Statistically, you will likely change jobs several times before retiring. In fact, a Pew Research survey estimated that 30% of American workers changed jobs in 2022 alone, most for higher pay. But doing so can be treacherous for your ability to retire when you want and with the lifestyle you want. Why? Because too many people cash out their entire 401(k)s whey they leave a job — and employers do little to prevent it.
Too Many Employees Cash Out Their 401(k)s When Leaving a Job
Companies can make small changes that could dramatically increase retirement readiness.
March 07, 2023
Pixel Stories/Stocksy
Summary.
According to research of over 160,000 U.S. employees from 2014-2016, 41.4% cashed out at least part of their 401(k)s when leaving a job — and 85% of those drained their balance entirely. Why does this occur at this moment in particular, despite evidence that it can damage your ability to retire and despite warnings from experts that it’s a bad idea? The answer is a combination of bureaucracy and psychology — how cashing out is explained to employees (or automatically occurs if balances are low), and how contributions (particularly if they come largely from the employer) are seen as a source of ready cash. This article explores these ideas further, and offers suggestions for employers to nudge their departing employees toward maintaining their savings.