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Monday, November 2

Social Security Won’t Be Enough, and Neither Will One Job’s 401(k): How to Build a Retirement Plan That Moves With You

Social Security replaces about 40% of pay, pensions are rare, and old 401(k)s get left behind. Here's how to build a retirement plan that moves with you.
A welder in a cap and work jacket leans in under a steel beam as sparks fly in a dim industrial workshop

Photo: Uğur Gürcüoğlu (Unsplash) / Wikimedia Commons, CC0 public domain.

A lot of us grew up with a simple picture of retirement. You work hard, the company takes care of you, Social Security fills in the rest, and you retire with a pension and a cake in the break room.

That picture doesn’t match how most people work today. You’ll probably change jobs several times. Each employer may hand you a different 401(k), a different match, and a different set of rules. And Social Security, as important as it is, was never designed to carry the whole load.

The good news is that you can build a retirement plan that belongs to you, not to whoever signs your paycheck. Here’s what the numbers say, and how to do it.

Social Security is a foundation, not the whole house

In September 2026, the average retired worker on Social Security (recipient) received about $2,089 a month, according to the Social Security Administration’s monthly snapshot. That’s roughly $25,000 a year. It’s real money, and for many retirees, it’s their biggest check. But it’s hard to cover rent, property tax, homeowners insurance, or a mortgage, groceries, utilities, a car, and medical bills on that alone.

SSA itself is upfront about this. The agency says Social Security replaces about 40% of an average worker’s pre-retirement earnings, while most financial advisers say you’ll need 70% to 80% of your old income to live comfortably. The share depends on what you earned. For people claiming at full retirement age in 2026, SSA estimates benefits replace about 79% of earnings for very low earners, 43% for medium earners, and 28% for people at the earnings maximum (SSA, “Understanding the Benefits”).

Then there’s the funding question. The 2026 Social Security Trustees Report projects that the retirement trust fund (OASI) will run out of reserves in the fourth quarter of 2032. At that point, incoming payroll taxes would still cover about 78% of scheduled benefits. Congress has fixed shortfalls before and may do so again. But if you’re planning for retirement, it’s reasonable to plan for a check that could be smaller than your statement shows.

The pension era is mostly over

The workers who retired with a steady pension weren’t imagining things. In 1979, according to the Bureau of Labor Statistics, 87% of full-time workers at medium and large private companies participated in a retirement plan, and those plans were typically traditional pensions that paid a monthly check for life.

Today, the world is different. In March 2026, 72% of private industry workers had access to some kind of retirement plan, but only 52% actually took part. Seventy percent had access to a defined contribution plan, like a 401(k). Only 14% had access to a traditional pension, and just 9% participated.

Those two surveys don’t measure exactly the same group of workers, so don’t read them as a perfect apples-to-apples comparison. The direction is clear, though. The employer used to carry the investment risk and promise you a check. Now, in most private jobs, you carry the risk, you make the decisions, and you have to take the account with you when you leave.

People change jobs, and their 401(k)s get left behind

The typical worker has been with their current employer for 4.1 years, according to the BLS employee tenure report released in September 2026. For workers ages 25 to 34, that figure is 3.0 years. About one in five workers (20.6%) had been at their job a year or less.

Changing jobs isn’t new. A BLS long-term study found that people born from 1957 to 1964 held an average of 12.9 jobs between ages 18 and 58. What has changed is what happens to your retirement money when you move. A pension stayed with the employer and paid you later. A 401(k) is an account in your name, and it’s easy to walk away and forget it.

That’s exactly what’s happening. Capitalize, a company that helps people roll over old accounts, estimates that there were about 31.9 million forgotten or left-behind 401(k) accounts as of July 2025, holding about $2.1 trillion. The average balance was $66,691. Keep in mind that’s a company estimate, and the company is in the rollover business. Still, even if the true number is smaller, it’s a lot of money sitting in accounts people aren’t watching.

Why does that matter? Old accounts can carry higher fees, hold investments you’d never choose today, or become hard to track after a merger or move. And when it’s time to retire, you may have five small accounts scattered across five companies instead of one plan you understand.

Roll over old accounts the right way

When you leave a job, you usually have a few choices for your 401(k): leave it in the old plan (if the plan allows it), move it to your new employer’s plan (if that plan accepts rollovers), roll it into an IRA, or cash it out. Here’s what to know.

Ask for a direct rollover. In a direct rollover, the money goes straight from your old plan to your new plan or IRA. According to the IRS, you don’t pay taxes this way, unless you roll pre-tax money into a Roth IRA or Roth account, which is taxable.

Be careful with a check made out to you. If the plan pays you instead, it generally must withhold 20% for federal taxes. You then have 60 days to deposit the full amount into an IRA or another plan. Here’s the catch: to roll over the full balance, you have to cover the withheld 20% out of pocket. The IRS uses this example. On a $10,000 distribution, $2,000 is withheld, and you get $8,000. If you only roll over the $8,000, the missing $2,000 is treated as a taxable distribution.

Think hard before cashing out. If you take the money and don’t roll it over, you’ll owe income tax, and if you’re under 59½, you’ll usually owe an extra 10% penalty, with some exceptions. Cashing out a $20,000 account in your 30s can leave you with far less than $20,000, and you lose all the years that money could have grown.

IRA or new employer plan? Both can work. An IRA usually offers more investment choices and lets you keep everything in one place, no matter where you work next. Your new employer’s plan may have low-cost funds and keeps things simple if you’re happy with the options. Compare the fees and the fund choices before you decide. Also note that the IRS limits IRA-to-IRA rollovers to one per 12 months, but that limit doesn’t apply to direct trustee-to-trustee transfers or to rollovers from a 401(k) to an IRA.

Track down the accounts you’ve lost. The U.S. Department of Labor runs a free Retirement Savings Lost and Found Database, created under the SECURE 2.0 Act. You verify your identity through Login.gov, and the site shows private-sector employer and union retirement plans linked to your Social Security number, along with contact information for the plan administrators. It won’t find IRAs or government plans, and a listing doesn’t guarantee money is still owed to you, so you’ll need to contact each administrator. DOL says it never charges a fee to recover funds, so be wary of anyone who asks you to pay.

Build your own plan, one that moves with you

Here’s the mindset shift: your employer’s plan is a tool, not your whole retirement plan. The plan is yours, and it should keep going no matter where you work.

Grab every dollar of the match. If your employer matches your contributions, contribute at least enough to get the full match. That’s part of your pay.

Know your vesting schedule. Money you put into a 401(k) from your paycheck is always 100% yours. The employer’s match may not be. According to the IRS, many plans use a three-year “cliff,” where you own none of the match until you hit three years and then all of it, or a six-year graded schedule, where you own 20% after two years and more each year until you’re fully vested at six. If you’re thinking about leaving, check your vesting date first. Staying a few more weeks can sometimes mean thousands of dollars.

Open your own IRA or Roth IRA. An IRA is an account you control that doesn’t depend on any employer. For 2026, the IRS says you can put up to $7,500 in an IRA, plus an extra $1,100 if you’re 50 or older. A Roth IRA works with money you’ve already paid tax on, and qualified withdrawals in retirement are tax-free. Roth contributions phase out for single filers with income between $153,000 and $168,000 and for married couples filing jointly between $242,000 and $252,000.

Know the 401(k) limits too. In 2026, you can contribute up to $24,500 to a 401(k), 403(b), or most 457 plans. Workers 50 and older can add $8,000 in catch-up contributions, for a total of $32,500, and workers ages 60 to 63 can put in a higher catch-up of $11,250 instead. Few people can max these out, and that’s fine. The point is that there’s plenty of room to grow.

Check the Saver’s Credit. If your income is modest, you may qualify for a tax credit just for saving. For 2026, the income limit is $80,500 for married couples filing jointly and $40,250 for single filers, according to the IRS.

Put it on autopilot. Set up an automatic transfer to your IRA every payday, even if it’s $50. Raise your 401(k) contribution by 1% each year or every time you get a raise. Money you never see is money you don’t miss.

Keep the count low. Every time you change jobs, decide right away what happens to the old account. One or two accounts you check on are better than a handful you’ve forgotten.

For a reality check, the Federal Reserve’s 2025 Survey of Consumer Finances found that only 54.9% of families had a retirement account at all. Among those who did, the median balance was $106,000. That’s a solid start for some, but it’s not enough to turn a $25,000 Social Security check into a comfortable retirement for most people.

Protect the plan with the right life insurance

Life insurance isn’t a retirement plan, but it protects the plan while you’re building it. If someone depends on your income, your family needs a way to keep going if you die before your savings have time to grow.

Many people count on the life insurance they get through work. In March 2026, 59% of private industry workers had access to a life insurance plan through their job. That’s helpful, but like the 401(k), that coverage is tied to your employer. When you change jobs, it usually ends or changes, and the amount may be less than your family really needs.

The pitch: insurance and savings in one

This is where many middle-income families get steered off course. They sit down to talk about retirement, and someone suggests whole life, variable life, or another cash-value policy as part of the plan. The selling point is that it combines insurance with investing. You’re covered, and you’re saving at the same time.

That combination gets pitched as a plus, but it cuts both ways. Try this. Imagine your agent suggested building a savings account into all your other insurance too: your auto policy, your homeowners policy, and your health plan. Every premium would go up, part of each payment would be saved inside the insurance company, and getting your money out early would cost you. Most of us would say no thanks. We’d buy the coverage we need and keep our savings in an account we control. Life insurance deserves the same common sense.

The cost: what the numbers show

The price gap is big. NerdWallet’s sample rates for $500,000 of coverage, for non-smokers in excellent health (data as of Feb. 17, 2026), show a 30-year-old man paying about $215 a year for a 20-year term policy and about $3,662 a year for whole life. A 40-year-old woman would pay about $280 a year for term and about $4,967 a year for whole life. Your price will depend on your age, health, and insurer, but the pattern holds: the same death benefit costs many times more with whole life.

Getting out early is costly. The National Association of Insurance Commissioners warns that a policy “may be very costly if you quit during the early years” and notes that some cash-value policies have low early values that build only later. That’s a real risk for families whose budgets change, and for workers who change jobs every few years.

Variable life piles on fees. According to the SEC’s Investor.gov, variable life policies can charge sales fees on premiums, cost-of-insurance charges, mortality and expense risk fees, administration fees, and fees from the underlying funds, plus a surrender charge if you surrender or withdraw early. The SEC says you can lose money, including your initial investment, and that “substantial fees, expenses, and tax implications generally make variable life insurance unsuitable as a short-term savings vehicle.” It also notes that policy fees may go toward the salesperson’s pay.

The exceptions: when cash value can fit, and why structure matters

Cash-value policies do have their place. NerdWallet points out that they can make sense for people who need lifelong coverage, have a lifelong dependent such as a child with special needs, or have already maxed out their tax-advantaged retirement accounts. That doesn’t describe most families who are still trying to fill a 401(k) and an IRA.

Either way, how a policy is structured matters as much as what kind it is. Look at how the premiums compare with the death benefit, what fees and riders you’re paying for, and how long the surrender charges last. Paying in too much, too fast can backfire. Under Section 7702A of the tax code, a policy that fails the “seven-pay test” in its first seven years becomes a modified endowment contract, or MEC. Loans and withdrawals from a MEC are generally taxed as income first, and before age 59½ they can also face a 10% additional tax. Loan terms matter, too. Policy loans charge interest, and the NAIC notes that any unpaid loan plus interest is subtracted from the death benefit. For variable life, Investor.gov warns that fees, poor investment performance, or loans can cause a policy to lapse, leaving no death benefit at all. Before you buy or change any policy, have a qualified professional review how it’s built, not just what it costs.

The better plan: buy term and invest the difference

DFN has long favored an approach called “buy term and invest the difference,” and it fits right into a plan that moves with you.

  1. Buy enough term life to cover your family’s needs. The NAIC says term insurance “generally offers the largest insurance protection for your premium dollar.” Buy a policy you own yourself, so it stays with you when you change jobs.
  2. Get the longest term available. Term policies commonly run 10, 20, or 30 years. The NAIC notes that when you renew a term policy, premiums are higher, and if your health worsens, you may not be able to buy a new policy. Lock in the longest term you can while you’re younger and healthier to protect against needs you can’t see yet, like a late-in-life child, a bigger mortgage, or a health problem that makes new coverage hard to get. Longer terms cost more than shorter ones, so get quotes on both.
  3. Invest the difference, for example, in a Roth IRA. For 2026, you can put up to $7,500 in a Roth IRA, plus $1,100 more if you’re 50 or older, according to the IRS. Eligibility phases out for single filers with income between $153,000 and $168,000 and for married couples filing jointly between $242,000 and $252,000. In the sample rates above, the 30-year-old man’s difference is about $3,447 a year, or roughly $287 a month, which fits under the Roth IRA limit with room to spare. The account is yours; it moves with you from job to job, and qualified withdrawals in retirement are tax-free.

The plan only works if you actually invest the difference. Set up an automatic monthly transfer into the Roth IRA on the same day the term premium comes out, so you save without thinking about it. As your savings grow and your kids grow up, you need less insurance. By the time the term ends, your retirement accounts do the job the policy used to.

The exit: what to do if you already own a policy

If you already own whole life or another cash-value policy, don’t drop it on impulse. Have a qualified, licensed professional evaluate it first. One option is a Primerica (PFS) representative. Also get a second opinion from a fee-only financial adviser or another licensed insurance agent, and compare what each one tells you.

Getting out doesn’t have to mean cashing out. Under Section 1035 of the tax code, you can generally exchange a life insurance policy for another life insurance policy, an annuity, or a qualified long-term care insurance contract without paying tax on the gain. The Pension Protection Act of 2006 added the long-term care option for exchanges after Dec. 31, 2009. The money has to move from the old policy straight into the new one. FINRA notes that you can’t take a check and use it to buy a new policy and still call it a 1035 exchange. We walk through the long-term care route in Don’t Cash Out That Old Whole Life Policy Yet.

Before you move anything, weigh the catches:

  • Surrender charges. Many cash-value policies charge you for getting out in the early years, which shrinks the cash value you can move.
  • A new surrender period. FINRA says the new policy will likely have its own surrender charge schedule, which may run longer than the old one.
  • Losing the coverage. If you surrender the policy, the death benefit is gone. If someone still depends on you, have new coverage in place first.
  • New underwriting. A new policy means a new health review. If your health has declined, you could pay more or be turned down, and a new life policy typically starts a new two-year contestability period.
  • Loans can be taxable. FINRA warns that surrendering a policy can mean tax on outstanding policy loans.
  • Keep the old policy until the new one is in force. Keep paying the old premiums until the new coverage is approved and in effect. The NAIC says not to cancel a current policy until you have received the new one, and warns that replacing a policy may be costly.

The Bottom Line

Social Security replaces only about 40% of the average worker’s pay, and its trust fund faces a shortfall in the early 2030s. Traditional pensions are rare in private jobs, and most people change employers every few years. So the retirement plan that matters most is the one you build and carry yourself: take the full match, learn your vesting date, roll old 401(k)s over directly instead of cashing out, open an IRA you control, automate your savings, and protect your family with the longest term life policy you can get, investing the difference instead of bundling savings into a cash-value policy. Start with one step this week, even if it’s just looking up an old account.

Sources and Further Reading

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