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question everything

(48,971 posts)
Wed Oct 9, 2024, 03:46 PM Oct 9

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.

(snip)

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.

(snip)

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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Shermann

(8,698 posts)
1. The SECURE 2.0 Act mandates auto-escalation for new 401(k) and 403(b) plans starting in 2025
Wed Oct 9, 2024, 04:02 PM
Oct 9

I don't believe auto-escalation is all that common today, so I'm skeptical of this claim.

Lemonwurst

(327 posts)
2. True, but only as a default
Wed Oct 9, 2024, 04:19 PM
Oct 9

Employees can always Opt-Out of Auto-escalation (auto-increase) of their contribution rate from eligible pay, at enrollment time or anytime thereafter.

The key point being made by Vanguard is valid: most employees, especially those who aren't necessarily thinking about retirement right away, are likely missing out on higher investment returns by deferring less than the amount needed to maximize company match. Defaulting enrollment, coupled with auto-increase of deferrals, helps those who might otherwise not optimize their 401k benefit.

That said, many employees can't accept a 10-15% draw from their pay, even if not taxed. Vanguard (and other benefit providers) have a tendency to gloss over some employees' real-world financial challenges, and then focus mostly on those who are assumed to be "doing well".

True Blue American

(18,188 posts)
3. If your old company sends the check to you it can cost a fortune too.
Wed Oct 9, 2024, 04:22 PM
Oct 9

For some reason I checked my IRA. It had zero in it.they said they were sending it to me. I told them I did not give them my permission, and put it back. I then called my bank who turned me over to a Financial adviser. He had it sent to me and him,rolled it over. He said that would have cost you a fortune in Taxes. I just draw out my minimal. The person I leave it to will have to draw it out in ten years..

Happy Hoosier

(8,487 posts)
7. I ultimately rolled over my old TSP
Fri Oct 11, 2024, 07:39 AM
Oct 11

My TSP (gubmint employee version of a 401K) has really limited investment options. For some reason, I though it had to stay there, so it HAS just stayed there... for 20 years. It's done okay, but when I mentioned this to my FA, he was like "roll it over to your current 401K, which has much better investment options." I was like "I though I couldn't." I can. So I did. Doing much better here (though the market has been on a tear), but the biggest benefit is just one account to track. Not I need to plan my withdrawala strategy to avoid really big RMD's.

Shermann

(8,698 posts)
8. RMD's are a good problem to have. You want to have that problem.
Fri Oct 11, 2024, 03:27 PM
Oct 11

People who haven't saved enough for retirement don't have the problem of having to withdraw more than they need.

slightlv

(4,398 posts)
6. When I began in tech, at the early part of the field...
Wed Oct 9, 2024, 07:57 PM
Oct 9

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!

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