Workers have left $1.35 trillion behind in old 401(k) retirement accounts
According to new research, many Americans leave their 401 (k) retirement accounts with previous employers when they change jobs, potentially forgetting hundreds of thousands of dollars in savings to tap into in their golden years.
Workers forgot approximately $ 24.3 million 401 (k) accounts worth $ 1.35 trillion as of May 2021.
On a per-person scale, each account has an average balance of $ 55,000 that could add up to nearly $ 700,000 in lost retirement savings over an entire career, according to Capitalize using data from the Center for Retirement Research , Department of Labor, and policy experts.
"The impact on the individual is significant, and the impact on the system as a whole is also significant," Gaurav Sharma, CEO and co-founder of Capitalize, a platform that helps users extend retirement accounts, told Yahoo Money. "To put that in perspective, [that] is many times more than the average house price in the US and many times more than it costs to raise a child in the US."
(Photo: Getty Creative)
The long-term outlook for 401 (k) s left behind is set to get even worse, as Millennials - the largest generation in the country - are expected to switch jobs up to 12 times over the course of their careers.
There are "several reasons" people leave old 401 (k) s behind, and much of it has to do with an outdated and clunky system that creates "administrative hurdles".
Read more: 3 important factors to consider when planning your retirement
"It's confusing what is right," said Sharma. "There is no easy-to-use information that clearly explains what you can or should do when you change jobs."
What Sharma calls the "awkward and old-fashioned" process of retirement transferring has remained relatively unchanged since the 1980s. The groundwork includes sending an email to your former employer's HR department, calling the 401 (k) provider, and returning notarized documents, usually by fax or mail. The time between the first request and the sending of the paper check could be months, he said.
The more time goes by, the higher the barriers to securing your money. It's not uncommon for users to have to retrieve outdated credentials, and that assumes their old employer hasn't switched 401 (k) provider, Sharma added.
In the face of these headwinds, about 3 million Americans leave money a year for being the "path of least resistance," he said.
Financial waste also happens on the other side of the equation, Sharma explained. "There's a burden on the employer too," he said, sharing that employers are paying about $ 700 million to manage old 401 (k) s while burning up staff and administrative bandwidth as employers still have the obligation To keep retirement accounts.
Approximately 3 million Americans leave money behind each year because this is the "path of least resistance," Sharma said. (Photo: Getty)
So where do you put the money? It all comes down to balance.
If the account is between $ 1,000 and $ 5,000, the employer can transfer a former employee's money to an IRA of their choice, or they can do something called a forced transfer. Funds are typically placed in a money market fund, a notoriously low-return vehicle that costs account holders higher returns.
Read more: 5 important steps as a newcomer
For balances greater than $ 5,000, money "cannot be forced out and it can technically stay on the 401 (k) plan," Sharma said. But if the money is not actively managed by the owner, the chances of high growth and returns diminish.
"You made that money and saved," said Sharma. “Make the most of it when you change jobs, don't leave it behind.
For those with old, forgotten 401 (k) s, "it is probably a good idea to find and consolidate them," he said.
The Yahoo Money sister site Cashay has a weekly newsletter.
Stephanie is a reporter for Yahoo Money and Cashay, a new personal finance website. Follow her on Twitter @SJAsymkos.
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