How can that be? Regulations dictate that the default investment for the money in these accounts be something safe, often a money-market account. If the money doesn't grow much, given the historically low earnings on those kinds of accounts, and the account owner does not know to make any changes, fees can outrun the earnings over time. So much for safety.
So if you're leaving a job and you get a letter from your 401(k) administrator telling you that your money will end up in one of these IRAs if you don't act — well, act. Find an IRA provider with rock-bottom fees and pile all the money from former employers into just one account, so that you can track all your savings more easily and buy any cheap index or exchange-traded fund you want. You do this through a rollover, and that letter should explain how to do it. If not, call the provider and ask.
Now, about our third group of people who cash out their funds. They're the ones who spend the money to go on vacation between the old job and the new one, or on something else that's fun. We might assume that they are younger and foolish.
My knee-jerk temptation is to shove the compound interest chart that changed my life under their noses so that they know that starting retirement savings at 22 instead of 32 can make a difference in balances upon retirement that reaches well into six figures over several decades in the work force.
Jean A. Young, a senior research analyst in the Vanguard Center for Investor Research, didn't think much of that instinct. "We try to talk to people about compound interest and their eyes glaze over," she said.
(She also doesn't worry as much as I do about the younger set, noting that the company's account holders in their 20s actually top the rankings when the percentage of each demographic group that preserves assets at various account balance levels is examined.)
Shlomo Benartzi, a behavioral economist at the University of California, Los Angeles, and the author of "Save More Tomorrow," told me this week that it was much better to focus on the short-term hit: Income taxes and a possible 10 percent penalty on top of that for busting into a 401(k).
T. Rowe Price has taken to issuing both kinds of warnings. It once wrote a letter to departing employees spelling out the tax and the numbers on forgone returns. Now, it presents a calculator loaded with personalized figures, including balance, tax rate and retirement age. Users can see the certain short-term hit and the potential long-term win, and then decide accordingly. (If your employer does not work with T. Rowe Price, you can put your own numbers into a similar tool that Wells Fargo has on its website.)
I don't want to be that guy who tells you never to take the vacation or to skip the avocado toast each day. But you should know what the numbers actually are before you grab all or even some of that 401(k) money. In many scenarios, that after-tax amount from the 401(k) will grow to many times that figure over the decades if you simply leave it in a solid investment.
Watch: How to get more people to save for retirement