When a new job offer comes your way, it’s smart to come up with a “financial exit strategy” from your old workplace.
There’s a lot to be excited about a new job. It often comes with a chance to learn fresh skills, meet new people—and you will probably also score a sweet pay bump. Job-hopping is up 22 percent since 2014, and 3 in 4 millennials see it as a positive trend.
But salary isn’t the only way a new job affects your bottom line.
Experts swear the money decisions you make when bidding farewell can collectively be worth thousands of dollars gained or lost—from handling your 401(k) to timing your departure after your bonus lands.
Here’s how to ensure you make bank before you bail.
Consider whether you’ll have a lag in health insurance between jobs.
“Most companies extend coverage until the end of the calendar month of an employee’s last day, while some stop health-care benefits on your final day of work,” says David Lewis, president and CEO of the HR consulting firm OperationsInc, in Norwalk, Connecticut. On the other side, the Affordable Care Act mandates that employers offer eligible new hires coverage within 90 days.
If you’re 25 or under, you can hop onto your parents’ plan during the interim. Otherwise, you can continue benefits under COBRA until your new insurance kicks in. “But you are typically responsible for 100 percent of the premium, which could be hundreds or thousands of dollars a month,” says Lewis.
Before you leave your old employer, make sure you use any money stashed in a flexible spending account, or FSA. (These accounts let you set aside pre-tax money for medical expenses.) Your access to that money ends with your employment. Read: Book those doctors’ appointments or purchase prescription glasses now.
Some kinds of compensation—such as bonuses, 401(k) matches, and stock options—are doled out at specific times. Think about those key dates when it comes to your exit. Quitting early could cost you a chunk of cash.
When it comes to bonuses, “the law in most states says that if you worked an entire year, you have a right to the bonus you would have received, even if you leave before it has been given,” Lewis says. But will your previous employer make this challenging? “To avoid burning bridges, the vast majority of people stick around until they have the money in hand—generally between December and March,” he says.
For 401(k) matches, stock options, and pensions: “These funds are typically subject to a vesting period,” Lewis says, where you must work for a stretch before receiving full value. Check your employer’s summary plan description or contact the investment company holding your account—a month’s wait could earn you thousands in employer-funded matches or equity.
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Being the newbie is risky, with recent hires more vulnerable to layoffs. “The old adage, ‘Last one in, first one out,’ holds true,” Lewis says. So it’s crucial to keep your emergency savings plush. Cut back on expenses and sock away cash as soon as you begin your job hunt.
While keeping your 401(k) with your former employer takes zero effort, navigating multiple plans can be a drag. Plus, you may incur additional costs. “The mutual fund company sponsoring your employer’s plan tends to offer active workers lower administration fees,” says Britton Gregory, a certified financial planner and principal at Seaborn Financial, LLC in Austin, Texas.
So it’s usually smarter to roll your current 401(k) into your new company’s plan. Having everything in the same place is easier to manage, and likely has lower fees.
Alternately, you can transfer your retirement funds into an IRA. The perks are zero maintenance fees and unlimited investment choices. But without a financial planner, navigating an IRA requires hands-on work.
If your new position pays more, increase automatic allocations to your emergency savings, retirement fund, and debt repayment. If that additional cash never hits your checking account, you won’t get in the habit of spending it.
If you’re taking a pay cut, budgeting is more complicated. “It requires tremendous willpower to cut discretionary spending,” Gregory says, “Which puts you at risk of going into credit card debt.”
Set yourself up for success by using an online budgeting tool. Realizing that you shell out, say, $100 a week at restaurants can be an eye-opener. “The simple act of tracking and reviewing your spending can shift your behavior,” he says.