Switching Jobs? Action Items When Making a Career Change

The modern-day workforce has changed dramatically over the past few decades. Employees are shifting jobs more often than ever before, often to find greater purpose or higher pay. For those who are planning a career shift, there are several considerations to be aware of before making the move, especially when it comes to your finances. While this is an exciting transition, you should be informed and prepared for how your financial life could change. Here are the key items to review.

1. Your budget – Did it change?

When taking a new job, it’s likely your income will change. It is important to review your salary to consider the potential impact on your day-to-day life. If you are fortunate enough to have an increase in pay, determining how you’ll spend that extra income is crucial for your long-term planning. Lifestyle creep – or earning more only to spend more – is often the biggest threat when switching to a higher-paying job. If you are not simultaneously increasing your savings rate as your income grows, you’re guaranteeing your savings plan will fall behind or worse, fail. Make sure you are staying on track by creating a budget that factors in your total compensation and spending.

2. Your health care – Where are you going to get it from?

Job seekers looking for a change tend to ultimately focus most on the salary. But we believe one of the biggest pitfalls and opportunities is health care. Not having health care in between jobs or moving to a plan with less coverage could jeopardize any salary gained with your new job. Before accepting the position, make sure to ask additional questions and gather details to compare your medical and health needs. Just because an employer offers you a medical health plan does not mean it covers or pays for everything you need.

If you’re taking an extended leave between jobs, you’ll want to determine how you will maintain your health care coverage. Although COBRA is a wonderful program to continue your medical coverage, you’ll want to prepare your budget for the increased expense.

3. Your retirement account – What options do you have now?

Most employees have been saving into a retirement plan through their employer. When you are changing jobs, you’ll need to decide what to do with your previous retirement plan account. Depending on the type of plan, the options may vary. Generally, you’ll have a few options such as:

• Leave it in the current plan;
• Roll it over to your personal IRA account;
• Roll it into your new company plan; or
• Take a cash-out distribution.

All of these options require thoughtful analysis to ensure you make the best decision for you. Your wealth advisor can help guide you through the pros and cons of each strategy and the decisions that will affect you.

4. Equity compensation – What action do you need to take?

Do you have equity compensation with your current employer? If so, you will need to make some choices when switching jobs that may be costly. The type of equity award will determine the tax implications for you and what decisions you need to make. Do you have a vesting date coming up soon? It might be worthwhile to stay in your job until that vesting date has passed so you can receive those benefits. Because awards such as stock options, restricted stock units or performance stock units all have different liquidity and tax characteristics, you should determine how a job change will affect each of them. Working with a trusted advisor to chart a path forward is a good first step.

5. Your financial plan – Updating and revisiting your financial future

Changes to your saving rates, income tax and benefits are all opportunities to discuss with your trusted advisor. Review your financial plan together so you can continue working toward your ultimate goals and envisioned lifestyle. What level of resources do you need and what benefits will you be sacrificing versus gaining in a new job? What opportunities are there for future wealth creation, and how will those impact your financial success? Take an inventory of what you have now compared with what will change if you leave your current employer.

Leaving your job for a new beginning can be exciting and nerve-racking. By incorporating some of these ideas, you can take some of those stresses away, putting yourself in position for a brighter future. If you have additional questions about switching jobs and how you can prepare, please reach out to your wealth advisor. If you are not working with one or would like a second opinion, please schedule a phone call or virtual conversation with our Client Development team.

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