Young adults seem to have no problem “hopping” from job to job in search of better opportunities and higher pay. But, is job-hopping really worth it if you’re potentially hurting your retirement savings? Whether you’ve recently graduated from college or you’re in the middle of a late-career job transition, it’s important to be aware of the upsides and downsides to job-hopping.
While higher pay, better benefits, and cooler workplace perks may be advantageous to some workers, the trade-off of lower job security and fewer opportunities to save for retirement may not be worth it for a lot of folks. People already tend to struggle with saving for retirement. A 2016 survey found the average Baby Boomer has just $147,000 saved for retirement, while the average Millennial has about $31,000.
If you want to make sure your golden years are financially secure in spite of your job instability, then here are 4 easy ways to save for retirement as a job hopper.
Save for Retirement as a Job-Hopper
Contribute to a Roth IRA
One of the biggest retirement planning mistakes you can make is assuming someone else will handle it for you. Unfortunately, Social Security paychecks can barely cover most Americans’ basic living expenses, and without a lifelong employer, how do you expect to accumulate a significant savings with an employer-provided 401K?
If you’re currently dealing with an unstable job situation, then contributing regularly to an IRA is your best bet for saving for retirement. You can contribute up to $5,500 per year to a Roth IRA and withdraw the funds after age 59 ½ tax-free.
A Roth IRA is ideal for freelancers, temp workers, independent contractors, and self-employed individuals. But, you can also contribute to your IRA in addition to a 401k account, so don’t limit your contributions to when your job situation is rocky. Regular contributions are essential for anyone who wants to ensure they have enough money saved upon reaching retirement age.
The newest robo-advisor on the market called M1 Finance gives the more established, sophisticated investors great investing options. M1 Finance simplifies the investment process for beginning and experienced investors alike and allows investors to set up a Roth IRA, Traditional IRA, SEP IRA, trusts, 401k rollovers, and more. Unlike other robo-advisors, M1 Finance does not charge a fee, and it gives you the option of taking more control over your investments if you want them (and less if you don’t).
Maximize 401(k) Employer-Matching Opportunities
If you happen to get a job with a company offering 401(k)s to their employees, then take advantage of this retirement saving option as soon as possible, even if you don’t plan on staying with the company long-term.
Investing in a 401(k) is an excellent opportunity to quickly grow your retirement nest egg, especially if your employer offers matched contributions up to a certain amount. Typically, employers may match anywhere between 3-5% of your contributions.
However, if you’re planning to leave the company within a year or two, make sure you understand the terms and conditions of employer-matched 401(k) contributions. In some cases, you may be unable to keep your employers’ contributions if you’ve only worked for the company for a short period of time.
This shouldn’t stop you from trying to save as much money as possible in your 401(k), but it’s nevertheless important to be aware of. It might convince you to stay in that job a little longer than you initially planned to!
If you want to make retirement planning less stressful, then it’s important to keep track of all your savings and investment accounts. When you leave a former employer, you can choose to either leave your company-provided 401(k) as-is or roll over the funds into a new account. Since job-hoppers likely have two or more 401(k)s, it can be difficult trying to manage all of your retirement accounts separately.
To simplify your retirement savings management, you may opt for a 401(k) rollover into a new IRA or 401(k). Your new employer’s 401(k) plan may offer lower account management fees, and your earnings will remain tax-deferred until the time comes when you withdraw the funds.
Rollover your 401(k) retirement plan with M1 Finance.
Invest on the Side
If you’re primarily relying on Roth IRAs to save for retirement, then you probably realize that saving $5,500 maximum per year likely won’t be enough to fully fund your post-working lifestyle. Consequently, you’ll want to start investing more, whether you try out a regular investment account with robo-advising companies like Betterment or get involved in peer to peer investing.
If you invested just 10% of your income each month, imagine how much money you’ll have saved up when you finally reach retirement!
Recap: Successfully Saving for Retirement as a Job-Hopper
Being a job-hopper is tricky business. There’s not much job stability, no guarantee of better workplace relations with your new coworkers, and more obstacles preventing you from saving as much money for retirement as possible.
However, even with these barriers, you can clearly see that saving for retirement is totally doable for anyone who frequently switches jobs instead of staying with the same company for several decades. It won’t be easy at first, but with some careful research and planning, you can successfully save for retirement just like a regular lifelong employee.