Often, for Baby Boomers or older generations, starting your career meant finding a company in your desired field and, unless there were layoffs or the company went bankrupt, staying there until you retired. Today, we live in the land of the Millennial, who now make up almost 35% of today’s workforce. But, for the Millennial generation, staying with the same company, and sometimes even in the same career, is grossly uncommon. According to analysis performed by LinkedIn, those who graduated college between 2006-2010 had, on average, three different jobs within their first five years in the workforce.
So what does that mean for retirement? You may find yourself asking, even if you’re not a Millennial, does that mean I should never switch companies? Will I ever be able to retire? Although finding a new career path or taking a leap of faith with a new company should not be discouraged in any way, too much jumping around may put you, and your retirement funds, at a greater risk, and here’s how:
- Waiting periods for 401(k)’s – Many companies require you to be employed for anywhere from three months to a year before they allow you to join their retirement program, meaning you are missing out on months you could be contributing if you move jobs too frequently.
- Distribution of Employer Matches – Many retirement plans also require you be with the company for a certain amount of time before you can take employer-matched funds out when you leave, a requirement you may never meet if you don’t stick around long enough.
- “Cashing out” can hurt your wallet – If you have only been with a company for a short time, but already began contributing to a 401(k), it may seem more appealing to simply cash out the small funds you have in the account. However, cashing out that money will mean you not only get taxed on the sum, but will also receive a 10% early distribution penalty.
Solutions to combat retirement fund shortage include opening an IRA, rolling your 401(k) funds into an IRA if you leave a company, or rolling funds into a 401(k) plan at your new company if your new employer permits transfers. Although the annual IRA contribution allowance is lower than that of a 401(k), any advisor would tell you that putting something into a retirement fund is better than not contributing at all. Many might say to just remain in your current role, but if a switch is needed, or gets you closer to your personal or financial goals, then consider your future beyond the workforce and take your retirement into your own hands.
If you have any questions, please contact me at pmcallister@mkrcpas.com.
