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Thinking About a Job Change? Ask These 5 Key Financial Questions First

January is a popular month to look for a new job—it always has been. Companies have paid out year-end bonuses, so employees feel freer to leave without losing out on pay. Workers have had time over the holidays to reflect on their priorities and careers. And employers start the year with fresh hiring budgets, ready to recruit new talent.

If you’re looking at making a change, you’re not alone. The Great Resignation has been a generational shift in the labor market over the last 18 months, and it isn’t slowing. The U.S. Bureau of Labor Statistics reported that 4.2 million people quit their jobs in November, continuing the trend. Besides that, 2022 saw a slew of layoffs in tech and other industries that have thousands of workers looking for new opportunities. 

Moving to a new employer can provide a big boost to your income. Research puts the average raise at less than 4% per year, while a new job can net an increase of 10 - 20%. Given the fact that employees have an average tenure of four years at a single company, the wage gains from changing jobs can be substantial when compounded over the course of a career.

Before Quitting Your Job, Ask These 5 Questions

Getting a new start at a new company can be a refreshing change of pace. Especially if the pay is higher. But before taking the plunge, ask yourself these five critical questions to see if the move makes sense for your finances—both current and long-term.

1. Are Your Personal Finances in Order?

A change in jobs—and presumably pay—is a good time for a checkup on your financial situation. Especially if you're quitting without a new job lined up or starting your own business.

There are a few key topics to consider:

  • Monthly budget: The 50/30/20 budgeting rule is an ideal starting point for aligning spending with your actual income. This means 50% of your after-tax income should go to needs, 30% to wants, and 20% to savings. When switching jobs, it's important to consider the impact on monthly expenditures, like health insurance premiums and retirement savings contributions.
  • Emergency fund: Once you have an accurate budget, you can evaluate your savings. An emergency fund with six months worth of expenses saved is a great starting point. But if you're starting your own company or making a change with a lot of uncertainty, a bigger cushion means more peace of mind.
  • Debt: If you're actively paying down debt, leaving a job with secure income can slow that process. Be sure to consider the costs of slowing your debt repayment—especially with rising interest rates—when calculating the impact on your finances.

2. Will the Insurance Plans Meet Your Needs?

A salary increase is a welcome change, but it’s important to evaluate the total compensation package including things like benefits, vacation, and remote work policies, development, etc.

Health coverage is the biggest factor to look at when considering a job offer. A couple in their 40s with two children can spend anywhere from $1200 - $1900/month on insurance from the ACA marketplace. If your current employer offers more generous benefits than your new one, the difference in insurance cost can quickly eat through an increase in salary.

When assessing insurance benefits, ask these important questions:

  • What portion of the monthly premiums will the employer cover?
  • How will your deductibles change?
  • Will you and your family be able to keep your current doctor(s)?
  • Does the company offer—and pay for—vision, dental, life, and other types of insurance?

3. What’s the Impact on Your 401(k)?

Company-sponsored 401(k) plans are one of the cornerstones of building a secure retirement. Workers can contribute up to $22,500 per year in pre-tax income, and employee matching can increase the amount even more.

First, consider your current 401(k) and your employer’s vesting rules. Any money you contributed is yours. But the employer-matched portion of your savings may not immediately belong to you. There are two “vesting” approaches to be aware of:

  • Graded vesting: A set percentage of the employer contributions become vested every year until you’re fully vested. For example, if your company’s policy is to vest 25% annually, you’d only retain half of the employer contributions if you left the job after two years.
  • Cliff vesting: In this scenario, there’s a set date at which you go from 0% vested to 100% vested. Employers can set this date at up to three years from when you were hired.

If your plan isn’t fully vested, you could lose a substantial chunk of your savings by leaving. Weigh the benefits of leaving immediately against the benefits of remaining until your 401(k) is fully vested.

If you already have a job offer lined up, use the following questions to assess your prospective employer’s 401(k) plan:

  • How does their employer-matching policy compare to your current jobs?
  • What are the vesting rules for employer contributions? Will they force you to stay at the employer for a specific period?
  • Will it make more sense to rollover your current 401(k) into the new employer’s plan or your IRA?

4. Are the Leave and WFH Policies Aligned with Your Lifestyle?

Many people change jobs in pursuit of higher wages or career advancement. Others are looking to improve work-life balance. And many of us want both—especially now.  

Depending on what stage of life you’re in and what your priorities are, there are several questions to ask:

  • What are their policies for work-from-home, work-from-anywhere, and/or hybrid work?
  • Do they allow flexibility for picking your kids up from school or mid-day workouts?
  • If you’re planning to have a(nother) child, what are the parental leave policies?
  • What are the rules for accruing and using vacation time?

Don’t forget to use your vacation time before leaving your current job, either. Some companies will pay out unused vacation time, but others force you to take the time off. If your company falls into the latter category, make sure to factor that into your departure date.

5. Does the Move Fit Your Long-term Financial Plans?

Whether you stay at one job for decades or move every two years, one of your career’s primary focuses is setting yourself up for retirement success.

Job searching can be exciting, as a higher salary, a better title, and new scenery can all be appealing. But any career moves should ultimately support your long-term financial goals.

Ask yourself:

  • Are you in a financially secure position to leave your current job?
  • Will you be able to continue saving at your planned rate? 
  • Does the employer’s 401(k) make it easier or harder to build a comfortable retirement?

If you have any doubts or need guidance, consider talking to a fiduciary advisor. While many financial professionals only focus on one product or area, fiduciaries offer holistic planning services. You can count on them to understand your comprehensive financial situation, evaluate how a new job fits into your long-term plans, and offer sound guidance.

Want to see how a new job might fit into your financial goals? Download our FREE Essential Retirement Guide to make sure you’re on track for the future you want.

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Disclosure: For informational and educational purposes only and should not be construed as specific investment, accounting, legal, or tax advice. Certain information is based upon third-party data which may become outdated or otherwise superseded without notice. Third-party information is deemed to be reliable, but its accuracy and completeness cannot be guaranteed. Indices are unmanaged baskets of securities and are not available for direct investment. Their performance does not reflect the expenses associated with the management of an actual portfolio nor do indices represent results of actual trading. Information from sources deemed reliable, but its accuracy cannot be guaranteed. Performance is historical and does not guarantee future results. Total return includes reinvestment of dividends and capital gains. Neither the Securities and Exchange Commission (SEC) nor any other federal or state agency have approved, determined the accuracy, or confirmed the adequacy of this article. By clicking on any of the links above, you acknowledge that they are solely for your convenience, and do not necessarily imply any affiliations, sponsorships, endorsements, or representations whatsoever by us regarding third-party websites. Wealth Legacy Institute is not responsible for the content, availability, or privacy policies of these sites, and shall not be responsible or liable for any information, opinions, advice, products, or services available on or through these third-party websites. The opinions expressed by featured authors are their own and may not accurately reflect those of Wealth Legacy Institute®.

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