Things are nowhere near as bad as in the early '90s, but there has been a scary spate of layoff announcements recently. Obviously, most people who lose their jobs look for new ones. But others start looking just because their current positions look shaky.
For most of us, the big job issues are salary, location and fit whether the job is satisfying and provides the right steps for the future. A potential employer's retirement plan may not seem like a top priority when mulling a job offer, but it could be more important than many people realize. One also should think carefully about what to do with any existing retirement accounts, such as a 401(k) at the company you're leaving.
Before accepting a job offer, take a close look at the company's retirement plan. If it's a 401(k), are the investment choices attractive? Will the company match your contributions? Is there a waiting period before you can sign up?
Then consider what to do with your old 401(k). Studies have shown that about 60 percent of job-changers cash out of their old plans. It's your money, of course, but keep in mind that the costs of raiding a 401(k) can be pretty high.
"Hefty taxes and penalties could claim almost half of those hard-earned retirement savings," Fidelity Investments says.
That's because someone who is not yet eligible for withdrawals generally someone who's not yet 59 1/2 must pay income tax on withdrawn funds, plus a 10 percent penalty.
And that's just the beginning. You also sacrifice all the profits that money could have earned had it remained invested. A 25-year-old who took $5,000 out of a 401(k) would be giving up $100,000 in retirement funds, assuming an 8 percent annual return for 40 years, Fidelity says.
So in most cases retirement money should be kept in a retirement account. But that doesn't necessarily mean leaving it in the former employer's plan.
In fact, job switching can provide some great opportunities for improving your retirement investments. You can switch your 401(k) assets to an Individual Retirement Account through a "rollover" that's free of taxes and penalties.
The typical 401(k) plan offers an employee a choice of six or eight investments. Some, such as money market mutual funds, are safe but don't earn much. Others, such as pure stock funds, are riskier but likely to earn more over the long term. And others, such as balanced funds that contain stocks and bonds, try to have it both ways.
Six or eight choices isn't much compared to the thousands upon thousands of individual stocks, bonds and mutual funds available to investors with ordinary, taxable accounts or with IRAs.
In fact, one of the real drawbacks to 401(k)s is that limited investment options force employees into overly concentrated positions having too many eggs in just a few baskets. This is especially so if the employer matches your contribution with company stock rather than cash you could direct to any of the investment options. Even if the company's stock looks good today, are you sure it still will in 10, 15 or 20 years?
Upon changing jobs, you may be able to liquidate the old account and use the cash to invest in the 401(k) options offered by the new employer. If the new employer permits this, a direct transfer can be done without tax or penalty.
But the IRA rollover option may be preferable, because it gives you access to any kind of stock, bond or fund. And in an IRA, you can make changes anytime you want, and as often as you want.
Rollovers are easy. Any brokerage or fund company can walk you through the steps, and your employers old and new may be able to help.
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