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Changing Jobs

In many cases, people don't pay attention to their finances until they are in times of transition. A common event is changing jobs. This can be a stressful time, or a time of great opportunity if managed well or prepared for in advance.

Unplanned job changes can be particularly hard for many reasons:

  • Your bills don't stop
  • You're no longer earning your past income
  • You may no longer receive medical benefits
  • You need to decide what to do with your previous work- sponsored retirement plan
  • You need to find a new job

Generally, the pressing need to find new employment is top priority. While this is critical, there are other important decisions to be made while in job transition. Some need to be made immediately while others can wait. Working with an expert third party, like a financial advisor, can help you sort through these time-sensitive priorities.

Consider the health insurance options that may be available:

  • You may be able to take a COBRA continuation of your previous plan.
  • Jump onto a spouse’s plan.
  • Other emergency short-term insurance plans are also available (i.e. looking into private health coverage may be an option).

Even for those who have a financial cushion, the pressure of forthcoming bills and costs while not generating expected income can be very stressful and make it hard to stay objective. We work with our clients to break down their costs and budgets into priorities. This allows them to know immediately where they can save money on a monthly basis should they face a cash flow crisis. By breaking down your monthly cash flow into must-haves, preferred and discretionary costs, you will generally be able to adjust your costs substantially. You may also be able to notify your creditors of your job loss and have them abate your payments for a short period of time.

Finally, what should you do with my company-sponsored retirement plan? Hopefully, you will not need to access these funds to bridge the gap between jobs. If you are younger than 59 1/2 years old, the Internal Revenue Service (IRS) will assess a 10% penalty, plus ordinary income taxes on any monies that are distributed. If you are older than 59 1/12 years old, distributions will be taxable as ordinary income, without the 10% early withdrawal penalty. This is where a financial professional can help with guiding you through any distribution process you may choose.

There are many things to consider when changing jobs. Many people will change jobs at least once in their lifetime. Job change frequency can vary based on industry and job type. Hiring a professional to help you during this transition can help you stay objective and take the stress out of the financial decisions that need to be made.

Questions to Consider:
  • Have you set up an emergency fund to protect you in case of a sudden loss of income?
  • Are you protected by short and long-term disability insurance in case you should be unable to work for unexpected health reasons?
  • What are your options for continuation of health insurance coverage? Did you receive the COBRA options from your previous employer?
  • Do you have all the information explaining how to access and potentially rollover your previous employer-sponsored retirement plan?
  • Are you working with an objective third party to help you sort through key decisions during this transition?
 

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