The Successful Transition Series looks at three major life transitions: retirement, entrepreneurship and career change. This week, we look at career change and some of the financial challenges that come with this transition.
Earlier this year, CNN.com reported that the average employee will change careers four times before they turn 32. While this may seem like a high number, the Bureau of Labor Statistics points out in their survey that the last several generations have not only changed jobs several times, but careers as well, showing that people do not consider themselves just workers in the machine.
Career change or career transition can be seen in one of two ways. The first is using your current position with your current employer as a springboard to change positions within that company. More often, transitioning careers is a move to another completely different type of job. A career move is not always about climbing the ladder, but a move to a place in the work world that inspires you, no matter how long it takes to find it.
For those considering a career transition, it is important to feel financially confident. Here are two important financial challenges that need to be addressed to help make the transition a smooth one.
Successfully navigating through a career change may mean a cut in pay or even returning to higher education to lead to the more inspired goal. If this is the case, those that are successful in career changes have used tools such as renegotiating the necessities, paying down debt before the career change and making sure a dedicated amount is still going into savings every month.
Successful career changers know that a dedicated savings means a dedicated emergency fund to cover unexpected expenses. Life still happens and there may be a car repair, your emergency room visit or other sudden expense. There is an adage that says a person should have three to six months of living expenses saved as an emergency fund (if changing careers, a year is recommended). A more accurate amount really depends on an individual’s situation; however, a dedicated amount is an important part of a great transition.
A successful career transition also means keeping your retirement plan in mind. If you had a 401(k) with your former employer, you may have questions including:
What if the new employer does not have a retirement plan?
If one does exist, should you roll over your old 401(k) or move it to an IRA?
When can you start contributing to the new plan?
When are you vested?
No matter the answer, a great transition includes making sure retirement benefits are updated. The trend seems to be that many people switching careers become complacent with their prior employers’ plans. In fact, MarketWatch.com discovered that 24 percent of those moving careers did not feel it was a priority to move their balances, citing reasons such as the amount was too small or they were not sure how to move or consolidate their retirement funds. In reality, it may be important to do this sooner, rather than later. Old companies may go out of business, departments change and data can be lost.
As we conclude this series, it is interesting to note that many of the strategies used by those finding success in these transitions can use many of the same tools to be prepared. However, it can be overwhelming to consider any life transition, and meeting with a trusted advisor can help with a confident transition.
Wood Smith Advisors, a woman-owned Registered Investment Advisor (RIA), is a fee-only financial services firm that partners with its clients to simplify their financial lives. We focus on women, entrepreneurs and individuals with complex financial situations, providing objective and competent advice, education and services to help them develop and build their businesses and reach their financial goals. We can be reached by clicking here.
“Finance Made Simple” blog posts are intended for educational purposes and not for specific advice. Each person’s situation is different. Consult your financial advisor for advice relating to topics discussed.