Understanding Retirement Vesting: A Comprehensive Guide

If you are planning for your retirement, vesting is a process that you are bound to run across and you need to understand how it works. Here are the basics of vesting and how it can affect you.

Vesting

With retirement plans such as the 401k, you will often see that a portion of your retirement funds are vested. The term vesting means that not all of your funds are going to be available if you leave your job immediately. In order to become a fully vested employee, you have to work for your employer for a certain amount time. For example, after you have been employed with them for five years, you can become fully vested.

Purpose

This process is used by employers in order to retain some of their best employees. When a company matches employee's contribution, the money for that contribution will not be available if the employee decides to change jobs immediately. Since the employee knows that they are going to be leaving behind a considerable amount of money from the employer match if they leave, they might feel compelled to stay with their employer. The longer that you stay with your employer, the more of your retirement money is going to be available to you.