One of the perks of employment is when employers not only offer a retirement plan like a 401(k), but match funds, greatly increasing the returns you can earn with the power of compound interest. While these accounts are great, they don’t do you much good if you leave them behind when you change jobs.
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While it might be hard to imagine anyone leaving even a few thousand dollars behind, it’s actually fairly common. Find out what leaving behind even a small 401(k) plan’s funds could cost you if you don’t remember to roll it over to a new job’s 401(k).
Sometimes the hassle of a 401(k) rollover can seem like more work than it’s worth, especially as many financial institutions don’t “talk” to one another digitally and still require a paper check to be mailed to the account holder (and these are notoriously susceptible to loss and fraud).
Yet according to PensionBee, more than 29 million people have literally left money behind by changing jobs. They tallied that these left-behind accounts cost employees as much as $90,000 per person in lost savings by the time they retire.
If employees don’t roll over their funds worth less than $7,000 into a new plan, employers are allowed to push those funds into “safe harbor” retirement accounts, which are notorious for having lower than usual returns.
By the time the employee realizes their funds were left behind, they may have missed out on decades of compound interest, the study found.
For example, a $4,500 account left in a safe harbor IRA earning 2% annually (minus $75 yearly fees) would grow to just $5,507 over 45 years, PensionBee stated. In contrast, if the employee took that money and rolled it into a traditional 401(k) earning 5% annually with standard fees (and many years accounts can earn upwards of 8% on average), the same amount would grow to $25,856 over 45 years. That’s a $20,000 difference from just one account.
Remember that a few thousand dollars in a retirement account is actually a lot more than that over time due to the multiplying power of compound interest. Be sure to get all the instructions you need from your company’s human resources department when you leave a job and then diligently follow the steps.
The worst case scenario is that you experience a small amount of hassle to get the funds transferred. When it comes time to retire, where you’re scraping by on every extra dollar, your future self will thank you for being diligent.
