Due to the power of compound interest, seemingly small amounts that leak from 401(k) accounts when people change jobs can cause major erosion to retirement nest-eggs down the line. Fortunately, new and innovative ideas, such as auto portability, can help curb 401(k) leakage and preserve retirement assets.
Most people with small retirement accounts cash out their balances when they change jobs
We specifically highlight the behavior of those with small 401(k) balances as people are much more likely to change jobs when they are younger and have little saved for retirement.
According to previous research at Alight, four out of every 10 people cashed out their balances after termination within a ten-year period.1 Perhaps not surprisingly, the group most likely to cash out are those with the smallest balances — 80% of people who had an account of less than $1,000 cashed out. Among people with balances between $1,000 and $5,000, nearly two-thirds cashed out.
This paper seeks to:
examine what people do with their 401(k) balances when they leave an employer
look at the demographics of people who roll in balances to their new employers
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