Many companies try to help their workers to save for retirement. Employers often offer 401(k)s, company matches and automatic enrollment to encourage saving....
Much of that effort goes to waste, though, when employees leave. A study published last year in Marketing Science, a peer-reviewed research journal, found more than 40% of departing workers cashed out at least part of their 401s, and most of those drained every dime.
The people who took money out had smaller balances — $15,271 on average — compared with those who left their accounts in the employer plan or who rolled their savings into an IRA or a new employer plan . But relatively few workers cash out savings while they’re working, whether through hardship withdrawals or 401 loans that aren’t paid back, Wang says. And previous research shows that most people who cash out when they leave a job don’t need the money for emergencies or other pressing expenses, she says.
That’s not the only way our mental biases get us in trouble, Wang says. When people leave jobs, they’re typically told their retirement plan options — leave the money in the plan, roll it into an IRA or a new employer’s plan or cash out. Often, though, they’re not given much guidance about the best course to take. Simply mentioning the cash-out option may make people more likely to see the money as a windfall, Wang says.
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