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5 Financial Tasks To Tackle When Changing Jobs

Use our step-by-step list to check off financial to-dos before you leave your current position and after you start your new one.

Changing jobs is one of life’s biggest stressors. It can be emotional to say goodbye to coworkers and worrisome to jump into the unknown of a new role. On top of that there is paperwork to fill out and financial chores that need to be completed.

It is important to spend some time on these items to make sure you are set up for success in your new role and beyond. Use our step-by-step list to check off financial to-dos before you leave your current position and after you start your new one.

Overview

  1. Focus on details of both your old and new Retirement Accounts
  2. Get the right health insurance in place
  3. Decide what to do with your FSA or HSA
  4. Compare old and new life and disability coverage and fill in any gaps
  5. Update (or Create) your Financial Plan

1. Focus On Details For Both Old And New Retirement Savings

In most cases you will have four choices for what to do with your old retirement plan:

  1. Keep the money where it is at. Note that some employers do not allow this.
  2. Move your money to your new employer’s plan.
  3. Cash out your account balance. This is a bad idea due to taxes, penalties, and missing out on future growth.
  4. Rollover your account from a 401(k) to an IRA. For most people this is the ideal solution. A rollover IRA gives you flexibility in decision making to ensure that your assets are supporting your retirement goals.

Things to consider for your new plan:

  • Be sure to sign up for your new employer’s retirement plan as soon as possible and take advantage of any contribution match offered.
  • Make sure that all current and future dollars are invested in a well-diversified mix between stocks and bonds that makes sense for your situation.
  • If your new job came with an income jump be wary of lifestyle creep where the more you make, the more you spend. Instead, you should consider increasing the amount you save from each paycheck.

2. Get The Right Health Insurance In Place

Leaving your job often means losing your health insurance. Ideally your new company will have a policy you can sign up for right away, but there’s no guarantee that will happen. If there is a gap in coverage from when your old coverage ends and your new coverage begins you have a couple of options.

You could keep your current coverage under COBRA, but will have to begin paying full premiums if your employer was subsidizing coverage. This can be much more expensive than many people realize. Another option is the Health Insurance Marketplace (healthcare.gov) created by the Affordable Care Act.

Since losing workplace coverage is a qualifying life event, you can enroll outside of open enrollment. Be sure to look into this option, as it may be cheaper than COBRA coverage.

3. Decide What To Do With Your Flexible Savings Account or Health Savings Account

With Flexible Spending Accounts you forfeit any money left in the account when you leave. These accounts can not be transferred to your new company. Be sure to check your balance and submit any claims before your termination date so that you’ll get reimbursed.

If you are not sure what is covered, check with your employer.

If you have a Health Savings Account (HSA) from your old employer and you are enrolling in a high deductible health plan at your new employer, you can often transfer the balance in your HSA. If you don’t plan to enroll in a high deductible plan, you can generally leave the remaining funds and use as needed for eligible healthcare expenses. This money has no deadline for use.

4. Compare Old And New Life And Disability Coverage And Fill Any Gaps

For many people the only life insurance they own is through their employer. This means that while you are in between jobs your loved ones are not protected. This is why it may make sense to purchase an outside policy in addition to your workplace coverage.

A general rule of thumb for how much life insurance you need is between 7 and 10 times your annual income. A financial planner can give you a better idea specific to your situation.

During the course of your career, you are three and a half times more likely to be injured and need disability coverage than you are to die and need life insurance. Many companies offer disability plans that cover about 60% of your income before taxes.

If your new job does not offer disability coverage, consider looking into policies outside of your workplace.

5. Update (or Create) Your Financial Plan

A financial plan is vital to long-term financial success. Many of the questions that come up when switching jobs such as ‘how should my retirement plan be invested?’, ‘how much life insurance do I need?’, and ‘am I on track for retirement?’ can be answered through a financial plan.

Your financial plan should be updated each year to make sure that you are making the best financial decisions for your situation and that you are on track.

Changing Jobs Doesn’t Have To Create Financial Challenges

If you’re organized, prepared, and ready to transition from one job to another, the process should go well. Just make sure you check off the items on this to-do list so you don’t risk your retirement future or put yourself at risk of catastrophic financial loss due to a health issue while you have a gap in insurance coverage.

Changing jobs is also a perfect time to check in on your financial plan and make sure you are on track to meet your goals.

About the Author

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Susan Koe

Director of Financial Planning, CFP®

Susan is passionate about using her financial knowledge to help others achieve their goals. She began her financial services career when she joined Vanguard in 2004. At Vanguard, she provided data analysis and portfolio management for high-net-worth clients. Her 11 years at Vanguard taught her that every client has a unique situation and there is no ‘one size fits all’ solution. She believes that her job is to answer questions like ‘When can I retire?’ and ‘Can I afford to leave a legacy’ not just convey facts and figures. She also has a bachelor’s degree in finance and economics from Northwest Missouri State University and an M.B.A. from Northern Arizona University which gives her the depth of knowledge critical in the planning process. Susan lives in the Phoenix area with her husband, son, and daughter. Her interests include running, hiking, volunteering, and vacationing with her family.

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