Nearly half of employees who change jobs cash out their 401(k) plans, a new report from Hewitt Associates finds.
In a survey of 160,000 employees with 401(k) plans, 42% admitted that when they were done working somewhere, they took the cash from their retirement plan with them. Exactly 50% of workers between the ages of 20 and 29 cashed their 401(k)s out, while only a third of the employees between 50 and 59 did the same. Workers over 60 years of age cashed out 39% of the time.
"It concerns us to see how many people are taking their retirement savings
in cash," said Stacy Schaus, defined contribution consultant at Hewitt
Associates. "When employees cash out of their 401(k) plan, it can have a devastating effect on their future retirement savings and expose them to significant tax penalties."
Schaus said that the problem is magnified when workers use the money to go on vacation and pay off credit cards rather than saving for the long term.
A startling 46% of the respondents with between $30,000 and $50,000 in 401(k) plans cashed out, while 72% of those with between $5,000 and $10,000 took the money and ran.