In his latest article in MarketWatch, RetireMentor and RCH CEO Spencer Williams gets us into the festive, holiday spirit by showcasing the “miracle” of compound interest. Compound interest is particularly relevant to retirement savers, whose nest eggs will incubate over a career.
Thus, any withdrawal of retirement savings – particularly cashouts that are made early in a career – can rob savers of thousands of dollars at retirement age. Less well-known, but still damaging, are the accounts that are left stranded and dinged every year by fees.
Williams’ two examples tell the compound interest tale. In his first example, Williams demonstrates that a 30-year old saver cashing out a $5,000 401(k) account will lose almost $52,000 in compound interest savings by age 65. In Williams’ second example, our 30-year old doesn’t cash out, but leaves his savings stranded at his previous employer, where he’ll pay an additional $2,052 in fees, which, on a compounded basis, translates to a whopping $8,488 in lost savings at age 65.
Bottom line, retirement savers should consolidate their qualified retirement savings accounts to their current employers, whenever they switch jobs.
Consolidation allows retirement savers to enjoy the gift that keeps on giving: compound interest.