Job transitions are a busy time filled with uncertainty and emotion, both for you and your family. Having personally gone through five transitions and advised a number of clients through theirs, here are some lessons learned.
Take Time to Be Organized
We often want to “hit the ground running” in a new job search and forget to focus on our personal financial decisions. Before making your move, take time to get organized. Create a list of all employer-related assets, loans, company stock and insurance policies. Print a copy of the employee handbook and any benefits statements since access to this information is often much easier as an active employee than it is after you leave. Take the time to identify key financial decisions and deadlines such as when to exercise options, sell stock and submit deferred compensation elections. Check that your beneficiary elections and contact information are up to date. (For more, see: Lost Your Job? 6 Things to Do Immediately.)
Understand Your Family’s Financial Flexibility
Any transition in life is a great time to have an updated financial plan. Not knowing how much you can spend and how much you need to earn in the future creates stress. Invest the effort to develop reasonable cash flow assumptions and select an appropriate level of investment risk. Many people note reduced anxiety from understanding their financial flexibility.
Your updated financial plan will help you understand whether you need to jump at the first offer or can hold out for the something better. It will also help you set a budget during the transition period until the next paycheck arrives.
Make Thoughtful Decisions
If timing is in your control, analyze the trade offs between leaving this year or next.
If you have deferred compensation with the flexibility to take it as a lump sum or over time, assess the value of deferring taxes as compared to the credit risk of continued exposure to the company.
Focus on your 401(k) plan. Know whether there is company stock with significant appreciation. If you have made after-tax contributions, there may be value in rolling that portion into a Roth IRA. Research the difference in investment choices and fees in the 401(k) compared to what is available through a rollover IRA.
If you have company stock, develop a selling plan in order to diversify that risk. Consider making a charitable gift or funding a donor-advised fund with company stock that has a low tax cost basis. Don’t let emotions limit diversification. Continuing to own the stock will not push it back to its all-time high, nor is it a means to staying connected to your old firm. (For more, see 401(k): Pressure’s on to Leave It at Your Old Job.)
Little Things Can Make a Difference
When the paychecks stop, even those of you with substantial assets may feel anxious. We often suggest setting a fixed monthly transfer from your investment account to a checking account based on your financial plan.
Transitions are a great time to make the effort to consolidate various IRAs, brokerage accounts and 401(k)s from previous employers. There is value in simplifying your financial complexity.
In assessing a new job offer, benefits such as health care, vacation and travel reimbursement can make a material difference. If a move is required, consider the impact on family and friends, as well as the cost differential between the communities and the tax implications of the move.
Don’t Let Emotions Dominate
Job transitions are a stressful time but they can also be a precious period to spend with family, friends and pursuing passions. Take time to fully explore the choices you have. Try not to rush decisions simply to put the transition behind you and certainly don’t sign any documents until you are sure you are receiving all that you have earned. (For more, see: Laid Off? You Can Still Retire.)
To learn more, you can download our financial checklist for job transitions.