CHANGING CAREERS? MAKE SURE YOUR FINANCES MOVE WITH YOU.
Thinking about changing jobs or making a bigger leap into a new career?
Good for you. Making a change can open doors to new opportunities, a better work/life balance and long-term growth.
But it’s even better to be prepared, because without a roadmap, a career change can easily lead down scary paths. Research from The Motley Fool shows that over half of people who change careers end up taking a pay cut in the process. This trend is even more pronounced at higher income levels, with close to 75% of earners making $150,000 or more accepting lower pay to move into a new field.
Put Guardrails in Place
Having a plan and financial “safety rails” provides confidence—for you and your family—as you embark on this next phase of life. At the center of it: addressing your finances are in order and able to cushion you through this transition.
Follow these guidelines to build the life you’ve imagined, so you can Live for the Possible.
Create a transition fund
Save at least three to six months of living expenses, ideally in a high-yield savings account for easy access. Start building this fund a year to 18 months in advance.
Develop a “dry-run” budget
Make a new budget based on your new projected income to see if your lifestyle is sustainable. Practice living on this lower income, transferring any surplus to your transition fund.
Reduce expenses and debt
Time to make hard choices and stick to them. Discipline is key. Reduce discretionary spending (e.g., dining out, subscriptions) and pay down high-interest debt to lower monthly obligations before income drops.
Protect your benefits
Review employer benefits like health insurance, disability and life insurance. Prepare for potential gaps in coverage. If you’re eligible, for example, you can temporarily continue your employer-sponsored health coverage under the COBRA program.
Other options include:
· Marketplace plans: Check out the health insurance marketplace to find temporary coverage until your new job’s benefits kick in.
· Spousal coverage: If your partner has employer-provided insurance, consider getting added to their plan.
Consider alternative income streams
Think about temporarily freelancing, consulting or starting a part-time job related to your new field to supplement income and build experience.
When (and if) you decide to leave your current job, it’s important to understand what happens to your existing financial benefits too. The choices you make can have a lasting impact on your savings and taxes, so it pays to plan ahead.
Retirement accounts
When changing careers or jobs, you generally have four options for your 401(k) or 403(b).
Roll it into a new employer’s plan. If your new employer allows it, this option consolidates your retirement savings into one place, keeps the money tax-deferred and possibly avoids high fees from old, small accounts.
Move it to a personal IRA. You can open a rollover IRA with a brokerage firm to move your funds. This option allows more control over your investments and usually a wider range of choices.
Leave it with your old employer. If your vested balance is over $7,000, you can typically leave it in your old employer’s plan. This is useful if the plan has low fees or if you want to use the “Rule of 55,” which allows penalty-free withdrawals if you leave your old job at age 55 or older. However, you cannot make further contributions.
Cash it out. You can take the money as a cash distribution, but this is usually the least favorable option. You will pay income tax on the amount, and if you are under age 59½, you will pay a 10% penalty, reducing your savings.
The best choice depends on fees, investment options and tax implications, though rolling into a new 401(k) or IRA is often recommended to avoid taxes and penalties.
Stock options
Many people don’t realize that once you leave a job, the rules around your stock options can change fast.
In most cases, your departure triggers a limited window to make decisions that can affect your taxes, access to cash and overall investment plan. It’s a good idea to speak with a financial advisor before making any moves.
At Alia, We Can Guide You Through This Time
Before you make any final decisions, it’s worth talking to a financial advisor who can help you see the bigger picture. Changing jobs or careers isn’t just a financial shift, it’s a personal one, often filled with uncertainty, excitement and a lot of questions.
Having someone walk through the details with you can bring clarity and reassurance, helping you feel more grounded as you step into what’s next. Contact us today.
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