Job Transitions: The Financial Ramifications

I live in an area of our great country that is known for high turnover rates in places of employment, Washington, DC. Over the years I have seen this rat race up close and have witnessed high turnover rates affect people’s financial well-being. So today I wanted to share a few financial nuggets to think about during these times so that you don’t stress about finances during stressful times. There are different kinds of job transitions: intentionally chosen and desired, unexpected but positive, and unexpected and negative. All of these are encompassed below.

The key financial principles to ensure a smooth job transition from a financial perspective are the same no matter the type of transition (intentional or not). The first tenant is simple: keep three to six months of living expenses on hand at all times for emergency savings. While simple in concept, it is much harder to achieve this in the real world. As a matter of fact, only about 50% of Americans have more emergency savings than credit card debt (2022 bankrate.com survey). Having 3-6 months of expenses saved up is incredibly freeing, because it not only allows you to be prepared should a tragedy strike (car breaks down, house needs repairs, etc.) but it gives you some breathing room should you be laid-off unexpectedly. This would conceivably give you up to 6 months to find a new job without having to change your lifestyle, throwing off your financial future. At the same time, this emergency savings nest egg would allow you the freedom to take some time off in between employment opportunities should you need a change of scenery and make the choice to leave your current role.

The second main financial tenant of job transitions revolves around your employer sponsored retirement plan, if you have one. This could be a 401k, 403b, TSP, SIMPLE IRA, etc. I cannot tell you how many times I talk to a new client and they reveal that they have several 401k’s sprinkled amongst all their old employers. While there is nothing inherently wrong with that, it is a very passive way of handling your financial future. Here’s a bonus nugget, finances are better handled head on, directly instead of passively hoping for a good outcome. I have seen people forget about 401k’s for years and thus they have not been managed to fit their unique situation or risk profile, or the client forgets where the account is actually held. When you leave an employer that has a retirement plan (let’s just say a 401k), you have three main options that will not trigger a tax event: you can keep it there with your old employer, you can roll it into your new employer’s retirement plan, or you can roll it out into a similarly tax-deferred retirement account (typically a traditional IRA). Given my personal and professional experience, I have found that rolling an old 401k into an IRA tends to give clients the most options and flexibility long-term. You can roll multiple old retirement accounts into a single IRA and have a lot more choices of where you can invest the funds. I realize this process can sound overwhelming in the middle of a job transition, so don’t hesitate to reach out to me and I would be happy to assist in helping you navigate these waters, including finding the best solution for your old company’s retirement plan. I have worked with countless clients on this process and can make it painless for you too.

If anything I have talked about in this blog hits home for you, please reach out to me for a free financial consultation at [email protected]. Allow me to help you navigate the choppy waters of a job transition with minimal financial stress. You have enough to worry about during this time, let me worry about your finances!