Saving for Retirement

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Your Investing Life: Changing jobs

June 04, 2014

A new job can bring many changes, ranging from different responsibilities and a different work environment to new coworkers and new benefits. And since that's not all that may change, consider these tips for managing your finances during the transition.

Contribute to your new employer's retirement plan—immediately!

If your new employer offers a retirement plan, sign up and start contributing! Check to see if your employer offers a match; if so, contribute at least as much as they'll match. The option to participate in an employer-sponsored plan—and receive matching contributions—is part of your overall compensation package, so choosing not to participate is like taking a voluntary pay cut.

If you don't have access to a plan through your employer, or you have additional money to save for retirement, invest in a tax-advantaged account like an IRA. Aim to save 12%–15% of your salary for retirement each year, including any employer matches. If that goal isn't a realistic target right now, pace yourself and work toward it incrementally.

Remember your "old" retirement savings

If you participated in a former employer's retirement plan, the money you contributed—along with any vested employer contributions—is part of the overall compensation you earned. You worked hard for every dollar that was invested, so don't leave anything behind.

Chuck RileyClear out your old desk—not your old 401(k)
It may be tempting to cash in your savings, especially if your employer sends you a check. But spending that lump sum instead of saving it could have some unexpected consequences. "If you cash out your retirement account balance, you'll pay income tax on the amount, as well as penalties if you're under age 59½," said Vanguard financial planner Chuck Riley.

If you take a distribution from your former employer's retirement plan when you leave your job, your savings will no longer grow tax-deferred until you retire. See how cashing out of your employer plan could cost you.

If you do receive a check, don't panic—and don't run to the bank. Instead, consider rolling the money over to an eligible Vanguard account within 60 days so you can avoid paying potential taxes and penalties on your savings.

Decide if your assets should stay or go
You may be able to keep your savings invested in your previous employer's plan. However, many investors choose to roll their 401(k) assets into an IRA so they can consolidate their savings—making it easier to manage their money. "When investors have multiple accounts at various financial institutions, it can be easy to overlook your beneficiary designations, or even to lose track of your money," said Mr. Riley.

Explore your options. If your new employer offers a retirement plan, you may be able to roll your old 401(k) balance into it—ask your benefits department for details about the plan's policies so you can make an informed decision. You can also roll your savings into an IRA, which may offer more investment options and lower investing fees. Compare your options and decide if a rollover is right for you, or if you’re ready to roll, call 800-523-9442 to speak with one of our rollover specialists.

Update your beneficiaries

Changing jobs can be an ideal time to update—and possibly change—your beneficiary designations. Designating both a primary and secondary beneficiary can help to ensure that your assets are distributed in accordance with your wishes in the event of your death.

Karin Risi"It's important to carefully review your beneficiary designations on all 401(k) plans, IRAs, and life insurance policies, especially if you're in a second marriage, domestic partnership, or blended family," said Karin Risi, who leads Vanguard Advice Services.

Make a new start

Your job change may affect your finances in other ways, too. Here are some things to keep in mind as you hit the ground running with your new job.

Prepare to fill out Form W-4
Did your tax bracket change along with your new salary? If so, consider adjusting the amount of federal income tax you have withheld from your paycheck. The IRS Withholding Calculator can help you find just the right amount to withhold to reduce either your tax refund or the amount you owe.

Adjust your budget
A budget doesn't just address the money you spend and save; it also focuses on the money you earn. If your new job changes the amount of your take-home pay (for better or worse), think about how you'll either adjust for the difference or allocate the excess.

Keep in mind that the amount you pay for certain benefits like health insurance and life insurance may change, so wait one or two pay periods to fully understand your pre- and post-tax payroll deductions before committing to a new budget. If you find that you have a bigger buffer in your budget than you did before, consider saving the difference.

Automate your savings
Saving for retirement isn't the only financial goal most investors are working toward. Consider using your employer's direct deposit service or setting up an automatic investment plan to contribute regularly to your emergency fund, 529 college savings account, or general savings account. It's hard to miss (or spend) money you never see.


  • All investing is subject to risk, including the possible loss of the money you invest.
  • When taking withdrawals from an IRA before age 59½, you may have to pay ordinary income tax plus a 10% federal penalty tax.
  • For more information about any 529 college savings plan, contact the plan provider to obtain a Program Description, which includes investment objectives, risks, charges, expenses, and other information; read and consider it carefully before investing. If you are not a taxpayer of the state offering the plan, consider before investing whether your or the designated beneficiary’s home state offers any state tax or other benefits that are only available for investments in such state's qualified tuition program. Vanguard Marketing Corporation serves as distributor and underwriter for some 529 plans.
  • For more information about Vanguard funds, visit Funds, Stocks, & ETFs or call 877-662-7447, to obtain a prospectus. Investment objectives, risks, charges, expenses, and other important information about a fund are contained in the prospectus; read and consider it carefully before investing.
  • We recommend that you consult a tax or financial advisor about your individual situation.
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