How to financially prepare to change careers

The average American will experience 10 or more job changes over the span of a 40-year career. That’s based on Bureau of Labor statistics that found in 2020 that the median employee tenure for men today is 4.3 years and for women, 3.9 years.¹

A new job can be the first in a chain of other changes, ranging from a new daily routine to a very different financial situation.

Brad Markwell, a Thrivent financial associate in Golden Valley, Minnesota, points out that being prepared “is one key to financially managing any job transition, whether it is an unexpected layoff or intentionally beginning a new opportunity.”

For many, a job transition is a time of renewed possibilities, and taking the right financial steps can ease any stress experienced along the way. “When you’re looking for a job, you’ve got to create a plan,” says Markwell. One aspect of a job change that is often overlooked, he continues, is finances.

Understanding your money situation is a key consideration to carrying you and your family through a job search and helping you make good financial decisions, whatever your new employment situation might be.

Here’s an action plan to help you get your financial ducks in a row.

It’s important to understand your financial parameters when considering looking for a new job. “I believe the number one step for getting financially organized is figuring out what your budget is,” says Markwell. “It sounds easy and like a no-brainer, but there are so many people who don’t do that.”

Many financial advisors advise tracking expenses throughout the course of an entire year. You also can look at each month individually. Break your expenses into two categories: recurring and one-time occurrences. Remember on the recurring side to include those necessary and predictable expenses, such as property taxes and insurance payments, that do not hit in the particular month you’re tracking. From there, creating a budget is easier to do.

For Colleen Foley, who had spent the past eight years working at a health club, a change in employment came in 2019. “I had no notice,” says Foley, who lives in Bloomington, Minnesota. “I was called into HR and told they’re downsizing and reorganizing. There I am, 63, with no plans to retire for the foreseeable future.”

As part of the process of filing for unemployment, Foley found Thrivent and realized that the first step she needed to take was putting her finances in order.

Once you know where your money is going and you’ve created a budget, it makes sense to dig a little deeper. Brendan Rorem, a Thrivent financial consultant in Bellevue, Washington, advises sorting all expenses into “needs, wants and wishes.”

“You want to know that if you had to, you could live on X [the amount of money you truly need],” says Rorem. “Once you have that number, you can add back wants and wishes as your budget allows. This is also a good way to approach income that may be desired in retirement.”

When trimming fat, Rorem identifies dining out and clothing as good places to start. Next, he says, examine recurring expenses, such as gym memberships and streaming services, because fees automatically deducted from your bank account are easier to overlook.

Having a sense of proportion matters, too. “People often go to the simple things first, like, ‘I can make my own coffee and stop going to Starbucks,’” Rorem says. While this type of economizing may seem sensible, it might not have enough impact. “Going to Starbucks is maybe a $3-a-day decision, but if you’re going to dinner each night with your family, that might be a $100-a-day decision,” he says. Plus, inviting someone to meet for coffee might be an inexpensive way to network.

For planning purposes, it’s important to understand “what your company is providing that you don’t necessarily see in your paycheck,” says Rorem.

Employers are often providers of income and benefits. It’s critical to consider that full package—income, retirement, time off, health insurance and life insurance. Financial advisors can help take stock of that bigger picture and help you evaluate where an employer package is strong and where it may need to be supplemented. That’s especially important if you change from one income and benefits package to a new one.

When a job change is voluntary, planning ahead is important. Stay on top of routine doctor and dentist appointments. If, for instance, you need new glasses and you have a vision plan, visit an optician while expenses are still reimbursed. To understand offerings from your current employer, start with the employee handbook and your HR department. Are you entitled to a payout for unused vacation or sick time? And what are the rules around flexible spending accounts? Some accounts have a “use-it or lose-it clause,” which means that money remaining in the account won’t be refunded.

For those leaving a job involuntarily, questions include: Will you receive severance pay? How long will your benefits last? And are you eligible for unemployment insurance?

Markwell points out that one of the biggest bills for most Americans is a mortgage or rent payment, followed by health insurance expenses.

"While many people who leave their jobs can pay to extend their employer’s health benefits under COBRA, this is not always the most cost-efficient option. For those with a clean bill of health, purchasing private-pay insurance may cost less," says Markwell.

He also notes that some states have their own health insurance marketplaces that can offer attractive deals for residents.

When changing jobs, you might choose to roll your 401(k) to your own IRA to be able to manage your own investments or convert a pre-tax 401(k) fund to a Roth IRA, suggests Markwell. Pre-tax funds converted into a Roth IRA will be taxable at the point of conversion, so you’ll want to work with your financial advisor and tax professional for the best guidance on the right move for your situation. While Thrivent does not provide specific legal or tax advice, your financial advisor can partner with you and your tax professional or attorney.

Markwell also points out that if you’ve had a Roth IRA for five years or more, if needed, you can move your cost basis (a fancy term for the contributions you’ve made) into your savings account without paying a penalty. In contrast, he says, if you’re not yet 59½, taking money out of your 401(k) or individual retirement account might mean a 10% penalty and a tax bill.²

For Foley, looking for work was only one part of a much larger picture, one that involved taking care of her stepmother, Clare Foley, whose dementia progressed dramatically around the time Colleen was laid off. Helping her stepmother influenced her future goals.

In Foley’s case, Thrivent financial associate Ted Vickerman guided her as she made some major financial decisions. With help from Thrivent, she first used severance and unemployment pay. She also sold an annuity from another company. She is now drawing money from her assets so Social Security will go untouched until she is over age 66.

Foley’s experience illustrates that job changes, whether voluntary or involuntary, don’t occur in a vacuum. At this stressful-yet-exciting time, it’s particularly important to stay connected to family, friends and acquaintances, and to take into consideration their circumstances, too, says Markwell.

He points out that today many jobs are found through networking and so socializing can be a form of job hunting. Equally important, though, is the fact that seeing people who are important to you can motivate you and remind you of your purpose.

Don’t forget about caring for yourself during the process. Job searching can lead to financial strain, rejection and discouragement. Find ways to practice self-care as your search for your next opportunity. Incorporate feel-good activities into your week, create a daily schedule that works for you and take mindful breaks.

Changing jobs does not necessarily mean living on less money. For many, a job change is an opportunity to find a more satisfying position with a higher salary or greater economic potential.

For individuals who find themselves in a better situation money-wise, creating a financial strategy may be critical. That’s because individuals who suddenly have bigger paychecks may not know how to put the additional income to work.

As many people learn, the job-hunting journey often turns out differently than expected.

Job changes are many things, among them launching pads for growth. Rorem credits a job change 18 years ago with having helped him find his calling as a financial consultant at Thrivent. “If I hadn’t had the disruption,” he concludes, “I probably would never have thought about this opportunity, and I love my job.”

Job searching can be stressful. Here are some ways to care for yourself as you look for your next opportunity.

• Create a good support network. Others who have been in a similar situation are often willing to help.
• Take care of your physical and mental health.  Get plenty of sleep and exercise. Find quiet moments to pray and meditate.
• Practice gratitude. Even during difficult times, there are always things you can be grateful for. Writing them down each day will help you stay positive.
• Find ways to help others. Seek out volunteer opportunities, give blood or organize a Thrivent Action Team.
• Maintain a schedule and organize your search. Dedicate time each day to your search and to yourself.

If you are leaving voluntarily, you might want to give notice after you’ve received your annual bonus. In addition, says Thrivent financial consultant Brendan Rorem, an employee with stock options should investigate when these options vest and plan accordingly, as well as determine if it is possible or advantageous to realize income in the current year or perhaps defer it to another.

Money spent traveling to job interviews and hiring a career coach may be tax deductible, says Rorem.

Permanent life insurance contracts can be a good source of income, says Thrivent Financial Associate Brad Markwell, noting that sometimes money can be taken out of these contracts “in a tax-favorable way.” Check in with your financial advisor to make sure all options are evaluated and wise choices are made on overall coverage.³

Remember to print out pay stubs or retirement plan documents before your last day at work. These documents may be password protected and difficult to access later. Also be sure to write down contact information for the various plan administrators, especially medical and retirement plans. And if you move, make sure to update your address with those plan administrators and previous employer so that you receive updates and tax information in a timely manner.

Whether you’re thinking about a career transition or you’ve faced an unexpected layoff, your Thrivent financial advisor has a variety of tools to help guide you through the process, helping you achieve financial clarity.