Over the last several years, the landscape of the American job market has undergone a significant transformation, thanks to the fallout from the Great Recession. Stiffer competition and shrinking wages have also lead to changes in worker attitudes, perhaps most noticeably among twenty and thirty-somethings.
Millennials are changing employers more frequently than older workers. According to the most recent statistics from the Department of Labor, the median job tenure for 55- to 64-year-olds was 10.4 years as of January. Among 25- to 34-year-olds, it was just three. This owes partly to the fact that millennials are less established in their careers and their lives in general. However, these job changes may cost young professionals more than they realize.
The cost of changing jobs too often
For millennials who are launching their careers right out of college, the need to start socking away money for retirement is evident. A 2014 report from the Transamerica Center for Retirement Studies found that 81% of millennials don't expect Social Security to be a viable source of income once they leave the 9-to-5 world behind for good. The median age at which they start saving for their golden years is 22, compared to 35 for boomers.
However, even though they're getting started earlier, younger savers aren't necessarily making as much progress as they should be. Part of the reason is that millennials' short average job tenure means they're leaving their employers before the matching contributions in their 401(k)s or pensions have had time to vest.
How much are millennials leaving on the table?
A Fidelity report prepared on behalf of CNNMoney found that among job hoppers, one in four left retirement money on the table when they handed in their resignation letters. The average amount of cash they missed out on totaled just over $1,700. Younger workers were the hardest-hit, with more than a third of millennials leaving 24% of their account balance behind, compared to just 11% for baby boomers.
When you consider that the current vesting schedule for defined-benefit plans, including 401(k)s, requires workers to be on the job for three to six years before their account is fully vested, it's easy to see why millennials are coming up short. Not only are they losing out on a substantial portion of their savings by leaving early, but they're also forfeiting any gains they could have earned by sticking it out until their benefits were fully vested and then rolling it over into another qualified plan.
Consider the $1,700 average cited in the Fidelity report, for example. Someone who changes jobs four times between the ages of 22 and 34 would feel the loss to the tune of $6,800. That may not seem like much, but over the course of a 30- to 40-year career, it could cost you tens of thousands of dollars in unrealized returns.
Higher unemployment also tied to delayed saving
The recently released October jobs report saw the national unemployment rate drop to 5.9%. While that's an encouraging sign, it may not paint an accurate picture of the job outlook for millennials. Generation Opportunity, a nonpartisan youth advocacy organization, also released its monthly jobs report, and the numbers don't look promising. Among 18- to 29-year-olds, the effective unemployment rate was 14.9%, which reflects the number of younger workers who have given up looking for a job altogether.
For those 20- and 30-somethings who either can't find a job or are only working part-time, saving for retirement through an employer's plan simply isn't an option. Competition for full-time jobs, even at entry-level positions, is extremely fierce these days, and millennials can't count on their youthful energy or education alone. The longer young adults are out of the job market or working at jobs that don't offer retirement plans, the longer they're forced to put off saving for their future.
Ways to save
Opening an IRA is a good choice for millennials who want to save for retirement but don't have the option of an employer-provided 401(k). As of 2014, you could put up to $5,500 in a traditional or Roth IRA. While that's much lower than the $17,500 you can sock away in a 401(k) or similar plan, it's a big step in the right direction. These accounts also offer some tax benefits: Both allow your money to grow tax-free, traditional IRA contributions are usually tax-deductible, and Roth withdrawals are generally tax-free.
Millennials who face unemployment or under-employment may find coming up with an extra $5,500 a stretch, but that doesn't mean they can't save anything at all. Opening a high-interest online savings account or investing in a CD usually doesn't require a huge amount of cash, and you'll earn interest on every penny you put in.
When you do finally land a job with benefits, you'll have already developed a savings habit, which should make it easier to ramp up your retirement planning efforts.
This article originally appeared on MyBankTracker.com.