4 financial considerations when changing jobs

A change in employment can do more than just boost your career. It also presents an ideal opportunity to look comprehensively at your financial picture. Here are four financial factors to consider before changing jobs.

1. Total compensation package

While salary is one of the most important financial considerations when changing jobs, it’s typically only part of a total compensation package. What other benefits are offered by your new employer? Do you have the potential to earn a bonus or sales commission? While enticing, neither is guaranteed, so consider if the base pay is sufficient to cover your financial needs. 

Also, review the monetary value of any other perks included in the offer. A gym membership, for example, can have real value if you actively use it. The same is true for tuition reimbursement, on-site childcare and similar offerings.  

If you’re offered a job at the executive level, your compensation package may include elements such as:

• Short-term incentive compensation: Pay plan that rewards the accomplishment of a specific, measurable objective attained within a given time frame
• Long-term incentive compensation: Typically structured as vesting-dependent stock options or partnership/ownership opportunities

Because these income streams are dependent on your performance, it may be beneficial to wait until you receive the payout before you decide how to best invest or spend the additional income. 

2. Insurance

What are the insurance options you’ll receive with the new employer? Start by reviewing the health care coverage, including the employer contribution and the monthly premiums for individual and/or family plans. Learn what health care plans are offered and the annual deductible and visit co-pay for each option. Short- and long-term disability offerings and voluntary life insurance policies are also important components of the insurance equation.

If the new company covers more health care expenses than your previous employer, this increase has monetary value. On the other hand, if your new potential employer’s insurance benefits are more expensive or don’t offer as much coverage as you currently have, consider negotiating an increase in compensation to help cover these extra expenses. 

3. Workplace retirement plans

The retirement plan options offered by the new employer can have a notable impact on your overall earnings and your long-term financial security. Whether the company offers a 401(k), Simplified Employee Pension (SEP), or other retirement savings plan, a financial advisor can meet to compare the available investment options.

Together, a financial advisor can discuss funds that fit your overall investment strategy and help you maintain a diversified, balanced portfolio. Also, consider whether the new employer offers a match or other contribution to the plan. This extra contribution can help you increase the amount you save for retirement.

Changing jobs also raises questions about how to handle your workplace account with a previous employer. There are four main options available:

1. Keep your savings with your previous employer’s plan
2. Transfer the money into your new employer’s retirement plan
3. Roll over your previous workplace account(s) into an individual retirement account (IRA)
4. Cash out your previous workplace account(s)

A financial advisor can review the pros and cons of each option together to help you select an appropriate retirement plan option for you.

Retirement plans for highly compensated employees

Participating in a workplace retirement plan can get more complex if you’re a highly compensated employee (HCE), which the IRS defines as someone who meets either of these factors:

1. Ownership of more than 5 percent of the business.
2. Income of at least $155,000 (2024 limits). If the plan document allows, this may also be limited to employees who are in the top 20% of highly compensated employees.

If you fall in the HCE category – especially if your income far exceeds $155,000 – the amount you can contribute may be limited so you and a financial advisor can work together to determine the tax-free and taxable retirement accounts that may be beneficial to you and your portfolio.

4. Lifestyle factors

As you take a broad look at your finances, consider any lifestyle changes a new job might require. Will you need to relocate? If your new job prioritizes in-office hours, what will your commuting costs be? Will the demands of the role require you to increase childcare coverage or hire other assistance, like lawn care, a housekeeper or a dog walker? 

Evaluate how your day-to-day life — and accompanying expenses — may change once you start your new job. Understanding the impact your new job may have on your overall lifestyle can help you make wise financial decisions in both the short- and long-term.

Make the most of your job transition

Taking a new job can have a ripple effect on your finances. Maybe you’ll bump into a higher tax bracket. Perhaps your risk tolerance will shift. You may even benefit from different investment options offered by your new employer. Changing jobs is an ideal time to pause and take a broad look at your current financial situation. 

As you evaluate what your new employer may offer, an Ameriprise financial advisor can meet with you to review the details of your compensation package, insurance options and retirement benefits. A financial advisor can help you navigate financial factors to consider before changing jobs and help ensure it aligns with your goals.