I know you want to make more money.

It’s okay to admit it, I do too.

So to chase a higher salary, you and I switch jobs for a pay raise.

Sounds good right?

Well you might be sacrificing your future retirement for short-term gains.

Arielle O’Shea from NerdWallet names two main reasons job hopping isn’t a good idea for your retirement account.

And I agree with her.

The New Employee 401(k) Enrollment Waiting Period

According to the Plan Sponsor Council of America, a nonprofit representing retirement plan sponsors, more than 35% of companies require employees have three months to a year of service before they’re eligible for the retirement plan. Nearly a quarter require a year of service before kicking in matching dollars.

Taking a year off from investing in your 401(k) is a long time.

And the one thing you can never get back is time.

Once it’s gone, it’s gone forever.

To give you an idea how much sitting out a year costs, if I sat out a year when I was 22, I would lose out on $232,000 in retirement.

That’s a lot of money so the raise better be worth it.

The Solution To Sitting Out of Your 401(k)

It’s not as good as a your 401(k) with a company match but you can invest in a Roth or IRA.

Both are better than losing that time forever.

You Lose Your Employer Match

The PSCA (Plan Sponsor Council of America) says only about 39% of plans offer immediate, full vesting of matching contributions.

Vesting means you can take your employer’s contributions with you.

To encourage you to stay longer, employer’s will often make vesting periods over a period of time.

For example, you may vest 20% of your employer’s contribution each year so you have to be there 5 years to be fully vested.

This means if you leave early, you lose that money.

To give you another example, if I lost my employer match because I left too early, I would lose out on half of the $232,000 I mentioned earlier.

So I would lose $116,000.

That is still a lot of money.


The point of this is not to discourage you from ever taking another job.

But I want to make you aware of all the costs involved in switching jobs.

Make sure your promotion is worth it.

That blanket advice they gave me in business school to “Never stay in your first job for more than 2 years,” is a load of crap.

Evaluate every opportunity individually.

Have you switched jobs recently?

First, congratulations!

Second, let me know how it went in the comments below.

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