Switching jobs is a significant milestone in anyone’s career, often accompanied by excitement for new opportunities and challenges. However, amid the flurry of updating resumes, negotiating offers, and planning transitions, many professionals overlook a critical aspect of their financial health: their retirement plans. This oversight can lead to costly mistakes that may compromise long-term financial security.

Today, we’ll explore common retirement planning errors people make when switching jobs and provide actionable tips to help you avoid them. Whether you’re early in your career or nearing retirement, these insights can help you stay on track to achieve your financial goals.

1. Forgetting to Roll Over Old Retirement Accounts

When you leave a job, you typically have several options for your retirement account, such as a 401(k) or 403(b). Many people leave their retirement accounts with their former employers, assuming it’s the easiest choice. While this might seem convenient, it can create complications:

• Difficulty Tracking Funds: Over time, it’s easy to lose track of accounts left with multiple employers.
• Limited Investment Options: Employer plans may offer fewer investment choices compared to an IRA.
• Higher Fees: Some employer-sponsored plans have higher management fees, which can eat into your returns.

How to Avoid This Mistake: Consider rolling over your old 401(k) into your new employer’s plan or an IRA. Rolling over funds ensures that your retirement savings are consolidated, easier to manage, and potentially subject to lower fees. Be sure to research your options and choose the one that aligns best with your investment goals.

2. Cashing Out Your Retirement Account

Another common mistake is cashing out a retirement account when switching jobs. While it might be tempting to use the funds for immediate needs or desires, this decision has severe financial consequences:

• Tax Penalties: Withdrawals before age 59½ are usually subject to income tax and a 10% early withdrawal penalty.
• Lost Growth Potential: By cashing out, you miss out on years of compound growth, which can significantly impact your retirement savings.

How to Avoid This Mistake: Unless absolutely necessary, resist the urge to cash out your retirement account. If you’re in financial distress, explore other funding options or speak with a financial advisor before tapping into your retirement savings. Perhaps a loan may be the answer for you.

3. Neglecting to Enroll in Your New Employer’s Retirement Plan

Many people delay enrolling in their new employer’s retirement plan, often because they’re overwhelmed with onboarding tasks or unsure of the plan’s details. Postponing enrollment can lead to missed opportunities to save for retirement and take advantage of employer-matching contributions.

How to Avoid This Mistake: As soon as you start your new job, inquire about the company’s retirement plan and enrollment process. Set up contributions immediately, even if you start small. If your employer offers matching contributions, aim to contribute enough to receive the full match—it’s essentially free money!

4. Failing to Adjust Contribution Levels

Switching jobs often comes with changes in salary and benefits. However, many people neglect to adjust their retirement contributions to reflect their new financial situation. For example, if you’ve received a significant pay increase, maintaining the same contribution percentage may result in under-saving. Conversely, a pay cut might make your previous contribution level unsustainable.

How to Avoid This Mistake: Reassess your retirement contributions after switching jobs. Ideally, aim to save at least 15% of your income (including employer contributions) for retirement. If a higher salary allows, consider increasing your contribution rate to accelerate your savings. Once you reach your max, consider an IRA, particularly a Roth IRA, to enjoy tax-free distributions during retirement.

5. Overlooking Vesting Schedules

Employer contributions to your retirement plan may be subject to a vesting schedule, meaning you must remain with the company for a certain period before those contributions become fully yours. If you leave your job before you’re fully vested, you might forfeit some or all of your employer’s contributions.

How to Avoid This Mistake: Before resigning, review your current employer’s vesting schedule. If you’re close to becoming fully vested, consider delaying your departure to secure those contributions. Additionally, inquire about the vesting terms of your new employer’s plan to plan accordingly. Weigh the good and bad before accepting a new position.

6. Not Reviewing Beneficiary Designations

When you switch jobs, you may forget to update the beneficiary designations on your retirement accounts. This oversight can have unintended consequences, such as assets being distributed to an ex-spouse or other unintended individuals.

How to Avoid This Mistake: Review and update beneficiary designations whenever you change jobs or experience a major life event, such as marriage, divorce, or the birth of a child. Keeping this information current ensures your assets are distributed according to your wishes.

7. Ignoring the Need for a Holistic Financial Plan

Switching jobs can be a great opportunity to reassess your overall financial picture, yet many people focus solely on salary and benefits without considering how the move fits into their long-term goals.

How to Avoid This Mistake: Work with a financial advisor to create or update your financial plan. This plan should include not only your retirement savings but also other goals like home-ownership, education savings, and debt management. A holistic approach ensures all aspects of your financial life are aligned.

8. Failing to Understand New Retirement Plan Options

Each employer’s retirement plan comes with unique features, such as investment options, fees, and matching policies. Further, you may not even be allowed to save in the plan immediately. Failing to familiarize yourself with these details can lead to suboptimal choices.

How to Avoid This Mistake: Take the time to thoroughly review your new employer’s retirement plan documents. Pay attention to fees, investment options, and matching policies. Can’t save right away? Look at other avenues to save. If you’re unsure about the best choices, consult a financial advisor for guidance.

9. Not Accounting for Job Gaps

If you take time off between jobs, you might pause your retirement contributions, which can slow your savings momentum. Extended job gaps can also lead to a break in health and other benefits that affect your overall financial well-being.

How to Avoid This Mistake: Plan ahead for job transitions to ensure minimal disruption to your retirement savings. If possible, continue contributing to an IRA during gaps. Additionally, maintain a sufficient emergency fund to cover expenses while you’re between jobs.

10. Overestimating Future Earnings

Some people assume that they’ll make up for any retirement savings shortfalls later in their careers, especially if they’re switching to a higher-paying job. However, this approach can backfire if unexpected expenses arise or career growth doesn’t pan out as planned.

How to Avoid This Mistake: Avoid procrastinating on retirement savings, even if you anticipate earning more in the future. The power of compound interest means that the earlier you save, the more your money will grow. Stick to a consistent savings strategy regardless of salary changes.

Final Thoughts

Switching jobs is an exciting time, but it’s also a critical moment to make smart decisions about your retirement savings. By avoiding these common mistakes—such as neglecting old accounts, cashing out funds, or delaying enrollment—you can safeguard your financial future and set yourself up for a comfortable retirement.

Remember, retirement planning is a marathon, not a sprint. Each decision you make, no matter how small, can have a significant impact on your long-term financial security. If you’re unsure about your options or need guidance, don’t hesitate to seek advice from a financial professional.

By staying proactive and informed, you can turn job transitions into opportunities to strengthen your retirement plan and build the future you envision.