Whether you call it a job crunch, labor shortage or The Great Resignation, you can’t ignore the trend: People are quitting their jobs en masse.
Recent numbers from the Bureau of Labor Statistics indicate that 4.3 million Americans resigned in August, likely inspired by their padded savings accounts and lingering health worries amid the pandemic. There are 10.4 million job openings in the United States, meaning workers finally have the upper hand in the job market.
“People are reprioritizing what’s important to them and the social contract they have with their employer,” says Sri Reddy, senior vice president in retirement and income solutions at Fidelity.
It’s easy to get caught up in the fervor, but experts say not to forget that what you do now could impact your finances in the long run. Before you slam that strongly worded resignation letter down on your jerk of a boss’ desk, it’s crucial to consider the potential consequences for your retirement — even if that’s still decades away.
Here’s what to do.
Prepare to make the leap
Katherine Tierney, senior retirement strategist at Edward Jones, says you should know where you’re going next before you quit your current gig. If you’re changing companies, line up a new role. If you’re starting your own business, have the funding, location and paperwork nailed down.
Then, “review your finances to make sure you can financially support your next move,” Tierney says. That includes continuing to save toward long-term goals like retirement during the transition. Any interruption in your retirement savings now could result in big losses later.
Ideally, you want to have an emergency fund stashed away with three to six months’ worth of essential expenses. (FYI: If The Great Resignation has you going freelance, you may want a year’s worth.) That way, if something disastrous happens, you won’t have to tap into money you’ve earmarked for retirement.
Read the fine print
You probably enjoy several benefits in your current position — according to the BLS, two-thirds of private industry workers have access to employer-provided retirement plans. Alas, Reddy says, they may come with a catch.
If you’ve been contributing to your 401(k), for example, that money is yours. But if your employer has been matching those funds, it’s likely you don’t 100% own them until a certain amount of time has passed. Companies often adhere to what’s called a 401(k) vesting schedule as a way to entice employees to stick around longer. Look up those dates before you jump ship.
“You want to be really careful because if you’re within a few months here or there, you may be leaving thousands of dollars on the table you simply forgot about,” Reddy adds.
Leaving a job sooner than expected can also affect other perks, like tuition reimbursement or student loan assistance. Check your work documents for payback clauses and talk to human resources about whether your departure means you’ll be on the hook for money the company previously gave you.
Look beyond salary
Ross Cohen, a wealth advisor and certified financial planner with Bartlett Wealth Management, warns people not to get too starry-eyed over the salary associated with a new role. Consider basic factors like its location and remote work policy. Then scrutinize the entire compensation package, including its 401(k) offerings, profit-sharing plans and stock options.
Here, too, consider the time horizon. If you’re only using the role as a stopover job, you might not be around long enough to actually reap the rewards.
Reddy says to pay close attention to health care benefits. Switching insurance providers might end up costing you, especially if you or a family member has a condition that requires access to certain doctors or a specific kind of treatment. In those cases, “your base salary may not showcase what your costs are going to be,” he adds.
Take care of your 401(k)
As you’re wrapping up at a job, check on your 401(k). Take special care if you’ve borrowed against it.
Every 401(k) plan has its own policies, but “if you leave [your job], a lot of those loans become due immediately,” Reddy says. If you don’t pay the money back, then the IRS considers the resulting offset a disbursement, which comes with a 1099-R, taxes and possibly a penalty, depending on your age.
Another consideration is your 401(k) balance. If it’s under $1,000, employers typically just mail you a check — which will trigger the tax consequence and penalty unless you roll it over into your new 401(k), if the plan sponsor allows, or into an individual retirement account (IRA) within 60 days.
Consolidating your retirement funds into one account can be helpful so “you don’t have these smaller accounts kind of lingering out there,” Cohen says. It also may allow you to devise a more comprehensive approach and investing strategy.
Follow your bliss
Take the Great Resignation as a chance to make sure you’re in a position that aligns with your passions. If nothing else, the more you like a job, the longer you’ll stay there — and the fewer retirement planning changes you have to navigate.
Tierney recommends running the numbers to make sure you’re putting away enough to afford your (eventual) desired retirement lifestyle. If, in your new role, you have more income coming in, you may want to adjust your approach. Contribute more to your 401(k), sure, but also do some self-reflection: What gives you the most fulfillment? Is it family? Travel?
Switching jobs may provide “an opportunity to retire earlier or do things in retirement you weren’t even considering before,” Tierney adds.
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