Thinking About Quitting? Retirement Mistakes to Avoid During the Great Resignation

Retirement Financial Planning Concept.
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The Great Resignation — which shows no end in sight — is carrying into the New Year. And while there can be several advantages to quitting a job, experts are now warning of retirement mistakes that could come along with doing so.

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Chris Motola, a financial analyst with MerchantMaverick.com, told GOBankingRates that it’s easy to let your 401K fade into the background from paycheck to paycheck.

“If you’re changing jobs, it can be a great time to take stock of what’s going on with your 401(k) and make sure it’s doing what you want it to do. Has your risk tolerance changed? Does your new employer have a different matching contribution than your previous one? Do you want to change your contribution?” Motola said.

Some experts believe that one prominent challenge concerning 401k plans in light of the Great Resignation is a fragmentation in savings behavior. George Castineiras, CRO of financial and insurance benefits company Avibra, told GOBankingRates that people may not have access to — or may only have episodic access to — workplace savings solutions, such as a 401k plan.

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“The magic about saving for retirement is time and consistency. Never stop saving (even if it’s a little) and always stay invested in a diversified portfolio for the long run,” he said. “These two behaviors produce the best results and the future dynamics of work will make this more challenging for people.”

Many 401(k)s a Mistake?

Another big mistake that employees make with their retirement funds when leaving their job and starting a new one, according to experts, is to have multiple 401(k)s in different places.

“Not only does this increase the chances of forgetting about some accounts and missing out on the money, but it also makes it harder to keep track of your asset allocation or to tell if you’re on track for hitting your retirement savings goals,” Christy Bieber, contributing analyst at The Motley Fool, told GOBankingRates.

Bieber said that you can easily roll over your money by filling out a few forms. However, unless you do a direct rollover — and the funds go right into your new account — you’ll want to make sure you follow the rules carefully and deposit the 401(k) funds quickly into your new retirement plan. Doing so may avoid accidentally having your rollover attempt turn into an early withdrawal, she added.

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Related: Is Delaying Social Security Using 401(k) ‘Bridge’ a Viable Option For You?

Another big financial mistake being frequently made by many? Cashing out on retirement savings too early.

Indeed, the Internal Revenue Service (IRS) says that engaging in early withdrawals before you turn 65 (or the plan’s normal retirement age, if earlier) may result in an additional income tax of 10% of the amount of the withdrawal. IRA withdrawals are considered early if taken advantage of before you reach age 59.5, unless you qualify for another exception to the tax.

Bieber said that not only would you be subject to a 10% early withdrawal penalty (and taxed at your ordinary income tax rate on the distribution), but you’d also lose out on the chance to have your money working for you by earning returns.

“This could leave you with a significantly smaller nest egg upon leaving the workforce — especially if you are many years away from retirement and would have otherwise had many years for compounding to help you build wealth,’ she added.

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Missing Out on Employer Match

Missing out on an employer match is another big error that could cost you over your lifetime, Bieber added, as an employer match could be worth as much as $330,000 for the typical American.

“You’ll want to make sure you know the matching rules at your new company and do whatever you can to contribute enough to earn the full amount your employer will provide to help you save,” she said.

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Finally, another common mistake to avoid: accepting the plan your new employer offers without doing your research.

 “One recent survey showed that target date funds are the default investment for 92% of 401(k) accounts. These sometimes come with higher fees and may not provide the exact mix of investments you’d select based on your personal risk tolerance,” Beiber said. “It takes just a few minutes to research the investment options available to you and to find low fee options that match your goals. Since it is your retirement future at stake, it’s worth the effort.”

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About the Author

Yaël Bizouati-Kennedy is a full-time financial journalist and has written for several publications, including Dow Jones, The Financial Times Group, Bloomberg and Business Insider. She also worked as a vice president/senior content writer for major NYC-based financial companies, including New York Life and MSCI. Yaël is now freelancing and most recently, she co-authored  the book “Blockchain for Medical Research: Accelerating Trust in Healthcare,” with Dr. Sean Manion. (CRC Press, April 2020) She holds two master’s degrees, including one in Journalism from New York University and one in Russian Studies from Université Toulouse-Jean Jaurès, France.
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