Are You a Frequent Job Hopper? Consider Its Impact on Retirement

The Great Resignation may have presented us with the peak number of workers quitting their jobs and moving on to new opportunities elsewhere, but the trend of job hopping didn’t start or end there. Most employees work with multiple employers over the course of their career but even moderate instances of job hopping can have a lasting impact on their retirement fund.

According to Vanguard, U.S. workers typically work with nine different employers over their careers. These workers stand to see a 10 percent increase in their pay, however, they are also faced with a 0.7 percentage point decline in their retirement savings rate when they make the switch. This might appear to be a small compromise initially, but over time, it can have a significant impact on one’s savings.

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Job Hopping and Its Impact on Retirement

The Vanguard report is clear in its claims—job hopping has a negative impact on retirement. But why do they believe this to be true? On the surface, it feels obvious that regardless of the minor retirement saving risk that comes with job hopping, earning more with each opportunity should ensure you have more money to save. While this is true, the concerns have more to do with specific retirement funds and employees’ 401(k) agreements with their employer.

The report explains that due to the design of many 401(k) plans, the benefits don’t always line up when you switch from one employee to another. Due to the considerable variability in default saving rates of the various 401(k) plans available and the lack of automatic enrollment at various organizations, employees tend to miss out on some of the benefits while switching over. 

“Automatic enrollment may help dampen the drop in savings that is common when switching jobs by increasing participation, but if it’s paired with low default rates, participants may still experience a significant drop in savings,” the study explains. A default saving rate of 6 percent or higher could ease some of the impact, but that isn’t a guarantee available to all transitioning employees.

The lack of standardization allows employers with benefits to attract more talented candidates, but it also creates a system where even moderate job hopping results in a problem with retirement. 

To further elaborate on how changing jobs frequently reduces retirement savings, the report provides an example. An employee starts earning $60,000 at the start of their career, but they then shift to new employers eight times over the course of their work life.

This is sufficient to cause them a loss of $300,000 in potential retirement savings. Without changing jobs in between, the additional money could have supported around six additional years of retirement, but the employee has to make do without it.

Why Do Employees Hop Between Jobs in the First Place?

Employees go from one job to another for multiple reasons—better benefits, different work cultures, desire to change roles or industries, senior positions, relocating families, etc. However, the primary reason for workers to voluntarily make the switch is the chance to obtain a higher salary at a new organization. 

The trend of job hopping peaked following the pandemic when workers no longer felt tied to their existing roles, but this was quickly replaced by constant cycles of layoffs that marked an end to the frequent quitting.

Still, the tradition of an employee working at the same job for over 20 years is something of a lost art as the job market has evolved to focus on rehiring top talent instead of retaining loyal employees. As such, employees lose avenues for internal career growth and are forced to seek opportunities outside to keep progressing in their industry.

The uncertain dynamic between employer and employee has encouraged workers to hop from job to job every few years, all in the hopes of finding more money and recognition with every leap. The $300k retirement loss is not a consequence that one might have expected from the mere act of changing jobs.

Concerns Around Retirement Continue to Grow

Older workers have already expressed their concerns about retiring. There are growing discussions about the possibility that social security funds might dry up in the coming years, leaving those who are about to retire in a very tough spot. Many Gen Xers have also stated that they are unsure if their own personal savings will be sufficient to support them for the entire course of their retirement. 

Workers about to retire have even opened themselves up to the possibility that they will return to work after a few years of retirement, just to ensure they are better prepared for the expenses that will occur later down the line. 

If millennial workers are also going to see their retirement impacted due to the career moves they have made so far, it could be another cause for worry. Employees who are considering job hopping out of a desire for change or career progression should not be penalized for making their move. However, it is up to them to refer to studies like this and make a more calculated shift from their jobs when they are certain that the time is right. 

Employers also need to be more proactive about the financial benefits and retirement assistance they can provide their employees as these factors are more than just a way to attract talent—these funds are critical to an employee’s future. 

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