter of weeks or months from when you decide to make the jump to a new company, but doing so will allow you to take the employer matching dollars with you when you leave.

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