Don't Kill Your Retirement Fund When You Change Jobs

One of the regular features I enjoy in Kiplinger's Personal Finance magazine is one called "The Kiplinger Monitor." It selects a theme each month, then lists interesting stats around it. It's short, easy reading, and the numbers are usually pretty compelling.

In November of last year, Kiplinger's selected retirement as their theme for the month. Several of the stats were very interesting to me, and I wanted to share them along with my thoughts:

Stat: 8 in 10 eligible workers participate in an employer sponsored 401k plan.

Thoughts: Wow. This is much higher that I thought it would have been -- but it's good news. Of course it doesn't say what level they participate in the 401k (how much they contribute), so a big portion of this could be minimal participation.

Stat: 45% of participants cash out their 401k when they leave their job.

Thoughts: Are you kidding me????!!!! Cashing out your 401k is a very, very, very bad idea. You lose the tax advantaged-growth of your investment, pay a penalty, and (most importantly) interrupt the power of compounding that makes a 401k so powerful.

Stat: 13% of participants invest more than 80% of their 401k assets in their company's stock.

Thoughts: Investing a large portion of your 401k in your employer's stock is a bad idea. Why? Because you're not diversified. Not only is a major portion of your investment portfolio tied to one company's success, but your livelihood (career) is as well. If something bad happens to that company, you get hit with a double whammy. Instead, invest only a small portion (5-10%) in your own company and the rest elsewhere. I prefer index funds.

Comments

[Dale G.]

In my opinion, unless you have some really stellar investment options in your 401(k) the best move you can make is to roll it into an IRA when you leave. You get a wider range of options and more control.

[Dale G.]

This article at MSNBC (http://www.msnbc.msn.com/id/12151755/) is more than a bit disturbing. Here are a couple of highlights: "more than half of all workers say they’ve saved less than $25,000 toward retirement", "among workers 55 and older, more than four in 10 have retirement savings under $25,000", "more than 70 percent of workers say that they or their spouses have saved something toward retirement". In a word, ouch!