By now, you have probably seen plenty of news outlets discussing “The Great Resignation” and all the potential implications of the ongoing shift in the workplace. For those who have not, simply put, the term was coined in response to the current trend of employees voluntarily leaving their jobs at unprecedented rates. In fact, according to Bankrate’s August 2021 Job Seeker Survey, 55% of Americans expect to search for a new job over the next 12 months. Furthermore, about 28% of working Americans who currently say they’re not looking for a new job are still expecting to search for a different position at some point in the next year.1
If you are one of the many people who have recently started a new job, I am sure you will agree that changing jobs entails much more than just a new employer and role. There could be a change in salary, a different retirement plan, as well as new insurance and benefit options. These factors can seem overwhelming at first; especially since the majority of your focus will be on the responsibilities and challenges of the new job! But don’t worry, with proper planning and guidance, starting a new job doesn’t have to be a stressful experience. Below are a few of the common financial moves that we advise our clients to consider when switching jobs.
Figure out your tax withholdings
If this isn’t your first job, you are probably familiar with the W-4 form. This form is used to tell your employer how much federal and state income taxes to withhold from your paycheck. The amount of withholding you select will determine how much you will pay (or the size of the refund you will receive) when you file your taxes. Because your tax situation may have changed based on your new job and salary, it is important to review the amount of tax being withheld from your paycheck to determine if you are withholding the right amount. Withholding too much could reduce the amount of money you live on throughout the year and withholding too little could leave you with a larger than expected tax bill come filing season.
Review your benefit options and sign up for benefits
Picking your new health insurance plan is one of the most important benefit decisions you will have to make when you start your new job. When figuring out the best plan for you and your family, there are a few important costs to evaluate and compare. These include: the monthly premium, copayments/coinsurance amounts, the deductible, and any maximum out-of-pocket limits. In addition, you should take some time to consider how frequently you go to the doctor and any upcoming medical expenses you expect to incur. In my experience with helping clients review their coverage options, I find it helpful to contact a representative from your employer’s human resources department to discuss the pros and cons of the various options that are available. And don’t forget! Health insurance is probably not the only benefit that your employer offers. Paid time off, life insurance, disability coverage, and even gym memberships are all potential benefits that you can take advantage of. Take the time to review all of your benefits and don’t be afraid to ask questions when necessary.
Decide what to do with your old 401(k)
If you were invested in a 401(k) through your former employer, there are typically 4 options you have when you leave:
- Leave the account where it is, if allowed
- Roll it over to your new employer’s 401(k) (if you’re joining a company that offers a retirement plan that allows roll-ins)
- Roll it into a traditional or Roth IRA
- Take a lump sum distribution (cash it out)
Deciding which option is right for you largely depends on your own individual circumstances and goals. Some of the important items to consider include the investment options available, fees, and whether or not loans are permitted. For our clients, the decision usually comes down to rolling over their former employer 401(k) into an IRA or into their new 401(k) if their employer offers a plan with low costs and a variety of investment options.
Set up contributions to new 401(k)
If your new company offers an employer-sponsored retirement plan, it is usually a good idea to set up your contributions as soon as you are eligible. Additionally, your employer may also match your account contributions up to a certain percentage. How much should you contribute? Well, hopefully you have created a financial plan to help you determine the retirement savings necessary to reach your goals! But if you haven’t, it is commonly recommended to contribute at least enough to your retirement plan to maximize your employer’s contribution match. An employer match is often referred to as “free money”; so, make sure you don’t overlook this aspect of your employer-sponsored retirement plan.
Update your Financial Plan
Speaking of your financial plan, starting a new job is a great opportunity to evaluate your current financial standing and update your financial planning projections. This is a great time to reassess your budget, evaluate your emergency fund, and check-in on the progress you have made towards your goals. You may also want to re-visit your risk management plan to identity how your new insurance coverage factors in as well as re-visit your investment portfolio to make sure your investments are properly aligned with your risk tolerance and time horizon. By updating and focusing on your financial plan, you are more likely to avoid the habit of lifestyle inflation. Lifestyle inflation refers to the reality that many people increase their expenses as their income increases; especially if their new job comes with a pay increase. Instead of increasing your spending right away; consider using that extra money to save for your goals, pay down debt, or build up your emergency savings.
These are just a few examples of financial moves to consider when starting a new job. With the support of a financial professional, switching jobs doesn’t have to be a stressful experience. Are you ready to make the most out of your new role? Schedule your no-cost introductory meeting today: https://transversewealth.com/take-action
1. https://www.bankrate.com/personal-finance/job-seekers-survey-august-2021/