Are Frequent Job Changes Bad for Your Nest Egg?

Hidden Cost

Changing jobs can be a path to getting paid more, which may help you on your path to reaching your financial goals. But there can be a downside to your personal finances too.

Frequent job changes can deal a blow to Americans’ retirement accounts, costing up to $300,000 in savings over a four-decade career, according to research from 401(k) provider Vanguard.

401(k) Conundrum

So how can changing your job weigh on your retirement savings?

The common 401(k) retirement accounts that many companies offer have many advantages, including potential company contributions, and the fact that workers can hold onto them even after leaving the firm. At least in theory…In practice, it can be harder to sustain savings momentum when changing work situations.

According to Vanguard, new employees tend to be auto-enrolled into 401(k) plans, and the most common contribution rate is 3%, which may be less than what workers were contributing before since savings rates often see automatic escalation over time. This is how frequent job changers can wind up with lower 401(k) savings than those who stay put.

Due Diligence

If you work in an industry where job hopping is common, being aware of these dynamics can help you protect your savings rate.

The rule of thumb for padding a nest egg is to save consistently and steadily. If the next step in your career comes with a higher paycheck, reassess your retirement contributions (in your 401(k) and elsewhere) to ensure you’re doing what’s right for your financial goals.

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