John—a client of ten years—shared his plans to switch jobs. His new position came with a significant raise, and he was excited about the new opportunity.
“I’ll be earning more, but I’m not sure how it will affect my 401(k). Will my savings continue to grow at the same rate?”
I stirred my coffee. “Job switches can result in a significant reduction in retirement savings.”
John looked disappointed.
“Even with a raise, savings rates drop when workers forget to sign up for their new company’s 401(k) or get auto-enrolled at a much lower rate. Studies show that job switchers can miss out on nearly $300,000 in retirement wealth over a four-decade career. That’s the difference between sticking to a consistent retirement plan and allowing savings rates to fall each time you change jobs.
John’s face fell. “I had no idea. Is there a cure for this?”
“The solution is straightforward,” I reassured him. “When starting a new job, don’t rely on the default contribution. Make sure your savings rate continues to increase annually, and aim for that ideal 12% to 15% of your pay.”
I told John about Sarah, another client who had held several jobs during the last few years. Despite regular pay raises, her 401(k) savings hadn’t grown as she’d expected.
“Each time you switch employers, your 401(k) contributions can slip,” I explained. “Most companies auto-enroll you at a 3% contribution rate—well below the recommended target.
“With the average American switching jobs every five years, savings plans take a hit. This ‘saw-tooth’ pattern results in reduced retirement wealth that can add up to hundreds of thousands of dollars in the long run.”
“I’m glad I came to see you before I started the new position,” said John.
“The best course,” I explained, “is to take the initiative to raise your savings rate from the start. But catching up is possible. Sarah increased her contribution rate annually until her contribution was back on par with what she’s been paying at her old job.”
Changing jobs doesn’t have to mean falling behind in retirement savings. Stay proactive by signing up for the new company’s 401(k) immediately, and aim to contribute at least 10% of your income, working toward 15%.
If you’re planning a career upgrade, ask the experts at Concierge Retirement Planning to help. Schedule a time to review your retirement strategy so you can maintain steady growth no matter how many career moves you make.