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Job-Changing Employees Cash Out Retirement Funds

Tue, 06/13/2000 - 11:00pm — Karen Stevenson
Description: 

A recent survey by Hewitt and Associations showed that 68% of employees who change jobs take their 401(k) benefits in cash, rather than reinvesting them in an IRA or other retirement program. Not only are they failing to accumulate those investments for future retirement needs, but these employees, many of whom are under age 59 1/2, are also paying significant penalities and taxes on the early withdrawal of their funds. Although younger workers were the most likely to take cash rather than to roll over their balances, even older workers cashed out at discouragingly high rates (60% for those ages 50-59).

In combination with the reduction in the number of people covered by traditional defined benefit, or annuity, pension plans, the survey illustrates a disturbing trend in the lack of preparation of employees for future retirement needs.

The surveyors recommended that employers, accountants, and financial planners step up their efforts to educate workers about their retirement options, both encouraging new workers to roll retirement balances from previous employers into plans at their new employers, and enlightening departing workers about the tax implications of cashing their accounts out.

A recent survey by Hewitt and Associations showed that 68% of employees who change jobs take their 401(k) benefits in cash, rather than reinvesting them in an IRA or other retirement program. Not only are they failing to accumulate those investments for future retirement needs, but these employees, many of whom are under age 59 1/2, are also paying significant penalities and taxes on the early withdrawal of their funds. Although younger workers were the most likely to take cash rather than to roll over their balances, even older workers cashed out at discouragingly high rates (60% for those ages 50-59).

In combination with the reduction in the number of people covered by traditional defined benefit, or annuity, pension plans, the survey illustrates a disturbing trend in the lack of preparation of employees for future retirement needs.

The surveyors recommended that employers, accountants, and financial planners step up their efforts to educate workers about their retirement options, both encouraging new workers to roll retirement balances from previous employers into plans at their new employers, and enlightening departing workers about the tax implications of cashing their accounts out.