Don’t change jobs until you make these smart money moves
Author: Mike Zaccardi
Are you thinking about changing jobs? You're not alone.
There have been a record number of job openings in recent months. The nationwide "quit rate" remains near all-time highs as the "work from anywhere" trend appears here to stay.
If you count yourself among the millions of people thinking about changing jobs, you have many decisions to make, including several that could significantly impact your personal finances.
Working with a financial advisor during major life events, such as a career transition, can go a long way toward ensuring you remain on good financial footing. Whether you choose to work with a local financial advisor, hire a specialist advisor, or navigate the process on your own, this article will help you learn the smart money moves to make before you turn in your notice of resignation and as you get started working for your new employer.
The Pandemic Changed the Workforce
But why are people moving with such great haste? Beyond the added flexibility in working location as a result of the pandemic, workers are simply getting paid more to switch jobs. In the first quarter of 2022, job-switchers earned a whopping 8.7% annualized pay increase, on average, while jobholders' salaries inched up just 6%, according to ADP. It's as if people were paid to change jobs.
A Surge in New Business Formation
Clearly, the pivot to remote work drove growing families away from bustling cities to more relaxed suburban and even rural spots across the country. Another reason folks are quitting like never before is simply to retire early. According to The Wall Street Journal, the pandemic boosted retirements by about 1.5 million. Soaring stock prices and a real estate boom brought about a wave of financial independence for many diligent savers and investors.
Steps to Take Before Leaving Your Job
The landscape for working people has undoubtedly shifted. These major changes in the way we do business and manage work-life balance can be nerve-wracking. You must be thoughtful when going about a potential job change to ensure you're not inadvertently leaving money on the table. Here are a few items to consider before you leave your current job:
- Talk to a financial planner who can help you. There are many moving financial pieces involved with a mid-career job switch. There might be items you will not see coming. That's why working with an experienced fiduciary advisor is so critical. One foul-up can cost you thousands of dollars.
- Know your employer's benefit vesting schedules. Timing is everything when leaving an employer, particularly during your peak earning years. You want to be sure your exit is not immediately before a vesting cliff date. Perhaps sticking around just a month or two longer will result in clocking out for the last time with a whole lot more cash.
- Consider ramifications to your stock options. Tally up what stock options you have earned and have a plan with respect to striking on them. Stock options strategy is one area where working with an advisor well-versed in this type of employee benefit common among highly compensated workers can really pay off.
- Time your bonus right. Be sure to work with your current employer to receive any variable compensation you deserve. Know the qualification periods and payout dates. It would be unfortunate to overlook a key date and wind-up missing bonus money by just a few days.
What to Do Upon Starting a New Job
Fast-forward, and you've hopped jobs while ensuring all your financial ducks were in a row. Now you must get your house in order at the new company. There are several boxes to check before you can settle in a financially secure position.
First, sit down with a financial advisor to prioritize your situation. They can help you assess your goals, risk tolerance, time horizon, tax situation, and any unique considerations for you and your family.
Next, get your payroll deductions right – the last thing you want is to find out the following tax-filing season that you owe a big amount to the CRA (with possible penalties).
It's also a prudent move to ensure you have a portion of your new salary going toward long-term savings. You can use your new employer retirement plan to invest for the future and capture any matching contributions.
While most people know they should contribute to a RRSP the investment benefits of a Health Savings Account (HSA) are somewhat less understood since it is a relatively new account type. Check with your Human Resources department to learn about how the company's HSA works – there might be an employer match with this account, too. HSAs feature the "triple-tax advantage" not seen in any other savings vehicle.
Ask the Experts: Financial Advisors Offer Tips for Job Changers
We asked financial advisors in the Wealthtender community to share their recommendations for job changers to consider both before quitting their current job and upon getting hired by their new employer.
Brett Tushingham, CFP®
BEFORE quitting their current job, what actions do we recommend people take?
Develop an income plan to determine how long you have before your cash is depleted. The last thing you want to do is invade your retirement accounts prematurely to pay the bills. You would likely incur taxes and penalties and potentially jeopardize your retirement goals. You also want to review your health insurance options to avoid any gaps in coverage. Incurring a major medical expense without coverage could be catastrophic to your financial plan.
At the outset of STARTING their new job, what actions do we recommend people take?
Conduct a thorough review of your new benefits plan. Do they offer a high deductible health insurance plan? If you're in good health and can pay the deductible from savings, you can save money on premiums and contribute towards a health savings account. These accounts offer many tax benefits and often receive employer contributions. Does your new company offer a match on retirement contributions? You will want to contribute up to the company match to capture that "free" money.
Upon Starting Your New Job:
Read your employer benefits plan to determine which benefits are best suited for your retirement plan. If you are need help transcribing your employer benefits plan, reach out to a fee-only financial advisor.
Consider rolling over your employer retirement plan to another qualified retirement plan; this will prevent you from misplacing accounts in the future. Before you roll over your money to another retirement plan check the yearly maintenance fees. If you plan to continue to contribute to your HSA, make sure that your health care plan with the new employer meets the High Deductible Health Plan requirements.