A study from the staffing firm Robert Half revealed that 64% of professionals polled think that changing jobs every few years can be beneficial. That’s a 22% increase over the previous four years. While changing jobs can be a boost to your salary, job hopping can also be a hit to your financial future if you don’t plan the financial changes that occur when you change jobs.
One of the best ways to make a good decision is to approach the transition prayerfully. In addition to prayer, be sure to thoroughly research all aspects of your prospective employer. There’s the personal factors such as a reasonable commute, benefits, salary and the satisfaction from the new job. There’s also a new culture to adjust to and the opportunity for future growth in your field.
Once you put the pros and cons of your decision side by side, pray for guidance and wisdom to make a wise decision. Two Bible verses to meditate upon are:
Psalm 119: 148, which says “My eyes greet the night watches as I meditate on your promise. Hear my voice in your mercy, O LORD; by your judgment give me life.” And Philippians 4: 6-7 says “Have no anxiety at all, but in everything, by prayer and petition, with thanksgiving, make your requests known to God. Then the peace of God that surpasses all understanding will guard your hearts and minds in Christ Jesus.”
The next step is to be sure you have addressed all the financial impacts. Be sure you review your budget to see the impacts. If there are several lag weeks between pay checks at your old job and when your new pay checks start coming in, how will you fund the gap?
If your new salary is less, what do you need to cut? Which expenses must be cut entirely or eliminated completely? Keep track of those little expenses that add up at the end of the month. Things like coffee shop trips, entertainment subscriptions, and premium cable channels are all potential areas where you can cut expenses.
Create your generosity plan for the period of transition. Whether your new salary is more or less than what you were previously making, giving is important. God does not need our money, but he does want our hearts. A lot of times our hearts are directly connected to our money.
1 Timothy 6: 18-19 says “Command them to do good, to be rich in good works, to be generous and ready to share with others. In this way they will store up for themselves a treasure which will be a solid foundation for the future…to be able to win the life which is true life.”
If your new job means a higher rate of pay, what are you going to do with the increase? Will you create or add to your emergency fund? Have you started saving for those longer term goals such as going back to school, buying a home, replacing your car or retiring? If you get a raise and don’t make a conscious decision about how to use the extra cash, the money will just disappear. It’s always easy to raise your standard of living to consume your entire paycheck unless you make an intentional decision to do something different.
Proverbs 21:20 says “Precious treasure remains in the house of the wise but the fool consumes it.”
The fool may also forget about precious treasure. When you change jobs, be sure to figure out what to do with the money in your 401K. You have several options. You may be able to leave your account with your previous employer. This may not be the best idea as it’s easy to forget about it. If that’s the case and you are not satisfied with the investment options or fees, there are other possibilities.
You can roll over the money from the old 401(k) into a new account with your new employer. If you are planning to do this, be sure to see if your new employer offers a 401(k) and when you are eligible to participate. Many employers require new employees to meet certain requirements before they can enroll in a retirement savings plan.
Once you are enrolled in a plan with your new employer, it’s simple to rollover your old 401(k). You can elect to have the administrator of the old plan deposit the contents of your account directly into the new plan by simply filling out some paperwork. This is called a direct transfer, made from custodian to custodian, and it saves you any risk of owing taxes or missing a deadline.
You can also elect to have the balance of your old account distributed to you in the form of a check. However, you must deposit the funds into your new 401(k) within 60 days to avoid paying income tax on the entire balance. Make sure your new 401(k) account is active and ready to receive contributions before you liquidate your old account. And be sure to make the deposit to your new account in a timely manner.
If your new employer doesn’t offer a retirement plan, you can roll your old 401(k) into an IRA. You’ll be opening the account on your own, and your options are unlimited. especially since you are no longer restricted to the options available from your employer.
There is also nothing stopping you from liquidating an old 401(k) and taking a lump-sum distribution. However, depending on how long till you retire, you are losing the time value of money where the money you have saved, plus the interest you have earned are both earning interest, thus making your savings grow faster.
If you take distributions from your 401(k) prior to age 591/2, it may seem like you are just taking your own money. But look deeper. An early withdrawal from your retirement account (any withdrawal before age 59 ½ is consider early) means paying a 10% penalty plus income taxes on the withdrawal. If you cash out the $30,000 in your 401K, the penalty will be $3,000. Taxes at your current income tax rate—say 28%—means the government will keep another $8,400.
This leaves you with just $18,600…. NOT the $30,000 that was in your account. You actually wasted $11,400 in taxes and penalties. If you are 30 years away from retirement, the future value of that $11,400 in your 401(k) at 7% is $86,799. Taking money out of your 401K is borrowing from your future and wasting money in penalties and taxes.
The bottom line is another conscious decision about what to do with your 401(K). The money belongs to you, so don’t lose it by forgetting about it. Industry estimates indicate that there are over a billion dollars in orphaned retirement account that we left when people changed jobs.
Job hopping can be a real blessing for your financial future, just be sure to make prayerful, intentional decisions in your transition planning!