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How Job Hopping is Harmful to Your Retirement Savings

Job Hopping

While some people choose to stay at the same job for their entire career, others have a habit of changing jobs every year or two. This habit is known as job hopping.

Job hopping may not be a bad thing if you are young and the positions you hop to are higher paying or with better benefits. However, there are times when job hopping can be harmful to your retirement savings.

Cashing Out

Should you choose to leave your job after only a year or two, you may think you should simply cash out your 401(k) when you leave. Think again.

Cashing out your retirement plan early means you may only be able to receive a portion of it. The reason for this is because early withdrawal usually causes you to incur penalties and fees. A couple of better options would be to move it with you to your new employer, if they allow it, or to roll it into an IRA.

Not Being Fully Vested

When you are investing in a 401(k) plan, it usually takes three to five years before you are fully vested. If you choose to leave your current employer and go to work for a different company or become self-employed before you are fully vested, you may only be able to take a portion of your 401(k) with you. Also, there are some employers who will not allow you to take any of your 401(k) until you are fully vested. Before you announce that you are quitting it could be worth thousands to check the facts about your 401(k) vesting.

Waiting Periods

Some employers will not allow you to begin investing in a 401(k) plan until you have been with them for a certain period of time. This can range anywhere from a few months up to a year. This means your new employer might not allow contributions for several months. This could cause you to miss out on contributions you could have made with your previous employer in addition to contributions your employer could have made on your behalf. In addition, you would also miss out on any growth your investment could have made during the waiting period with your new employer. Adding up all of those missed investment dollars could total into the thousands.

Putting Off Investing

Another way job hopping can be harmful to your retirement savings is if you put off setting up your 401(k). It is easy to get busy and forget to complete the necessary steps to set up your retirement account. There are some employers who automatically start an account for you. But, you usually still have some investment options that require you to make choices within your account. Not completing the process could cost you investment money you will miss out on.

As you can see, there are several ways job hopping can be harmful to your retirement savings. It might be wise to run the numbers before you make a decision that could cost you thousands.

Can you think of other ways job hopping is harmful to your retirement savings?

About Kayla Sloan

Kayla is a mid-20s single girl living in the Midwest, USA. She is focused on paying off her consumer and student loans, while simplifying her life and closet. You can join her on her journey at ShoeaholicNoMore or follow her on Twitter.

13 comments

  1. It really depends on the jobs. Back in the day, when husband was an employee, he changed about 20-30 jobs in 20 years of work. Some lasted few months, some lasted years. He never left because he was incompetent, actually he was invited by bigger companies to join them. He got a bigger salary all the time, so his retirement savings were never compromised since in most cases he went from a job to the other without any pauses. Now he’s running his own small business and it’s really a great thing for him (and us).

    • That’s great! I wish it was always like that, but that’s not always the case. As I said in the post, some companies these days don’t allow you to start contributing to retirement right away and if you don’t stay long enough you aren’t “vested” either, so you can’t take all of the retirement savings with you when you leave. Maybe it’s because most companies now have 401(k)s instead of a “defined benefit” plan like they used to have years ago…

  2. For most people the salary increases start to level off after a certain point, so it can definitely come into play that you might be losing the matching contributions and such.

    Very good points.

    • Thanks! It’s definitely something to think about before you leave your job for a new company, as long as you aren’t unhappy at your current job. When I left my job to be self-employed I did leave a little $$ on the table because I wasn’t quite 100% vested in my retirement account yet. But I couldn’t stay until I was because I was so unhappy.

  3. These are great things to consider prior to job hopping. It usually is view as a good thing, because it brings a bigger paycheck and experiences. Good job focusing on the other side of job hopping.

  4. People who job hop usually don’t look at their 401k’s very closely. It’s actually amazing to see how many long time employees at my current company have not even set up their 401k. The company offers a match as well that’s just like refusing free money.

  5. I think one of the things that I noticed from people that job hop is that they don’t stay in a job long enough to have the minimum balance to stay in the companies 401k plan. Inevitably, the company will cut them a check kicking them out and I know too many people that cash it instead of being proactive and rolling into their new 401k or IRA.

  6. I always consider this when I job-hop. I make sure that my contributions are well taken care of and when I move, my retirement savings are complete and completely transferred to my new employer. It’s really advantageous to keep always track on it while you’re still in your current employer.

  7. Actually, job hopping has really helped me reach FI sooner. Every hop came with meaningful jump in income and job content, which in turn prepared me for senior management role. So, it really depends. Combined with my renting decision, this helped put me on accelerated path to FIRE. My website has articles that explain this further.

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