How does terminating your 401(k) plan affect your retirement?
If employees knew how much cashing out their plan when getting laid off or changing jobs could affect their future, maybe they would leave the plans untouched.
That's the message RolloverSystems Inc. hopes to deliver with its new online calculator.
The Charlotte, N.C.-based firm, which provides rollover services to plan sponsors, launched the tool this summer on its website.
To see the effect of cashing out, a user enters his or her current age, age at retirement, expected return and current account balance. The calculator reports what a plan participant will pay in penalties and taxes if he or she cash out and what's left.
The tool also calculates what that money would be worth at retirement if it were rolled over into an individual retirement account or another 401(k) plan.
The bigger the balance, the bigger the long-term hit, the firm found.
"Our calculator helps 401(k) plan participants see into the future and decide whether it's really worth sacrificing retirement readiness for current cash," Jim Langenwalter, RolloverSystems' chief sales and marketing officer, said in a statement. "At worst, it helps them make their decisions with eyes wide open; at best, it causes them to see the wisdom of leaving their retirement savings intact."
Recent surveys have found that many employees cash out when they change jobs.
Fidelity Investments of Boston last week released a study of 1,200 adults representing Generation X, defined as those born between 1962 and 1975, and Generation Y, those born between 1976 and 1987.
A full 40% of both age groups said they cashed out their 401(k) when changing jobs. Also, 41% of those surveyed said they did not seek any guidance about their retirement assets when changing jobs. Of that group, 56% said they cashed out.
Today's workers are likely to change jobs several times in their careers.
The Fidelity study found that 52% of Generation Y and 31% of Generation X expected to leave their jobs within five years.
These findings keep pace with national trends. The U.S. Department of Labor's Bureau of Labor Statistics published findings in June from a longitudinal study of nearly 10,000 people born between 1957 and 1965 and found that the average person held 10 jobs between the ages of 18 and 42.
