Changing Jobs Can Put a $300,000 Dent in Retirement Savings - WSJ [View all]

The majority of people who change jobs wind up putting less of their pay into their 401(k)s, often without realizing it, according to new research from Vanguard Group. That is because many job switchers either forget to sign up for the 401(k) plan, or get auto-enrolled at a lower savings rate. Over a four-decade career, that can mean as much as $300,000 less in retirement wealth for someone with average pay, Vanguard found.

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Many employers automatically increase workers’ savings rates by 1 percentage point annually until reaching 10% of pay. When combined with employer matching contributions, that can get them to the recommended 12% to 15%. But workers frequently fall back to a lower savings rate when they change employers, and can take years to bring it back up.

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The Vanguard research is the latest to document the mistakes people make when changing employers. It tracked 54,793 workers who moved out of one Vanguard-administered 401(k) plan into another between 2015 and 2022. It found:

- Some 64% of job-switchers got a raise, but only 44% maintained or increased their savings rate.
- More than half of auto-enrolled workers remained at the default savings rate within the first year in a new job.
- In 401(k) plans that require workers to sign up on their own, nearly one-quarter of job-switchers failed to do so.

A 25-year-old earning $60,000 who is automatically enrolled at 3% of pay and raises that by 1 percentage point a year to 10% would end up with nearly $800,000 by age 65, according to Vanguard, which assumed a 50% employer matching contribution on the first 6% of employee contributions. In contrast, someone who changes jobs eight times and whose savings rate falls to 3% each time would have less than $500,000, assuming the same matching contribution and 1 percentage point annual increase in savings rate.

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