I remember years ago at a previous employer, several of us left for new jobs within a few weeks of each other. On a whiteboard, we drew a picture of a sinking ship in the ocean and a rat swimming to an island in the distance. Every time someone left, the ship was re-drawn lower in the water and there were more rats swimming for the island. As good as it felt to tell the boss we quit, that mass exodus was nothing compared to what’s going on in the national job market today.
People are quitting their jobs left and right. A survey by Bankrate found:
- 55% of American workers say they’re either somewhat or very likely to look for a new job in 2022
- 56% want flexible work arrangements
- 53% are looking for more money
- 47% want more job security
- 41% expect to work remotely at least one day a week
So far, approximately 5 million people have quit their jobs. 70% are 55 years old or older. 1 million are typical retirement age. 1.5 million are considered early retirees.
It’s been discovered that many people changing jobs are doing so based on fear and emotion rather than facts and numbers. And that can have a dramatic effect on your retirement savings and retirement income. Here are some things to think about before changing jobs.
If you change jobs and your new employer offers a 401(k) plan, chances are good that you can roll over your previous 401(k) balance into the new plan. But most employers have a one-year waiting period before you become eligible for the new plan. So, that’s an entire year before you’re able to contribute to your new employer’s plan. In 2022 you can contribute up to $20,500. If you’re older than 50, the contribution limit is $27,000. That’s a lot of money not working for you if you change jobs. But if changing jobs is right for you, you can always contribute to an IRA during that first year at a new job. In 2022, the maximum IRA contribution to an IRA is $6,000. For people over 50, the maximum is $7,000. That’s better than not contributing anything at all.
If you change jobs, can you take all the employer contributions with you? After the one-year waiting period to get into the new employer plan, then it’s generally another five years before you’re entitled to everything the employer has contributed for you—20% year 2, 40% year three, and so forth. If you’re thinking about changing jobs, how much additional time do you need to work to get the entire employer contribution?
What if you have an outstanding loan against your 401(k) when you change jobs or quit? In most cases, the loan has to be paid off before you roll over your money. Most often, the money is deducted from your 401(k) balance. In some cases, a company will allow you to pay off the loan with non-retirement money. In either case, it reduces the amount of your retirement savings.
Thinking about retiring early? That’s a dream for many. But what does early retirement do to your Social Security benefit? The amount you receive is based on your highest 35 years of earnings. Most people make the most money of their lives in the last few years of their working career which is a benefit to their Social Security. For example, if you earn $100,000 this year and the lowest amount you earned in that 35 years was $50,000, then the $100k replaces the $50k in the Social Security calculation and you get a bigger check. That needs to be considered.
Another Social Security fact to consider before taking early retirement—beginning Social Security before you reach Full Retirement Age means you get a permanently reduced Social Security check. Only after you reach Full Retirement Age or beyond do you get 100% of your projected benefit.
Look, if your boss is a horse’s behind or you’re just looking for more opportunity, by all means, see what employment opportunities exist. Just make sure you’ve looked at the change from all sides.