Millennials are considered the job-hopping generation, according to a recent Gallup poll. This is no surprise as millennials are three times more likely to change jobs as older generations. Not only that but six in 10 millennials are open to taking on a new job opportunity.
We get it. Switching jobs often leads to a bigger paycheck. But does leaving your current employer for a higher paying job actually stunt your long-term salary growth? In other words, should you stay put?
The data suggests that millenials’ habit of job hopping can actually improve their long-term career and salary aspirations. With this said, it’s important that you weigh the pros and cons when deciding whether to stay or go. Read on to learn more.
Is job hopping the best way to make more money?
Over the past 20 years, switching jobs has almost always been more lucrative than staying at your current employer, according to data from the Federal Reserve of Atlanta.
Based on the latest numbers from February 2018, job hopping can almost double your salary increase. In fact, the last time sticking around netted a higher wage growth was in 2011. This suggests that job hopping can be good for your long-term salary too.
With this said, make sure you consider your full benefits package, as well as other costs incurred by switching jobs. Just because your salary is higher doesn’t necessarily mean your bottom line is better off.
Consider all the costs of switching
As easy as it would be to focus solely on salary increases, the decision to switch jobs isn’t always so simple. In fact, reduced benefits at a new job can often negate a salary increase. In addition, here are some other factors to consider.
1. Retirement contributions
If your current employer matches 401(k) contributions on a vesting schedule, you may lose some or all of those contributions if you leave too soon. In fact, roughly 71% of employers have a vesting schedule of at least three years, according to 2016 data from T. Rowe Price.
This means that the money your employer contributes to your retirement account isn’t yours for the taking, at least not at first. Rather, you gain ownership of the funds over time based on your employer’s vesting schedule. If you’re fortunate, you may be working for an employer that offers immediate vesting. In this case, you have nothing to worry about.
That said, you can still lose money if your new employer requires that you wait before you can contribute to a 401(k). Employers are allowed to have a waiting period for as long as a year. The point here: make sure you do your research on your current and future employer-sponsored retirement plans.
Depending on when you leave your job, you can potentially miss out on a bonus. This can even be the case if you’ve already had your performance review and the promised bonus hasn’t been paid out yet.
Also, depending on the new employer and when you switch jobs, you may not be eligible for a bonus your first year. Either that or your bonus may be prorated for the year, based on when you joined the company. So, make sure you inquire about bonuses before you leave your job and start a new one.
3. Health insurance
Even if your health insurance premiums stay the same from one job to another, switching jobs and health insurance plans can reset your deductible and out-of-pocket spending to zero.
If you don’t visit the doctor often or haven’t had a lot of medical expenses this year, this won’t matter much. But if you’ve almost reached your deductible with your current plan and expect more medical costs before the year is over, starting from scratch with a new plan can cost you hundreds, if not thousands of dollars.
4. Retirement plan loans
If you’ve borrowed money from your 401(k), leaving your job is one of the worst things you can do. That’s because your termination cancels the original repayment plan on the loan and you may have to repay the debt within 60 days.
If you default, the loan amount would be treated as an early withdrawal and could be subject to taxes plus a 10% penalty. For example, if your loan was for $10,000 and your effective tax rate is 25%, you could be on the hook for $3,500 in taxes and penalties.
And for what it’s worth, the National Bureau of Economic Research found that 86% of 401(k) loan borrowers who leave their employer end up defaulting. You certainly don’t want to be part of this percentage.
5. Moving costs
If you get a new job that requires you to move to a different city or state, there’s no guarantee that your new employer will foot the bill for your move.
Sure, you may be able to deduct some of your moving expenses when you file your taxes. But the tax break may not make up for all the costs you’ll incur when you relocate to a new city or state.
Consider your opportunities carefully
If you’re confronted with an opportunity to earn more by switching jobs, consider all the factors involved, including wage growth and other costs. And, don’t forget to take into account your current situation. If you love your job and don’t really want to leave, you can always brush up on your negotiation skills and ask for a raise.
Regardless of what you decide to do, make sure you weigh all of your options. Money is important, we get it. But money isn’t everything. Taking a new job for more money can leave you depressed and unmotivated, especially if you just left a job you loved. On the flip-side, a new higher-paying opportunity can open new doors and help you climb your career ladder.
This page is for informational purposes only. Chime does not provide financial, legal, or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for financial, legal or accounting advice. You should consult your own financial, legal and accounting advisors before engaging in any transaction.