Whether you were part of the recent layoffs, quietly quit a toxic job, or you found the role of your dreams, your financial situation has likely been impacted by your job change. Here are some financial considerations for changing jobs.
Your Budget
Most of the time, when someone is changing jobs, their income is affected. Whether your pay increased, or you took a pay cut to pursue a passion, it is a good time to reassess your budget. Here are the ways to build a budget:
· Understand your new net income after taxes and benefits are taken out.
· Take stock of everything that you must spend, including rent/mortgage, utilities, gas, groceries, loan repayments, etc. This is your non-discretionary spending.
· Make sure you have an emergency fund of 3-6 months of your non-discretionary spending.
· Decide which financial goals are important for you to hit (retirement, education funding, home purchase, wedding, starting business, etc.) and systematically set aside funds to ensure those are funded.
· Take stock of everything else you’d like to spend money on, including entertainment, eating out, shopping, hobbies, etc. This is your discretionary spending.
· Review periodically to make sure your budget is realistic and enforceable.
Your Retirement Benefits
Because there are so many changes associated with a new job, many people end up leaving their old retirement plan at their previous employer. This can make future access to the funds very difficult in the case of acquisitions, retirement plan changes, changes in your contact information, or the businesses closing. Many employers also supplement the costs of the retirement plan and once you separate from service, that cost support is eliminated, resulting in a higher charge. Depending on plan size, those fees can be anywhere from .2% to 5%, with average fees of 2.22%.
When you sign up for the rest of your benefits, you should also be enrolling in your employer-sponsored retirement plan. At a bare minimum, consider contributing enough to get your employer match (if applicable). Otherwise, you’re leaving free money on the table. But realistically, you’ll want to figure out your retirement goals and come up with a figure to systematically save to support the timing of your desired retirement and the lifestyle you’d like to have. You will also want to review the investments and taxation in light of your goals to ensure you are investing appropriately. Working with a financial planner can simplify this process.
Your Insurance Benefits
Oftentimes, people assume that their employer-paid benefits will be similar at a new company. I find that this is not always the case. Here are some of the common employer-paid insurance benefits below.
Health Insurance
Legally, most employers must offer health insurance. However, they do not have to offer top of the line health insurance and they do not have to make it inexpensive to you. If you are switching health coverage, it’s important to understand your deductible, the maximum out of pocket, the implications of in-network and out-of-network care, and what it would cost you to maintain your existing healthcare routine. If you are switching to a high deductible plan, an HSA or FSA might be essential to keeping surprise costs low.
Life Insurance
Many companies will pay for term life insurance up to some multiple of their salary. You may have the opportunity to purchase a higher death benefit than the default. What most people don’t realize is that the insurance usually will not follow you to your next company. If you purchased $1,000,000 of term coverage at your last company, the next company may offer no insurance, or some multiple of salary. If life insurance is important to you, understanding how much death benefit you need and putting it in place early is essential. Because these employer-paid benefits are often not portable, many may seek insurance coverage outside of their employer.
Disability Income Insurance
Many companies offer disability income insurance up to the maximum of 60% of your salary. However, changing employers could eliminate this coverage, change the terms, or change the taxation. Most people do not think about a potential disability until it happens, but the reality is that about 1 in 4 people will need disability benefits at some point during their careers. It’s important to review the terms of your new coverage to find out if benefits will be taxable to you or not, what qualifies for disability benefits, if there is a period you must wait for benefits to pay, how much to expect, and how long it would pay you.
Conclusion
Starting a new job is a massive transition and is very exciting. Adjusting your budget, transitioning your retirement plan, and understanding your insurance benefits are essential to ensuring your financial success along with the job success.
This informational and educational article does not offer or constitute, and should not be relied upon, as tax or financial advice. Your unique needs, goals and circumstances require the individualized attention of your own tax and financial professionals whose advice and services will prevail over any information provided in this article. Equitable Advisors, LLC and its associates and affiliates do not provide tax or legal advice or services, nor do they endorse, approve or make any representations as to the accuracy, completeness or appropriateness of any part of any content linked to from this article.
Cicely Jones (CA Insurance Lic. #:0K81625) offers securities through Equitable Advisors, LLC (NY, NY 212-314-4600), member FINRA, SIPC (Equitable Financial Advisors in MI & TN) and offers annuity and insurance products through Equitable Network, LLC, which conducts business in California as Equitable Network Insurance Agency of California, LLC). Financial Professionals may transact business and/or respond to inquiries only in state(s) in which they are properly qualified. Any compensation that Ms. Jones may receive for the publication of this article is earned separate from, and entirely outside of her capacities with, Equitable Advisors, LLC and Equitable Network, LLC (Equitable Network Insurance Agency of California, LLC). AGE-5755817.1(06/23)(exp.06/25)
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