One of the many pandemic’s lasting effects on the U.S. economy is the so-called Great Resignation. Employees are voluntarily leaving their jobs in droves. In fact, according to data from the Bureau of Labor and Statistics, a whopping 20.2 million workers left their jobs from May through September 2021. Reasons range from the availability of federal economic aid to general burnout, which reached a turning point during the pandemic.
Are you considering becoming a part of the Great Resignation? Make sure your finances are in order before you give official notice at your job to cover employment gaps. Below, we’ve outlined some important steps to take before you leave your job.
Review your savings
Before giving up your paycheck, ensure you have enough savings to last you until you find new employment. Ideally, keep an emergency fund with three to six months of living expenses to help you survive periods of unemployment. If you don’t have this, then delay your resignation until you save enough so you can manage without a paycheck.
Check your benefits
If your job includes employee benefits, like retirement funding, be sure to review them carefully before giving notice. Here are different options to consider for the most common employee benefits:
Work-sponsored health coverage generally ends on an employee’s last day at work. Sometimes though, coverage will continue until the end of the month. Similarly, some companies start covering new employees on their first day of work, while others have a waiting period that can last from 30 to 90 days. If you’ll have a gap in coverage, try to negotiate for early coverage when securing your new job. If this is not possible, thanks to COBRA, you can continue your current health coverage at your own expense for 18 months after you leave your job. It’s important to note, though, that this can be a pricey option. You can also purchase a short-term policy through the marketplace.
If your previous job included a pension, you may be able to keep it or take the funds when you leave. This depends on whether or not your contributions are vested and the other pension plan rules. In general, if you were at this job for a short while, you likely will not be able to keep your pension. If you have a choice, it can be better not to take a lump sum because you will likely get a better return with a pension than on other investments. If you do take out your pension, you may want to roll it over into an IRA or a 401(k), which is tax-deferred.
If your old job came with a 401(k), you’ll need to decide what to do with the funds. You can keep the account as it is without making any additional contributions, roll over the funds to a new 401(k) program, roll the money over into an IRA, or cash it out. Consider the investment options in your current 401(k) when making your decision.
Don’t forget to consider a possible gap in your life insurance coverage when leaving a job. You may be able to continue paying for coverage until you have a plan through your new job.
Assess your risk tolerance
Before accepting a new job, make sure you can handle a possible blow to your income. Many jobs offer new employees the possibility of better pay in the future, while initially only offering a starting salary. How comfortable are you taking a risk with a new job that doesn’t guarantee as much financial security?
Adjust your budget for your new salary
If your new job comes with better pay, or you’ll be bringing home a smaller paycheck, for now, you’ll need to adjust your budget accordingly. You may want to increase the contributions you make toward your investments or find a new place to park your cash, such as a United Texas Credit Union Savings Account, for the extra income while you decide on a more permanent strategy. On the flip side, if you’ll be earning less money now, trim your budget so your paycheck can stretch to cover all of your expenses.
Leaving an old job and looking for a new one can be an exciting opportunity, but it’s important to make sure your finances are in order before taking that leap. Follow the tips outlined here before giving notice at your place of employment to ensure ongoing financial security.
Your Turn: Have you recently changed jobs? Share your best tips and strategies in the comments.
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