Americans are shifting jobs faster than ever before. According to the Harvard Business Review, the average monthly quit rate has been on the rise since 2009, a trend that came to a head with the “Great Resignation” of 2021. This trend is impacting how many professionals approach their investment strategy.
For the American workforce, the prospect of a new job offers better pay or better company culture. But it can also impact your investment strategy. In this article, Ty Young, CEO of Ty J. Young Wealth Management, explains what you should know about how changing jobs impacts your retirement planning.
How Changing Jobs Impacts Your Investment Plans
Every time you change jobs, you potentially change your retirement investment plans, such as your 401(k).
Ty Young explains that “when you make contributions to a 401(k) or retirement plan, there is often a matching contribution, [and] that matching contribution is very likely tied to a vesting schedule. What that means is, as you leave a company, you could be leaving part of the matching contribution with the old company.”
In other words, if you get the timing wrong, you could miss out on one of your key benefits. But as Young explains, “it’s not a reason not to take a new and better job. It’s just a consideration that you should be aware of.”
The Hidden Costs of Job-Hopping
Changing jobs has its appeal, but there are risks. For one thing, you’re assuming that your next job is the one you really want to land on.
As Ty Young explains, “If you job hop enough times…at some point, there might not be a new place to hop to if things don’t go well. This could lead to a period of unemployment which likely would negatively impact a long-term retirement plan.”
Job hunting can therefore lead to a dead-end, which also disrupts the timing and quantity of your investments.
At a minimum, that limits your ability to accumulate wealth over time. But at worst, unemployment or underemployment will separate you from the support you’d receive from a company’s matching 401(k) or other retirement benefits.
What to Know Before Changing Jobs
Are you still thinking about changing jobs? These factors aren’t meant to deter you, only to give you something to consider as you do. Here are some tips for those changing jobs.
1. Keep Your Retirement Accounts Together
Ty Young observes that “when people are changing jobs, they leave their 401(k)s at their previous employer. That can be a mistake. The best course of action, for most people, is to roll those old 401(k)s into a self-directed IRA and invest according to your investment objectives.”
This approach makes sense. If you make frequent job changes, you’ll have a lot of smaller 401(k) plans. But these small individual plans don’t help you accumulate wealth the way that a centralized IRA can. Make sure to keep your retirement accounts together.
2. Get the Timing Right
Does your employer match your retirement contributions? If so, make sure to stay at your current job long enough that you reap the benefit of this contribution. Otherwise, you could be leaving an important benefit behind.
3. Avoid Jumping Too Often
The grass is always greener on the other side of the fence, as they say. Before you make a drastic career move, make sure that your next job is a good fit. Otherwise, you could be making a decision that you regret — one that has long-term financial effects for you or your family.
Make Your Retirement Count
Ty J. Young is committed to helping investors reach their potential, whether your goals are retirement or an investment strategy more immediate. If you want to develop a solid investing strategy, contact the team at Ty J. Young today.
Featured Image Credit: Olya Kobruseva; Pexels; Thank you!