Don’t Let Changing Jobs Derail Your Retirement Plans
Many Americans expect to change jobs in the coming year, which could have significant effects on their retirement planning. Before writing your own resignation letter, take this chance to revisit your financial strategy.
It seems like everyone is either getting a new job or thinking about it.
Many people have made job changes recently and, with low unemployment across the country, even more Americans say they want to take advantage of new career opportunities, according to the 2022 Retirement Risk Readiness Study* from Allianz Life. More importantly, workers have the upper hand in the labor right now with what’s been dubbed the Great Resignation continuing.
Of those 10 years or more away from retirement, more than a quarter said they are likely to take a new job this year, either with a new company (31%) or by going into business for themselves (26%). Even more near-retirees (those within 10 years of retirement) are planning an employment change in 2022 – 33% with a new company and 32% thinking of switching to self-employment. Some said that they wanted a new job with a higher salary because of ongoing inflation.
While some new jobs come with higher salaries and better benefits, unfortunately others do not. Some worry a change in employment could affect how they pay for necessities like housing and food (57%), according to the study. What’s concerning here is how workers think a job change could affect their retirement security:
• 60% worry a new job would reduce the amount they can save for retirement.
• 56% worry it would require them to completely stop saving for retirement.
The best-case scenario is that a new job will increase your pay and in turn help you increase the amount you put toward your retirement goals. But, no matter what, a change in employment is a great time to revisit your financial strategy. Here are a few things to consider.
Lifestyle creep is real
More than half (54%) of non-retirees in the study admitted to spending too much money on non-necessities – and that tendency can be multiplied when we begin to earn more money. Upgrading your lifestyle when you get a pay raise feels good. You can treat yourself, just within reason. Do not upgrade every aspect of your life at once. Beware of how lifestyle creep could limit your ability to save for retirement.
It is good practice to continue to keep (and regularly check in on) a budget, even if your paycheck went up. This helps tamp down rampant spending.
Instead, take this opportunity to make a different kind of upgrade – to your savings. That additional money in your check can be put to work toward financial goals like paying off debt, boosting (or starting) you emergency fund or putting money away for a down payment on a house. It would also be wise to increase your contributions to retirement plans, such as a 401(k). If you boost your contribution rate when you change your job or your salary increases, you won’t see the amount that you contribute, so you won’t miss it. Trying to bump it up later makes you more aware of the income you’re deferring, and it may seem like more of a sacrifice.
Spending now gives instant gratification, but investing for your future could pay off in the end because time is your best friend when saving for retirement.
Don’t lose out by leaving
Depending on how long you have been at your current job, you might not have full ownership of your 401(k) plan, profit-sharing or stock options. That presents its own wrinkle in deciding whether you should stay or go.
Many employers require employees to stay with the company for a set period to be fully vested in the company 401(k). That means, until that time is up, employees don’t have full ownership of the funds or stock that the employer matches. So, if you leave before that time period is up, you lose out on benefits you had planned to receive, potentially putting your retirement plans at risk.
Review your vesting situation before deciding to leave an employer. If you’re close to the deadline – or if you’re not – it could affect how you want to proceed with a potential job change. This is one reason why people who job hop often can fall behind on retirement saving.
Take a long-term view of your new job offer
A new job with a higher salary sounds like a win, but you should think about how the pay and benefits will work for you in the future.
When weighing a job offer, look at how pay, benefits and other non-salary compensation could help you prepare for retirement. Even though retirement might feel far away, these benefits and long-term planning can help you attain the retirement you envision.
Compare how much employers will match on 401(k) contributions or contribute to employer-subsidized health care plans and health savings accounts. Annuities are also now an option for employer-sponsored savings plans because of the SECURE Act. This option allows participants to save money to provide guaranteed lifetime income that can protect your from various risks in retirement.
Keep track of your old 401(k)
There are several options for what to do with an employer-sponsored 401(k) plans when you leave a company. You can just leave it there, roll it over to your new employer, roll it into a traditional or Roth IRA, or cash it out. (Clients should consult with a tax adviser to determine what may be appropriate for their specific situation and discuss potential tax consequences.)
Which move makes the most sense for you will depend on your own situation. Just do not let it languish. The last thing you want to do, though, is forget about it. That’s money you’ve earned that you can use for a better retirement!
Consult a financial professional
A new job is a useful reason to examine your finances, including both short- and long-term goals. Your financial situation has likely changed, and your priorities for spending and saving may need to be reprioritized. A qualified financial professional will be able to help assess your finances and establish a strategy that may include a written plan for savings and retirement income that will work for you now and help prepare you for your future.
*Allianz Life conducted an online survey, the 2022 Retirement Risk Readiness Study, in February 2022 with a nationally representative sample of 1,000 individuals age 25+ in the contiguous U.S. with an annual household income of $50k+ (single) / $75k+ (married/partnered) OR investable assets of $150k.
This content is for general educational purposes only. It is not, however, intended to provide fiduciary, tax or legal advice and cannot be used to avoid tax penalties or to promote, market, or recommend any tax plan or arrangement. Please note that Allianz Life Insurance Company of North America, its affiliated companies, and their representatives and employees do not give fiduciary, tax or legal advice. Clients are encouraged to consult their tax advisor or attorney.
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About the Author
Vice President, Advanced Markets, Allianz Life
Kelly LaVigne is vice president of advanced markets for Allianz Life Insurance Co., where he is responsible for the development of programs that assist financial professionals in serving clients with retirement, estate planning and tax-related strategies.