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Career-Hoppers Must Also Save For Retirement

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The Tampa Tribune

Published: June 8, 2008

I don't know about you, but as a kid, my career aspirations varied from year to year. In fourth grade, I was dead set on becoming a teacher; by fifth, I'd shifted my focus to culinary school. With that much time on your side, the possibilities seem endless.

But these days, it's not uncommon for adults to change companies - and even careers - nearly as often. In fact, according to the Employee Benefits Research Institute, the average job tenure is about four years.
Career experts say that, if the time is right, jumping ship is a good thing. "It's kind of like rebalancing your stock portfolio," says Cynthia Shapiro, author of "Career Confidential" (St. Martin's Griffin, $13.95). "Look at the situation every three years, and ask yourself if it is getting you where you need to go."

Interesting, considering that retirement investments often become casualties during a job change. Don't get me wrong, I'm all for making a switch. In many cases, your mental health depends on it. But here's how to keep your savings on track.:

Wait until you're vested. We always say there's no such thing as a free lunch, but one thing comes close: employer-matching dollars. To encourage their employees to save for retirement, most companies will cough up some cash - sometimes as much as 50 percent of your own contribution - to add to your account. The catch? You have to be vested to keep the money they've contributed if you decide to move on.

Alison Borland of Hewitt Associates says about 44 percent of companies have programs that offer immediate vesting to employees - which means more than half don't. Commonly, companies offer graded vesting over five years, which means you get to keep 20 percent of their money after one year, 40 percent after two, etc. At others, you're automatically vested after three years; leave before and get nothing.

Don't cash out. The first time I changed jobs, in my early 20s, my employer cut me a check for my retirement savings, and I took it straight to the mall. The clothes I bought are long gone, and I don't even want to think about how much that money would be worth today had I kept it invested. Don't make the same mistake.

"If a lump sum is less than $15,000 to $18,000, there is a very high probability that it will be spent, not saved," says Dallas Salisbury, the research institute's president and CEO. In fact, Borland's research at Hewitt shows that about 45 percent of people who change jobs take the cash when they leave. Not only will this set you back in a big way when it comes to saving for retirement, but you'll also have to pay taxes and penalties for pulling out early.

That's not to say you should leave the money with your old employer. It's hard to be sure a company will still be around 20 or 30 years down the road, particularly given this economy, so it's a good idea to keep your savings close. Check out the plan at your new job, and if it's not up to snuff, you have the option of rolling your savings into an IRA, where you have total control over the investment. Whatever you do, have Human Resources at your old company send the money directly to your new account - if you're cut a check, the IRS assumes you cashed out and your tax bill will be sky-high.

Every little bit helps. There are a million excuses for delaying contributions. One of the biggies, though, comes from 20-somethings in their first or second job. Because they don't plan on staying with the company for more than a few years, they snub their retirement options. They switch jobs but decide to delay saving for retirement even further because they're still not quite settled, and suddenly, they're 30 without any retirement savings. Big mistake.

The difference between starting contributions at age 25 and at 30 is huge: If you invest $5,000 a year starting at 25, you'll have almost $1.5 million dollars by age 65. Wait until you're 30, and that amount drops by nearly a third.

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