We recently covered the life event of getting a new job. Now we’re turning our attention to the moment when employment terminates. There are happy and unhappy reasons to leave a job, and they all bring with many things to consider.
To lighten the mood, Jerry Seinfeld’s recent commencement speech at Duke University comes to mind in which he makes the argument for work in which he said, “If you took a stupid job that you find out you hate and you don’t leave, that’s your fault. Don’t blame work, work is wonderful. I definitely will not be looking back on my life wishing I worked less. If that’s not how you feel at work, quit. On your lunch break, disappear, make people go, “What happened to that guy?” I don’t know, he said he was getting something to eat and never came back.”
Now, before you disappear at lunchtime, we do have a few things for you to consider!
1. Don’t forget retirement accounts when you leave
Don’t forget your retirement account(s) at your old employer when you leave. We have seen situations where people have forgotten about old plans that, after growing over time, have over six figures in them! If you have a 401(k), 403b, SEP IRA, or other employer-sponsored retirement plan, you have choices when you leave a job. You can roll it over into an IRA, your new employer’s plan, or leave it where it is. There are a few things to consider before making a decision – the cost of the investments, the ability to diversify, the prudence of the investments offered, and the convenience of consolidating your accounts.
Whatever you do, don’t lose track of those assets.
2. Consider Continuation of Health Coverage (COBRA)
When you leave an employer, you have the option of keeping your health insurance through a provision called Continuation of Health Coverage, or “COBRA”. There is a 60-day period to decide if you want to keep your existing health coverage, which will continue for a term of 18-36 months depending on the situation. The cost of the health coverage is paid by the departing employee, plus some administrative costs. This coverage may still be less expensive than finding a brand new health plan on the Health Insurance Marketplace – it is important to compare before making a decision.
3. Review your insurance coverages
If you are still in the workforce, going from one job to another, be sure to keep your life insurance coverages, and review your disability income insurance. If you are moving into retirement, you might not need either of these coverages anymore! This would be a good time to look at all your coverages and which ones are still necessary. It never hurts to take a second look at these.
4. Create a plan to replace that paycheck
If you are moving from full-time employment to no employment temporarily or permanently, paycheck replacement may include withdrawals from your investment portfolio, or part-time work. When making this replacement plan the goal is to make sure you have the spending money you need.
5. Have a tax plan
Keep in mind that while working, your employer is withholding taxes for you and sending them to the IRS and your state taxing authority on your behalf. If you have left your job, depending on the source of funds from which are spending, there could be some taxes you’ll need to pay, but you are responsible for getting that amount of taxes right! Talk with your tax or financial planner to reduce the chance you could owe a lot in taxes an penalties in April.
6. Review your investment allocation
If you are still going to be working but are taking some time off, this would be a good time to review your investment allocation and consider adding a cash buffer for spending money during your time off. If you are retiring, consider if it might be time to reduce the stock portion of your portfolio. However, even for retirees, this is not always the right answer! It really comes down to your individual plan.
Speaking of your individual plan, working with a Certified Financial
PlannerTM professional can be beneficial. A CFP® professional can help you come up with a spending plan that considers which source to spend from, help calculate the appropriate tax payments, and help your individual plan work for you.
If you are considering retirement as your next right move, check out our upcoming EVOFi podcast on reframing the retirement conversation.
Whether the loss of a job is by choice or not, life is too short to do what you don’t love to do.
Up next in our LIFE series, we are back to the happier events in life, discussing how to plan around having a baby.
Stephen Fletcher, MBA, CFP(R), is a Financial Planner at EVOadvisers.
EVOadvisers is a fee-only, Registered Investment Advisor (RIA) founded in 2006. EVOadvisers is located in Richmond, VA and services clients locally and nationally. EVOadvisers offers transparent, easy to understand, financial planning and investment management services to families, busy professionals, and entrepreneurs who have achieved a stage in life that requires more than a 401(k) to manage.