In many cases, the need for attention to our finances doesn’t occur to us until we are in times of transition. One of the most consistent transition points that gets people’s money on their mind is in the process of changing jobs. This time can be one of stress and concern, but can also be one of great opportunity if managed well (and prepared for in advance.)
If your job transition is unplanned, this can be a particularly trying time. What to do? You don’t have your past income, you may not have my medical benefits any more, your bills keep coming, you have to find a new job and you need to decide what to do with my old work sponsored retirement plan. It’s quite a list. Generally, it is the most pressing need of finding new employment that captures people’s most direct attention. While this is—of course—critical, there are other important and valuable decisions to be made while in job transition that can sometimes take the pressure off a little bit. Some need to be made immediately while others may be secondary issues. Working with an unbiased third party like a financial advisor can help you sort through these time sensitive priorities.
In regards to health insurance, you may have several options that you are not aware. You may be able to take a COBRA continuation of your previous plan, or jump on to a spouse’s plan. Other emergency short-term insurance plans are also available and so looking into private health coverage can be the answer.
Even for those who have a financial cushion, the pressure of forthcoming bills and costs while not generating their usual income can be very stressful and make it hard to stay objective. We work with our clients to breakdown their costs and budgets into priorities so they know immediately where they can save money on a monthly basis should they come into 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 some of your creditors of your job loss and in doing so have them abate your payments for a short period of time.
But no matter if you find a health care solution and/or a budget fix, you still need to go out and find a new opportunity. In today’s digital world many people start their job search online. While this may—at first blush—look like the obvious choice, there are inherent weaknesses. Remember that when you are applying to positions through the mass market, you are competing against the mass market. Put yourself in a position to get a leg up on other candidates by using your relationships. Do some networking through your social media contacts to see if anyone can lead you in the right direction towards companies that may be hiring in your field of choice. Call former coworkers, suppliers, clients and business partners and let them know that you are on a search and ask for suggestions of where you should start, or even make an introduction. In many cases, the key to job hunting is relationships. Keep picking up the phone and stay flexible, there may be a surprising opportunity out there that you never planned on if you keep looking in unexpected places.
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, then distributions would 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.
Assuming you do not need to take any distributions, consider setting up a Rollover IRA account to invest these monies. This could add some investment flexibility, potential income or fixed rate guarantees to your retirement monies or even the ability to convert these monies into a Roth IRA account which would allow for tax-free withdrawals in retirement. Although a conversion of these monies to a Roth IRA account is a taxable event, it may make sense for some people to do this.
Changing jobs is not an easy life event. There are many things to consider if and when this happens. Most people will change jobs at least once in their lifetime but may often happen several times as well based upon ones industry, job type or special skills that one might possess. Hiring a professional to help you can during this transition can take a lot of the stress out of the financial decisions that need to be made.
Questions to Consider:
- If you have steady work today, are you setting up an emergency funds account to protect you in case of a sudden loss of income?
- Do you carry short and long-term disability insurance to protect you 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 on 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 in this transition?
Advisory services provided by TrilogyCapital, Inc,. a Registered Investment Adviser. Separate advisory and securities services may be provided by National Planning Corporation (NPC), a SEC Registered Investment Adviser and broker-dealer. Member FINRA and SIPC. Certain registered representative with NPC are doing business under the name of Trilogy Financial. TrilogyCapital, Inc. and Trilogy Financial are affiliated by common ownership and are separate and unrelated to NPC. Please consult with your representative to confirm, on which company’s behalf services are being provided.