In November 2021, more than 4.5 million people resigned voluntarily, with 3% of the workforce quitting their jobs every month, according to the U.S. Bureau of Labor Statistics, which referred to it as an “all-time high”. It is predicted that 23% of the workforce will be interested in switching jobs this year.
This high ‘quit rate’ is what the employment industry is referring to as the “Great Resignation”.
Covid-19 triggered the churn in the labor market. Still, a Pew Research Center survey has found that the reasons Americans quit their jobs last year are varied – low pay (63%), no opportunities for advancement (63%), and feeling disrespected at work (57%).
For starters, time spent between jobs could cut into long-term benefits like social security. Social Security benefits in retirement are determined by earnings history and how old you are when applying for the program. While workers only need ten years’ worth of work history to qualify for benefits, the Social Security Administration determines benefits by looking at 35 highest-earning years. If you work less than 35 years, your benefit is calculated using zeros for each additional year necessary to add up to 35 total years.
This means that time spent unemployed can drag down your average lifetime earnings, and you may have to work longer or accept a lesser pay-out to get those zeros down.
But, if you think you won’t be affected because you haven’t quit your job, think again. If a large number of people resign, it could affect the Social Security numbers of current workers. This could potentially lead to taxes being raised sooner to make up the difference between taxes paid in by current workers to the number of benefits paid out to beneficiaries each year.
Now, here is another repercussion of the great resignation. People who quit their jobs are tapping into their retirement funds to stay afloat. Around 30% with at least $50,000 in retirement accounts withdrew in 2020, according to a survey from Kiplinger’s Personal Finance and Personal Capital. Almost a third took a 401(k) loan from their accounts during that period to cover living expenses.
Tapping into retirement savings early means losing out on compounding gains, and you are likely to struggle if there are unavoidable future costs or financial emergencies.
Did you know that at the end of 2021, there were nearly 25 million forgotten 401(k) accounts worth about 20% of all 401(k) assets in the U.S, according to estimates by financial services company Capitalize? That’s why taking stock of your retirement accounts is important before you hand in that resignation letter. The right retirement planning advisor could guide you through this.
The great resignation is also the time for retirement plan providers and advisers to help their clients understand and evaluate retirement benefits they may be missing out on. Also, how long it will take before they are eligible to contribute to a retirement account at their new company and if there is any vesting schedule they need to be aware of.
Retirement plan providers need to recast plans in the wake of the great resignation and help clients consolidate disparate retirement accounts and debt, re-estimate emergency savings, re-think investment plans, and explore subsidies. They also need customized solutions based on age and financial position harnessing the power of artificial intelligence.
Financial freedom is a universal goal, whether or not you are part of the ‘great resignation’. It can be overwhelming for a client or service provider, but it is time to wake up to the new reality and re-evaluate retirement planning options.
Congruent Solutions offers retirement plan providers with technology expertise to solve unique business challenges, including unprecedented developments like the great resignation. Contact us to explore more.