How Job Hopping Can Hurt Your Retirement


The Employee Benefits Research Institute has some good news and bad news conclusions about Americans’ job tenure: overall, it’s not getting any shorter, but the typical worker doesn’t have much job security and has little chance of retiring with a “gold-watch” benefit like health insurance.

EBRI found that median job tenure was 5.1 years in 2008, compared to 5 years in 1983. While many people believe the typical worker in previous generations stayed with one employer for an entire career, that probably was never very common, EBRI found. Clearly, even the lifetime jobs that did exist at companies like Ford (Stock Quote: F) and General Motors (Stock Quote: MTLQQ) are a thing of the past.

For men, whether hourly or salaried, median years on the job dropped from 5.9 to 5.2 over the 25 years studied, while they rose for women, from 4.2 to 4.9.

Although the overall figures do not show dramatic changes, at least not as big as many people might have thought, breakdowns reveal some shifts, not all of them welcome.

“Fewer employers are offering health benefits to future retirees; when those benefits are offered, eligibility criteria are becoming harder to meet; and employer subsidies are disappearing,” the EBRI report states. “In 2008, 26 percent of 65-69-year-olds had retiree health benefits, down from 32 percent in 1994, and the numbers are lower for older retirees.”

Rising health care costs get much of the blame. Also, a change in accounting law in 1990 discouraged employers from offering health coverage to retirees by requiring that those obligations be booked as liabilities, EBRI said.

As time goes by, more people continue working past what was once considered retirement age. “In 1995, 59% of individuals ages 65-69 considered themselves retired, and that fell to 53.6% in 2008,” the report said, “while those saying they were working increased from 28% in 1995 to 35% in 2008.”

Many studies have shown that fewer workers can count on traditional “defined-benefit” pensions to fund their retirement, largely because fewer employers offer them.

The EBRI study notes that even when traditional pensions are available, they have little to offer workers who stay with the employer for only the median of around five years, since pension formulas give heavy weight to years on the job. Many plans offer no pension to workers who stay for less than five years, and it typically takes 20 or 30 years of employment to earn a pension equal to at least half of the final pay level.

For most American workers, the traditional pension has been replaced with a 401(k) or similar “defined-contribution” plan. While these investments do not guarantee a specific income in retirement, they often suit workers who change jobs frequently because they can be rolled over to an IRA or a new employer’s 401(k).

That means, however, that the worker who changes jobs frequently can seriously reduce his or her retirement income by making bad choices, such as taking a lump sum distribution upon leaving a job and spending the money rather than saving it, EBRI says.

Altogether, the EBRI study underscores a fact that has become increasingly apparent for many Americans: when it comes to funding your retirement, you’re on your own.

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