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As more people than ever before leave their comfortable corporate jobs amid the coronavirus job restructuring happening around the world, the uncertainty surrounding retirement savings is mounting. These people have paid into their retirement for years, and rightfully, they are wondering what happens when they are furloughed, fired, or if they elect to move into the world of freelancing or business ownership.
According to the CEO of ClearPath Wealth Strategies LLC, Trevor Houston, most of the time, nothing happens to these people. In fact, a study conducted by Fidelity in 2012, found that more than 70% of job changers left their 401(k) with their former employer.
As Houston stated, “every person knows they should pay into a retirement. However, most people don’t know what to do when that retirement is called into question. We weren’t provided with that education in school.”
401(k) Mistakes You MUST Avoid
Due to the to the millions of people wondering what to do with their 401(k)s, , he warned of 3 mistakes one can make when changing jobs regarding their retirement:
False Sense of Security: Investing in a 401(k) is one of the easiest activities an American can make today. It’s like an autopilot option that just makes sense. When you combine your contributions, the employer’s matched contributions, and market growth potential, what do you have to lose? Well, when the market crashes, it can be rough on that retirement. Or even worse, if you lose your job, it can cause problems, too. The security you once thought was in your retirement is not there, especially in a year like 2020. Going into the whole process assuming there is NO security is the best way to approach this kind of investment.
Assuming the Money Will Always Be There: According to a January 2018 report from the Bureau of Labor Statistics, the average person will change their job 10-15 times in their lifetime. When they change their job, what happens to that retirement savings?
Imagine having 12 401(k)’s with different employers. Not to mention, many people forget about their retirement savings all together because companies change providers, get acquired, or go out of business. If you only spend 1-2 years at the company, you may assume there’s not much there waiting for you. We convince ourselves “it’s not worth the hassle.” The problem is if you do this 12-times over 25-years, you’re suddenly 50-years-old with no retirement savings whatsoever.
Failing to Account for Market Shifts: This year has articulated just how volatile the American and global economies are. Coronavirus tanked the stock market and has caused a major shift in the job market. Imagine losing $339,000 in a single day You save up your entire life, and let’s say you never change your job. Yet, on March 23, 2020, the S&P 500 Index plunged by 33.9%.
Ultimately, it is up to you – and only you – to seek out professional guidance, take action, and decide on which retirement option is best for you.