New Job? Here’s How to Protect Thousands in 401(k) Savings When Switching Careers

Starting a new job is an exciting milestone, often accompanied by a well-deserved pay raise. The average job switcher enjoys a salary bump of 10%, according to recent data. But while many celebrate the increased paycheck, they might be unknowingly leaving thousands of dollars in 401(k) savings on the table.  

A recent study by Vanguard revealed a surprising trend: workers tend to contribute less to their retirement savings after switching jobs. This drop, compounded over multiple job changes, can result in a significant loss to your retirement nest egg. If you’re planning a career move, understanding how to safeguard your 401(k) savings is crucial.

Why Switching Jobs Can Hurt Your 401(k) Contributions

The Surprising Decline in Savings After a Job Switch

The Vanguard study found that, on average, workers reduce their annual 401(k) contributions by 0.7% after switching jobs. While this might seem like a minor adjustment, the long-term impact can be substantial. For instance, if someone starts their career with a salary of $60,000 and changes jobs eight times, they could miss out on up to $300,000 in retirement savings over their lifetime.  

The Role of Automatic Enrollment and Escalation

Ironically, two features designed to make saving easier—automatic enrollment and automatic escalation—are partly to blame. Here’s how they work:  

Automatic Enrollment: Many employers automatically enroll new hires in their 401(k) plan at a default savings rate, typically around 3% of their salary.  

Automatic Escalation: This feature increases your contribution rate gradually, often by 1% per year, until it reaches a preset limit (commonly 10-15%).  

While these features help workers steadily build their retirement savings, switching jobs often resets the process. New employers typically enroll workers at their default rate, which may be significantly lower than the rate employees were contributing at their previous job.  

The Long-Term Impact of Lower Contributions

A Double-Edged Sword for Frequent Job Switchers

For workers who change jobs frequently—the average American cycles through 12 to 13 jobs in their lifetime—this constant resetting of contribution rates can erode their retirement savings. Even workers who actively choose their savings rate tend to opt for a lower percentage at their new job.  

According to Kelly Hahn, Vanguard’s head of retirement research, many people assume their employer’s default savings rate is a recommendation or even a form of financial advice. As a result, they are reluctant to deviate from it, even when it means contributing less than before.  

Passive vs. Active Savers: Who’s at Risk?

The study categorized workers into two groups:  

Passive Savers: These workers stick with the default contribution rate set by their employer. About two-thirds of this group saw a decline in their savings rate after a job switch.

Active Savers: These individuals choose their own savings rate. While more engaged, 57% of active savers also reduced their contributions after changing jobs.  

Regardless of saving style, the reset in contribution rates often results in significant losses over time.  

What You Can Do to Protect Your 401(k) Savings

If you’re planning to switch jobs, there are steps you can take to avoid losing out on retirement savings.

1. Know Your Current Savings Rate

Before leaving your current job, check your 401(k) contribution rate. You can find this information on your pay stub or by logging into your retirement account.  

Many workers don’t realize they are enrolled in automatic escalation programs. Confirm your current savings rate, including any recent increases, to use as a benchmark when setting up your new plan.  

2. Don’t Accept the Default Savings Rate

During your onboarding process at a new job, you’ll likely be enrolled in the company’s 401(k) plan at a default rate. Don’t assume this rate is sufficient—it’s simply a starting point. Take the time to manually adjust your contribution rate to match or exceed your previous level.  

3. Understand Vesting Schedules

Find out what happens to the 401(k) contributions made by your previous employer, particularly their matching contributions. Some companies require you to work for a certain number of years before you fully "vest" (gain ownership) in their contributions. If you’re not fully vested, you could lose a portion of those funds.  

If your account balance is under $1,000, your previous employer may even cash out your savings without your permission. To prevent this, make sure you know your options for rolling over or transferring funds.  

4. Consolidate Your Retirement Accounts

Leaving behind multiple 401(k) accounts with different employers can make it harder to track your savings. Consider rolling over old accounts into your new employer’s plan or an individual retirement account (IRA) to streamline your retirement planning.  

Does the 401(k) System Need an Overhaul?

Experts are divided on whether the current design of 401(k) plans adequately supports today’s workforce.  

Challenges with Employer-Based Accounts

Because 401(k) plans are tied to employers rather than employees, workers often lose savings momentum when they switch jobs. This design stems from the system’s origins: 401(k) plans were introduced as a supplement to traditional pensions, not a replacement.  

Proposed Improvements

Vanguard’s report suggests several potential changes to help workers maintain their savings:  

Higher Default Contribution Rates: Increasing the default rate for all workers could encourage higher savings from the outset.  

Age-Based Contribution Rates: Default rates could be adjusted based on a worker’s age, with higher rates for older employees nearing retirement.  

Better Communication: Employers could remind workers of their current savings rate when they leave a job, helping them maintain consistency at their next position.  

Other experts have proposed creating portable 401(k) accounts that move with workers from job to job, eliminating the need for rollovers and ensuring savings continuity.  

The Bottom Line: Stay Vigilant with Your Retirement Savings

Switching jobs is a natural part of career growth, but it’s crucial to stay proactive about your retirement savings during transitions. By understanding your current savings rate, customizing your contributions at your new job, and consolidating old accounts, you can protect your 401(k) and secure your financial future.  

With the average worker holding more than a dozen jobs in their lifetime, maintaining consistency in retirement savings is more important than ever. Don’t let the excitement of a new job overshadow the importance of planning for the years ahead. Your future self will thank you.  

Click here to start WORK FROM HOME JOBS.