There are many things to consider when deciding whether changing your job makes sense. The obvious are whether you are getting paid more or doing something you might like better. There may also be things to take into account like location and work-life balance. One thing that few people consider is how changing your job may impact your retirement.
According to a study by Fidelity, one in four employees who left their job in 2019 lost out on valuable retirement savings. On average, they left behind $1,710 in savings, the analysis found, which followed 500,000 401k savers who left their jobs.
Younger workers were by far the most frequent losers: more than a third of Millennials left behind an average 24% of their account balance after leaving their job. In contrast, only 11% of Baby Boomers left money behind.
Sometimes waiting another few months or a year can make a big difference in how much money you’ll take with you. The money you contributed yourself through salary reduction contributions is always 100% vested, but your company match usually vests over a period of several years, commonly three to five. Check your plan documents or ask your human resources department when you’ll be 100% vested. By changing employers before being fully vested, you’ll forfeit a portion of your employer’s match and any earnings on that match.
For example, let’s say that under your plan’s terms, you vest 20% a year for five years. You’ve been with your employer for a month shy of four years, so you’re 60% vested. Let’s say you earned $40,000 a year and contributed 15% of your salary, or $6,000 a year, to your 401(k) plan. Your employer matches 100% of your contribution, or another $6,000 a year. If you leave now, you’ll receive 60% of the employer match, or $14,400 ($6,000/yr x 4 yrs = $24,000 x 60%). If you stayed another month, you’d vest an additional 20% and receive an additional $4,800 of employer match. If you stayed another 13 months, you’d receive an additional $9,600 in employer match for the four years you’ve already been there, plus the $6,000 match for your fifth year, for a total of $15,600 before taking any earnings on the match over the five year period into consideration.
Even if your employer’s match is much less than 100%, you can still see how you might be walking away from a big chunk of free money by not carefully timing your departure.
It’s not just 401k investors who may be impacted. If you have a traditional pension plan, consider the impact on your pension benefits. Many plans have a five-year time frame for vesting into a benefit. You may find staying at your job a little while longer will significantly increase your benefits.
How to Be Sure You’re Not Losing Out
- Be aware. Take the time to read your employer’s vesting schedule for both 401(k) matches and profit-sharing contributions. They may be different. If you only have to wait a few more months to take home thousands in savings, consider sticking with your company until you’ve hit the 100% mark.
- Negotiate. If you get a great opportunity for a new job and you’re not fully vested in your 401(k), don’t be afraid to try and negotiate with your new employer. Explain how much you’ll lose in savings. Some employers may be willing to compensate with a slightly higher salary or a signing bonus.
- Save more. Try to sock away between 10% and 15% of your salary each year. Many workers, especially younger ones, only get above that threshold with the help of an employer match. If you think you’ll likely leave your job before fully vesting, try to make up for it by saving at least 10% of your salary on your own.
Even small amounts of lost money can have a big effect come retirement due to decades of lost returns. By considering all of the implications discussed here, you can wisely evaluate the impact that changing jobs might have on your retirement savings, and make the most informed decision.