Bobby Axelrod Reveals the Dripping Leak in the U.S. Retirement System

Leaking Retirement Savings: A Billion Dollar Drip

Leaks aren't just a problem for pipes. Billions of dollars a year drip from the U.S. retirement system when investors cash out their 401(k) plan accounts potentially crippling their odds of growing an adequate nest egg.

Goodbye Savings Hello Leaks

About 40% of workers who leave a job cash out their 401(k) plans each year according to the Employee Benefit Research Institute. Such 'leakages' amounted to $92.4 billion in 2015 according to the group's most recent data.

Friction is the Culprit

Research suggests much of that loss is attributable to 'friction' — it's easier for people to take a check than go through the multistep process of moving their money to their new 401(k) plan or an individual retirement account.

Secure 2.0 and Partnerships to the Rescue

However recent legislation — Secure 2.0 — and partnerships among some of the nation's largest 401(k) administrators have coalesced to help reduce friction and plug existing leaks experts said.

Cashing Out: A Costly Mistake

The average baby boomer changed jobs about 13 times from ages 18 to 56 according to a U.S. Labor Department analysis. One recent study found that 41.4% of employees cash out some 401(k) savings upon job termination — and 85% of those individuals drained their entire balance.

Employers to Blame

It's not all workers' fault though. By law employers can cash out the small account balances of former employees who leave their 401(k) accounts behind. Prior to 2001 employers could do so for accounts of $5,000 or less.