Call it the Great Cash Out: Almost half of job switchers are making the mistake of cashing out their retirement savings when they go

• Americans are rushing to cash out their 401(k)s, and it's not just about being strapped for money.
• It's especially true for those who are changing jobs.

Americans have been cashing out their retirement savings at an "alarming" rate.

That's according to Tom Leslie, the communications manager at the University of British Columbia Sauder School of Business, in reference to a new study by Yanwen Wang, a professor at the school.

Wang, along with Muxin Zhai at Texas State University and John G. Lynch Jr. at the University of Colorado Boulder, released the results of a study that found nearly half of 162,360 employees who left their jobs between 2014 and 2016 at 28 US companies cashed out of workplace retirement plans like 401(k)s that incentivize saving over time.

That's despite the IRS's 10% penalty, under most circumstances, for those under the age of 59.5 who choose to cash out. Then there are taxes: If you try to make a $10,000 withdrawal before the age cutoff, for instance, your immediate take-home total could be as low as $7,000, according to NerdWallet. And finally, pulling out of a fund early means that workers miss out on compounding interest over time.

"Compound interest is huge and is something you really can't get back once you take a withdrawal," Ryan J. Marshall, a New Jersey-based certified financial planner, told CNBC in 2019. "There isn't a compound-interest fountain of youth and we can't go back in time. Once you miss out on the compounding interest effect, it's lost."

Job switchers who cash out their retirement accounts are treating them like bonuses, rather than long-term savings tools

Wang and her coauthors wrote that there are multiple ways that "pre-retirement leakage" — or dipping into your retirement fund early — happens: borrowing against a 401(k) then defaulting on the loan, for instance, or making withdrawals while actively employed.

Only a small number of people did that, the researchers said, while 41% did so upon leaving a job. And of that group, nearly 90% took out all of their funds.

The researchers said that unexpected job losses or tight finances don't explain everything. Of the workers withdrawing from their funds after a job separation, only 27% were fired or laid off.

"Whatever benchmark you try to find, it cannot completely explain why such a significant number of people would touch their 401(k) at job separation," Wang said in a press release, adding that many workers experience financial difficulties while employed and don't run to cash out their funds.

Wang said that the withdrawals may mean workers are treating their retirement funds as bonuses — especially in cases where employers provide matching contributions — rather than a necessary savings nest.

"Sixty percent of their accrued assets will leak out of the 401(k) system when people change jobs," Wang said. "If you consider how often people change jobs, on average every two to five years, it means they're only left with the 401(k) balance of their last job. So people aren't saving enough for retirement."

She suggested that employers provide education and guidance to workers leaving a company on the consequences of cashing a 401(k), and that policymakers should implement "auto-portability," in which 401(k)s are automatically moved over to a new employer or an Individual Retirement Account. She also said companies could set aside employee contributions to emergency funds that act as a "sidecar" to 401(k)s, similar to how a Flexible Spending Account works.

"Something has to be done — not to control people's 401(k)s, but to provide enough knowledge so they're aware of the consequences of their actions," Wang said.