Saving Emergency Money for Retirement Can be hurt by Job Hopping
Hopping from one job to another can lead to future financial dilemmas, such as a faltered retirement plan. It’s not always easy to remain at one job for numbers of years due to many different reasons. But taking a hard, close look at the possible outcomes of job-hopping and the general aspects of it can provide an outlook of just how secure your future financial stability will be.
Job tenures have gotten shorter
Saving up emergency money for retirement can be considerably harder for consumers who job hop throughout their careers. According to a new study done by the Employee Benefit Research Institute, the median job residence was 5.1 years in 2008. That’s a startling fact considering that ten years prior it was over 15 years. The signs are showing that consumers are making more moves during their career, but it could be costing them in later years. Many pensions and long-term benefits are calculated based on the number of years an employee stays with a company. Job hoppers tend to move in and out of different retirement plans and cash out small 401k amounts when they change jobs. This can greatly diminish their retirement account balances when they exit the job market.
Craig Copeland, author of the study, (see http://www.usnews.com/money/blogs/planning-to-retire/2010/1/15/why-job-hopping-makes-you-worse-off-in-retirement.html) said, “Since defined benefit pensions that are final-average plans have a formula based on tenure and average salary, workers who frequently change jobs will not receive the maximum benefit from this type of retirement plan because they do not remain with their same employer for an extended period. In fact, short-tenure workers with less than five years in a job may not qualify for any pension benefit at all.”
Does it make sense to job hop
In today’s economy it’s a difficult call whether or not to job hop, but cutting down on retirement savings is another reason to stay put. Some 401k plans provide a good investment option or charge lower fees than others to convert. Plans vary widely though among employers and short-term employment. For example, only 37% of 401k plans offered immediate vesting in 2008, according to a Profit Sharing survey of almost 1,000 plans. That means employees got to keep their employer’s match as soon as it was deposited. The other plans had a stipulation tacked on requiring employees to stick with the company a certain amount of years before they were allowed to keep the matched deposits. With consumers so focused on emergency money funds and their retirement, that makes a big difference in the decision to leave a position or stay.
The study also showed
The study also showed that public sector workers job hopped considerably less often than private sector job holders. The median private sector worker stayed with a job for four years, while a public sector worker stayed for over seven. About 11% of all workers have been at their jobs for over 20 years. It’s telling that older workers stay longer, while younger workers tend to move more often. Copeland said, “It is part of the ‘now generation.’ Older workers were willing to put up with more, but many in the end benefit more for sticking it out. Today’s worker is much more impatient.” The days of instant gratification are upon us and the survey showed that more and more employees are ready to leave when signs of discomfort come along.
Thinking about a job move
Emergency money is never easy to find and in today’s economy, it is even harder to hone in on. The best advice a worker can heed is to look at more than a mild job issue to set them looking elsewhere for employment. It could mean the end of a paycheck and having a more difficult time in retirement due to lost savings.