TRANSITIONING TO A NEW JOB PRE-RETIREMENT

It is not uncommon for us to begin new relationships with clients when they are?experiencing some sort of transition. For retirement-focused clients, this can often be a transition away from a long-held corporate role to either a smaller company or to start their own business.?In other posts we’ve explored some of our thoughts around the role of work in retirement?and often this “downshifting” in employment is a precursor. Perhaps you’ve recently experienced this or it is something you are considering.??Below are a few things think about?when you are considering a pre-retirement job change?or after you already have left a corporate job for something less demanding.

#1 Communicate, Communicate, Communicate

The age old saying "don't burn bridges" certainly applies here.?Regardless of the reason for leaving a company it is never a good idea to go out on a sour note.?The way you exit will speak volumes about your character and work ethic.?

Beyond preserving valuable contacts and relationships, it is not uncommon for someone venturing out on their own to bring on a former employer as a client. Even if it is only a temporary gig, if you exit on good terms and communicate your intentions with your company’s leadership appropriately you may be offered a consulting role to help the company bridge the gap you’ve left until they are able to find a suitable replacement.??Often a consulting role can entail the parts of your job you have enjoyed, leaving out the less desirable aspects.?Additionally, the income this arrangement provides may be helpful as you get ramped up in your new endeavors. If you’re simply leaving the corporate world for a less demanding role, make that clear as well.?You never know what the future may hold or when you might cross paths down the road.

#2 Understand Vesting Schedules

When it comes to corporate retirement compensation benefits, there are dozens of different types of benefits, matching formulas, vesting periods, etc.?Very commonly, retirement benefits like deferred compensation arrangements, pensions and employer matches to 401(k) plans, as well as equity compensation arrangements like ESOPs, SERPs, RSUs and stock options involve a graduated vesting schedule.?It is important to understand how these may impact your decision to leave your company, especially if you are a short time away from being at a new vesting level.?For example, going from a 50% vested employer match in your employer’s 401(k) to 75% after 3 years of service,?waiting just a few months could earn you thousands of additional retirement dollars.?You will also want to understand how a departure may affect future deferred compensation or pension benefit decisions.

#3 Exercise Company Stock Options

If you have cash on hand or if your company allows for a cashless exercise, you may want to consider exercising your options prior to leaving your company if it allows you to acquire shares of your company for less than the stock’s current price.?From there you can decide to keep the stock as a part of your overall portfolio or to sell it and repurpose those dollars into a broadly diversified investment portfolio.?Always to consult your tax or financial advisors to understand the tax implications of these choices.

#4 How will your Deferred Compensation work?

If you have had access to or have been rewarded a deferred compensation agreement be sure to know what you can expect.?Sometimes deferred compensation plans have a certain period of time that you have to remain with the company in order to receive the benefit. Other times there are vesting periods where you own certain percentages based on your time of service, which you will receive in the future based on a prior election you made.?You may have earned the right to the money in the plan, but might not receive it until retirement or another pre-determined time.?Based on the details of your deferred compensation agreement you should look to develop a plan with your advisor as to how to utilize this benefit in the future.?

#5 What to do with your 401k?

It is no secret that you have several options as to how to handle retirement plans from previous employers.?When you separate from service your employer is required to provide you with an overview of your options and a special tax notice outlining the tax implications. Surely you’ve seen advertisements about rolling your 401(k) into an IRA account at some point, or you may have even done so at one point or another throughout your career. If you are moving to a new company who has an established 401(k) you may have the option of simply rolling over to your new employer’s plan.??This can be an advantageous move from a tax planning perspective, and can create the opportunity to engage in several planning strategies with your future savings.

If you are starting your own business or work as an independent contractor, you may also have the ability to establish your own 401(k) or Solo(K) for your new business. Even if you’ll only be doing part time work on a contract basis, any income from self-employment is eligible.?This move presents some unique planning opportunities and may potentially allow you to save more for retirement in a more efficient manner and?affords you the opportunity to design a plan to fit your specific retirement income planning goals. Additionally it adds flexibility to engage in planning strategies with it that a typical employee of a large company cannot, such as making after-tax contributions and rolling them into a Roth IRA (Mega Back-door Roth) and even owning life insurance inside of the plan.

#6 What other benefits will you leave behind?

Most corporate employers offer other valuable benefits such as health insurance, dental & vision insurance, disability and life insurance and some offer other perks like company cars, cell phone, computers, & legal services.?You’ll want to be aware of the overall cost of replacing these valuable things,?especially if you’re not moving to a new employer who offers similar things. These costs can add up if you go the self-employment route. With regards to medical, disability and life insurance coverages, you may want to explore what’s available on your own?BEFORE making the decision?to leave a job, especially if you have any health-related concerns as obtaining these things on your own may be costly or simply not available.

While there are lots of decisions to make and things consider when transitioning from a corporate position, we hope that this list is helpful for you to think through. Feel free to email us at?[email protected]?with any questions or?schedule a 30 min check up?to discuss your ideas before you make a change.