Transitions create opportunities – opportunities that have potential to lay a foundation for whatever life holds next. As it relates to a job transition, we’ve found that there are unique (and often overlooked) opportunities for individuals to take advantage of that deal directly with their financial longevity.
The key is to approach these opportunities – not out of a sense of panic, but with an eye on the future. Here are four opportunities you might encounter amidst a job transition:
- Direct Rollovers
If you have a company sponsored retirement plan that can be rolled into an IRA, make sure you do a direct rollover in order to avoid adverse tax consequences. Then use this opportunity to make sure you are invested in a well-diversified portfolio that aligns with your tolerance for taking risk.If you have a pension and are eligible to receive benefits, don’t decide on your distribution method (lump sum vs. monthly payments) until you run a cash-flow analysis on your distribution options.
- Tax Planning
Understand how your decrease in income creates opportunities for your retirement savings and investment accounts. In years where you expect to be in a lower-than-usual tax bracket, consider accelerating income from certain investment accounts.For example, if you have a taxable investment account with appreciated shares, you may be able to take advantage of 0% long-term capital gains rates. Another opportunity: If you have an IRA account, consider doing a Roth Conversion so your investments can grow tax free moving forward.
- Portability of Life Insurance
You may be given the option to convert your group life insurance coverage to an individual policy at your separation of service. If you still have a need for life insurance, and are older or in poor health, it might make sense to convert the policy and pick up paying the premiums.Because insurability is the biggest variable involved in this decision, gather a few quotes to see if there is a cheaper option out there.
- Don’t Panic – Make a Plan!
Where are you going? How are you going to get there? What is your plan? These questions are not meant to evoke panic, but to encourage you to think about what the future might hold. Take this opportunity to work with a Certified Financial Planner (CFP®) professional and develop a strategy that will help you achieve your goals. Through this process, you will gain a better understanding of where you are, where you want to go, and how you can get there.For example, if you encounter a job transition near the end of your working career, do you need to replace 100% of the income you lost? Or can you afford to take a lower paying job that you may enjoy more? Do you need to work for ten more years – or two? A comprehensive financial plan will help answer all these questions and more – giving you the confidence you need to take the next step.
David Kern is a Wealth Management Advisor at Wealthquest – a Cincinnati based financial planning and wealth management firm that offers a full range of financial services under one roof, for one simple fee.