While switching jobs often leads to a pay increase, it can also lead to less retirement savings.
One reason is because employees are often auto-enrolled in their new employer's 401(k) retirement plans at a lower savings rate than they used previously.
Here are five key takeaways from Vanguard Group's research, published in September, which used data from 54,793 job switchers between 2015 and 2022.
1. The majority of job switchers saw a higher income but a lower saving rate.
The median job switcher received a 10% increase in income but also experienced a 0.7 percentage point decrease in their saving rate, according to Vanguard.
The saving rate decrease was larger for those who took a pay cut when switching roles or saw a modest raise in income. However, those who saw an income raise of more than 20% still experience a saving rate decrease.
2. Some job switchers still save more money despite a saving rate decline.
Those with an income increase of more than 10% saved more in dollar terms despite a drop in their saving rate, according to Vanguard.
Job switchers who had a pay increase of less than 10% saw a decline of both dollars saved and the saving rate.
3. A 401(k) plan automatic enrollment was more effective than voluntary enrollment plans in preventing a savings slowdown.
Employees who switched to an organization with automatic enrollment plans accounted for 62% of the sample. Of those plans, 3% was the most common default saving rate.
The median employee who joined an automatic enrollment plan saw a 0.3 percentage point decline in their saving rate. This is compared to workers who joined organizations with voluntary plans, which led to a median decline of one percentage point, according to Vanguard.
4. Lower default saving rates led to savings slowdowns.
For those who joined 401(k) plans with a 3% default rate, which was the most common, the median saving rate declined by 1.2 percentage points, according to Vanguard.
A 5% default rate was the next most common, which led to a median saving rate decline of 0.2 percentage points.
5. Eight job changes throughout one's career with a default saving rate could lead to $300,000 less in savings than if that person had stayed with the same employer.
For the typical worker who started their career earning $60,000 at 25 years old and retired at age 65, having eight job changes could lead to $300,000 less in savings than if they stayed in one role. This could occur if each new role started with a 3% default retirement saving rate, automatically increasing by 1 percentage point each year until 10%.