Changing Jobs Can Put a $300,000 Dent in Retirement Savings - WSJ
The majority of people who change jobs wind up putting less of their pay into their 401(k)s, often without realizing it, according to new research from Vanguard Group. That is because many job switchers either forget to sign up for the 401(k) plan, or get auto-enrolled at a lower savings rate. Over a four-decade career, that can mean as much as $300,000 less in retirement wealth for someone with average pay, Vanguard found.
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Many employers automatically increase workers’ savings rates by 1 percentage point annually until reaching 10% of pay. When combined with employer matching contributions, that can get them to the recommended 12% to 15%. But workers frequently fall back to a lower savings rate when they change employers, and can take years to bring it back up.
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The Vanguard research is the latest to document the mistakes people make when changing employers. It tracked 54,793 workers who moved out of one Vanguard-administered 401(k) plan into another between 2015 and 2022. It found:
- Some 64% of job-switchers got a raise, but only 44% maintained or increased their savings rate.
- More than half of auto-enrolled workers remained at the default savings rate within the first year in a new job.
- In 401(k) plans that require workers to sign up on their own, nearly one-quarter of job-switchers failed to do so.
A 25-year-old earning $60,000 who is automatically enrolled at 3% of pay and raises that by 1 percentage point a year to 10% would end up with nearly $800,000 by age 65, according to Vanguard, which assumed a 50% employer matching contribution on the first 6% of employee contributions. In contrast, someone who changes jobs eight times and whose savings rate falls to 3% each time would have less than $500,000, assuming the same matching contribution and 1 percentage point annual increase in savings rate.
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before there were anything but workshops (no college courses except computer science)... if you didn't change jobs prior to every 5 years, you ended up on the losing end of being able to change jobs. The excuse was the technology was changing so much, that your old job wouldn't keep up, so you had to move on to where the new tech was being used. But I often wondered, that new job? Were the people wanting to move on from there told the same thing? Anyway... I lived paycheck to paycheck, regardless... 'cause back in those days it was a man's job, and I was a woman doing tech and electrical repair. I never will forget the day I found out one of my coworkers (a man, of course... who was somewhat slow on the uptake, with no social skills), was doing the exact same job that I was at 30K a year more than me. Hell, I wasn't even making 30k a year!!! I ended up quitting there just as soon as my TS clearance came through, and went to work for a DoD consultant and never looked back. Still didn't make great money, but at least it was a more level playing field.
I loved my dad more than anything, and he got me into the electronic repair field when he repaired radios and TV's. My biggest dream was for the two of us to open our own shop together for computers. But he could never make the tech jump. But biggest "oh, well"... At least I got my talent and skill from him, and I passed the love and experience on to at least one of my grandsons and one of my nephews. The nephew sets up new offices for his company all over the world, and has been to Singapore many, many times. The nephew has his own streaming channel. So, my Dad's genes carry on! 