A third of employed people say they plan to look for a new job this year, and many of them are likely to make withdrawals from their 401(k) — a move financial planners almost always advise against.
Thirty-six percent of workers polled last November say they plan to look for a new job in the next 12 months, according to a workhuman survey. The survey includes 2,268 fully employed people in the U.S., U.K., Canada and Ireland as respondents.
However, many of the U.S. workers who have quit their jobs during the pandemic — a phenomenon known as the Great Resignation — say they've cashed in their savings to make it happen.
Around 21% of Americans who quit their jobs during the pandemic say they cashed out their 401(k), according to a recent Fidelity survey of 2,622 U.S. adults with at least>Make sure you have a financial plan before quitting your job
Considering the penalties, you don't want to withdraw early from a 401(k) if you can help it, especially if you're quitting your job without something else lined up.
"The labor market is in a position right now where there's a lot of power on the employee, so they should be able to get another job sooner rather than later," says Rob Greenman, a certified financial planner and chief growth officer at Vista Capital Partners. "But that's not a sure thing."
Greenman suggests putting some "guardrails" in place before leaving your current job to prevent you from needing to make withdrawals. These include a topped-up emergency fund worth three to six months of your expenses, including monthly health insurance payments, and some sort of health insurance while unemployed.
He also recommends seeking out jobs that offer "happiness and purpose," not just more money. By ensuring that a new job is a good fit, you'll be less likely to quit the role because it makes you unhappy.
"The problem with 401(k)s is that you can withdraw from them a little bit easier. For example, you can't easily take $10,000 or $5,000 out of your house," says Greenman. "I think that's why we hear about that happening more frequently."
