Changing Jobs? Don’t Make This Costly Retirement Mistake – Technologist

If you’ve switched jobs recently, you need to make sure that your path to retirement is still on track.

Recent research from brokerage firm Vanguard indicates that workers often lose much-needed momentum in their 401(k) savings when they change employers. The impact on retirement plans occurs regardless of an increase in pay as the design of 401(k) plans is not well suited for such transitions.

Vanguard: Changing Employers Can Slow the Road To Retirement

First off, your lackluster 401(k) efforts after moving from job to job may not be entirely your fault.

“The current design of many 401(k) plans does not account for repeated job switches,” says the report. “The benefits of plan features that encourage greater retirement savings, such as automatic enrollment and automatic escalation, can be diminished with each job transition when plan features do not line up from employer to employer.”

With that said, money expert Clark Howard wants to impress upon you the importance of taking charge when it comes to your 401(k). For example, you should know how much you and your employer are contributing each paycheck — and how to increase it, if you can.

Here are some key findings from Vanguard’s research, which was published in September 2024:

• The typical U.S. worker has nine employers over their career, with a median staying time of five years. 
• The median job switcher sees a 10% hike in pay but a 0.7% drop in their retirement saving rate when they switch employers.
• Automatic enrollment is more advantageous than voluntary enrollment in a 401(k) but workers have to max out – or at least increase – their savings rates.

Let’s go over some ways you can increase your chances of retirement success as you transition from one employer to another.

If You Get a Higher-Paying Job, Consider Contributing More To Your 401(k)

“Most job switchers (64% of the income sample) experienced a boost to their income, but just 44% increased or maintained their saving rate from their prior job,” says the report.

Clark says you’re doing your wallet — and your retirement dreams — a disservice if you’re not contributing enough to your 401(k).

“It drives me bonkers when people have a 401(k) available to them with a match and they don’t even put in enough money in it to grab that match,” Clark says.

If Your Job Doesn’t Have Automatic 401(k) Plan Enrollment, Sign Up Voluntarily

Your employer will likely offer a voluntary 401(k) plan or one in which you’re automatically enrolled. The report indicates that automatic enrollees fare much better financially than those who are asked to sign up voluntarily.

“Only 76% of job switchers who joined voluntary plans continued to save, compared with 95% of those who transitioned to automatic enrollment plans,” says the report.

A key issue with automatic enrollment is that workers typically come in at the basement level of savings. “Among job switchers who joined an employer with automatic enrollment — 36% of job switchers —the most common default saving rate was 3%,” says the report.

Another issue you’ll want to take to heart, which Clark has talked about, is how much you’re being charged in 401(k) fees. While many plans have fees around the 0.5% mark, some can go as high as 2% depending on the provider and other factors.

“If your expenses all-in on your 401(k) are higher than 0.5% — the expenses of the investments you’re in plus whatever administrative costs the employer passes on — you can do your own Roth IRA a lot cheaper,” Clark says.

Max Out That 401(k)

Clark wants you to contribute the maximum amount to your 401(k), which, in many cases, can also prompt your employer to match what you’re putting into your account.

“The beauty of an employer match is that it’s the equivalent of an automatic pay raise,” Clark says. “No need to ask your boss, get a good quarterly review or hope your company has a good year so there’s money for a raise!”

Employers will typically offer you three types of 401(k) company matches:

• Partial 401(k) Match: For every dollar you contribute, your company will typically contribute 50 cents, although the exact figure depends on the employer.
• Dollar-for-Dollar Matching: Your company will contribute to your 401(k) the same amount you do, up to a certain percentage of your salary.
• Non-Matching Contributions: Your employer contributes to your 401(k) whether you do so or not.

Check out our 401(k) Match Calculator.

Final Thoughts

You probably get the theme here: You should be putting as much money as you can into your 401(k) no matter if you’re changing jobs or not. That’s how you’ll get the most benefit in retirement.

Clark also wants you to consider another savings vehicle that can help put you in an even better position for retirement: a Roth 401(k). 

“If you’ve been working at an employer for a while, they probably didn’t have a Roth 401(k) option when you started,” Clark says. “But today, roughly 90% of companies that offer a 401(k) offer you the choice of traditional or Roth. And particularly if you’ve been at a place a while, you’ve been doing traditional all through the years, I want you — as long as you stay with them from this point forward — to do Roth.”

Read our intensive guide on the Roth 401(k) and how it works.

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