Changing positions can set back your retirement. Many younger generations haven’t learned about the importance of starting a retirement account, developing skills that are in demand, and negotiating your salary and the benefits you receive at a job. When pay increases, spending increases, and a lot of people fail to take advantage of the pay raise by putting money away or investing. If done correctly, job-hopping can improve your retirement.
Here are a couple of situations where switching jobs can help your retirement investment funds and where it might hurt.
YES, IF YOU ARE IMPROVING YOUR EARNING POTENTIAL
Know your worth. Sometimes we stay at jobs where we know we are underpaid to gain experience, and looking for a similar position can increase your salary. The increase in your salary can help fund your 401K.
Sometimes we need to boost our earnings by taking a course or gaining a certificate. Your current employer might not recognize the certificate, but another company will often pay you more for that additional certification.
When switching jobs results in a significant increase in income, it is essential to remember to pass that increase into a retirement account.
A significant increase is considered 10%; if a new job offers less, run the numbers on what you will take home after taxes before making your decision.
NO — IF COMPANY MATCHES AND EQUITY ARE NOT FULLY VESTED
If you are considering switching jobs, do not overlook free cash in employer-sponsored retirement accounts, restricted stocks, or other equity your current company might offer. Sometimes you are required to work a certain number of years to be vested; it may be worth holding off on switching if you are close to receiving these types of benefits.
NO — IF YOUR BENEFITS DON’T IMPROVE RETIREMENT SAVINGS
With the right benefits, your retirement goals can be met or improved. It is crucial to look at all the benefits a potential employer offers. Consider the type of health care coverage, your responsibility towards said health care, and when the benefits are available. If your insurance premium turns out to be a couple hundred more a month, are you making more? These things can affect the growth of your retirement fund.
Advantages to consider might be location, employer-sponsor funds, health insurance, educational programs, stock options, annual raises, maternity leave, and vacation increases.
YES — IF YOU CAN DO A 401(K) ROLLOVER
You might receive a check if you have a 401k from your previous job. Some people see this as free cash. Most people fail to understand that check is supposed to be deposited into a retirement account within 60 days. Failure to roll over the funds can result in a tax penalty. Cashing out or taking an unqualified withdrawal could result in a 10% penalty and income taxes on the amount taken. You might think a small amount is not a big deal, but it adds up. Instead of losing monies to penalties and taxes, it could have been earning a 7% annual return. Three hundred dollars after 30 years would morph into $2,200.