By Elizabeth Ayoola
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Millennials have been coined the “job-hopping generation,” and I’ve contributed to that stereotype. I started my career at 22 and have job-hopped almost every year since. For many of those years, I was young and restless, and there was another part of me looking for more fulfilling work and pay that reflected what I was worth.
In some ways, changing jobs set back my retirement savings. There are things I wish I’d learned earlier, like how to start retirement planning , the importance of developing high-demand skills, and the art of negotiating benefits . But it has also helped me improve my earnings. Once “lifestyle creep” — when your income increases and your spending habits do, too — stopped getting the best of me, earning more meant I could save more for retirement.
Here are a few scenarios where job-hopping can help your retirement savings, and where it may hurt.
It helps—if you’re improving earning potential
In one of my earliest writing jobs, I earned about $25,000 per year. As much as I enjoyed writing, I knew I was underpaid and overworked. My next move was looking for ways to earn more as a writer, and that’s when I realized I had to develop new skills, such as optimizing my writing so it would be visible in search engines like Google /zigman2/quotes/202490156/composite GOOGL +3.15% . Within a year, I started a new job that paid me $45,000 and offered more benefits. Since I was no longer living paycheck to paycheck and finally had a 401(k) plan , I could start saving for retirement.
Changing jobs for a significant increase in income could potentially help your retirement savings, but it requires you to actually put some of that increased income toward your retirement savings.
What is the benchmark for a “significant” increase in income? Aim for a 10% increase, says Mary Beth Storjohann, a certified financial planner and co-CEO of Abacus Wealth Partners in Santa Monica, California. If a new job offer comes in below that, Storjohann recommends running the numbers to see how much your take-home pay actually improves when you factor in taxes and other living expenses.
It doesn’t help—if company matches and equity haven’t fully vested
If you’re going to job-hop, you don’t want to leave free money on the table, as that could hurt your retirement savings, says Jerel Butler, a CFP and CEO of Millennial Financial Solutions based in New Orleans. Before throwing up the deuces sign, consider getting your full retirement plan match, restricted stock units or other company equity if your employer offers it.
“Typically, companies have a dedicated vesting schedule for the employees as an incentive to continue working at that particular company,” Butler says. “Sometimes, with companies that match contributions for 401(k) plans, they may ask you to contribute up to two, three, even four years before the company match is fully vested.”
Butler also suggests hanging around long enough to get any potential bonuses, which are often distributed during the first quarter of the year.
It doesn’t help—if benefits don’t improve retirement savings
The right benefits package could improve long-term retirement savings, so it’s something to consider when changing jobs. When I accepted the job I mentioned earlier, I didn’t think about this. Turns out health care premiums cost me around $500 a month, there were no flexible work arrangements, and the company offered no education stipends. These things indirectly affected my retirement savings, because I had less money to save and little growth potential.
Storjohann says benefits to consider that could improve your retirement savings include your work location, access to retirement accounts, employer match amounts, health insurance, education stipends, stock options and annual raises.