A job change can mean a bigger paycheck, but if you're not careful, it could cost you a lot of money if the retirement plan offered by your prospective employer isn't a good one. A good 401(k) or 403(b) plan can help you save more money faster, giving you the best shot at retiring when you want to. Read on to learn what questions you should ask to find out if the retirement plan available to you makes switching jobs smart.

Why the retirement plan matters

According to Transamerica's 18th annual survey of American workers, only 18% of workers are very confident that they'll be able to maintain their lifestyle in retirement. Given that people are living longer than ever, there's a real risk of running out of money in retirement.

A male worker seated in a yoga pose with U.S. dollar bills falling down around him.


In the past, retirees could count on pensions to pay them a certain percentage of their past income in retirement. Nowadays, retirees rely heavily on Social Security and savings to cover their expenses, but unfortunately, those sources of retirement income often fall short. In 2018, the average person is receiving $16,848 in Social Security income, and according to Transamerica, the typical baby boomer has just $164,000 in retirement savings. At the 4% annual withdrawal rate recommended by advisors, those savings would only provide an extra $6,560 per year. 

Granted, everyone's needs in retirement will be different, but I don't think it's a stretch to think many retirees will find it difficult to fulfill their retirement dreams on that amount of income. Therefore, it's more important than ever to make the most of employer-sponsored retirement plans.

A balance with a clock on one side and a U.S. Dollar sign on the other.


When am I eligible?

The first question you should ask about your future retirement plan is if there's a waiting period to enroll in it. Because of compound interest, which is the ability to earn interest on interest, every month an employer makes you wait to enroll can cost your nest egg thousands of dollars, depending on your age and contribution rate. The best plans will allow you to enroll immediately.

For example, a person who contributes 10% of their $48,000 salary starting at age 30 would wind up with $534,887 at age 65 if their return averages 6% per year. However, by starting one year later, that person's nest egg would drop to $500,082 at age 65.

Do you match?

It's also important to ask prospective employers if they'll match your contributions to your retirement plan. Most companies offer at least some matching, but the amount varies widely and some plans don't match at all.

The most common matching formula offered by employers is $0.50 for every $1 up to 6% of your income. The second most common is $1 for every $1 up to 3% of pay, and then $0.50 for every $1 on the next 2% of pay.

Overall, about 60% of Americans are enrolled in plans that offer some match of between 3% to 6% of pay, and across all employers, the median match is 4% of pay. If your job offer includes a match that's higher than that, then you've got a much better shot at a higher retirement income.

For example, let's say you're 30 years old, you're matched $0.50 on the $1 up to 3%, you earn $48,000 per year, and your investment averages a 6% return per year. At age 65, you'd have $634,933 in retirement savings. Now let's imagine your employer matches you $1 for $1 up to 5% per year. In that scenario, you're retirement nest egg would total $828,174, or $193,241 more!

When will I be vested?

When you'll be vested in your plan is crucial because the vesting schedule determines how long you'll have to work for your employer before its contributions are yours to keep forever.

Roughly half of plans allow immediate vesting for employer contributions, but many smaller employers use a multi-year schedule for vesting, and that means you'll give up some employer contributions if you want to switch jobs. According to Vanguard, 29% of plans use a five-year or six-year vesting schedule. Ideally, you want to work for a company that offers the shortest vesting schedule possible so you won't risk leaving money behind if you change jobs.

Money flying out of a wallet being held in a person's hands.


How much will I pay in fees?

According to TD Ameritrade, 37% of workers incorrectly think 401(k) and 403(b) plans are free. They're not. Plan participants are charged administrative fees and investment management fees, and they can be a big drag on your savings.

The administrative fees may be paid by your employer, but you'll be on the hook for investment fees charged by the funds in which you invest. To find out how much you'll pay, look at each investment's expense ratio, or the proportion of your money that you'll pay in fees. For instance, if a fund has an expense ratio of 1.3%, you'll pay $1.30 for every $100 you have invested in that fund.

While there are exceptions, passive funds, such as index mutual funds and index exchange-traded funds (ETF), usually have a lower expense ratio than actively managed mutual funds, which are run by professional portfolio managers.

When considering fees, it may be helpful to consider the average fee that funds charge. The following table shows average expense ratios for common plan investment options in 2017, according to Morningstar. If your plan includes options with lower expense ratios than these, then more of your money will be allowed to compound over time, resulting in a bigger retirement savings account.

Average Expense Ratios in 2017

Investment type


Target-date funds


Index funds


Active funds




Source: Morningstar. Table by author.

Keep these things in mind, too

Over half of workers are covered by plans offering managed-account advice, sometimes without a fee, and that advice can be incredibly useful when constructing a retirement savings strategy that will evolve as you get older and your financial situation changes. Also, many plans offer a feature that lets you automatically increase your contribution rate by a fixed percentage every year. Taking advantage of this option is a great way to get to a point where you're contributing the maximum amount possible to your retirement account.

According to Vanguard, over one-third of workers contribute less than the maximum their employer will match every year, and only 13% of people contribute the maximum allowed amount of $18,000 to these plans every year ($24,000 if you're age 50 and up). Don't be one of them.

Overall, about 1 in 3 workers has less than $10,000 saved in their workplace retirement plan. Working for a company that offers the best retirement plan possible is one way to make sure you do better than that.