Quit Like You Mean It
Thinking about putting in your notice? Here are the financial moves you should consider in the months leading up to your departure.
The pandemic was the ultimate wrench in the labor market, forcing service workers to endure agonizing staff shortages and making white-collar employees create ersatz offices in their apartments and houses.
But not all of that disruption was negative. Indeed, the break from normalcy gave workers an opportunity to reevaluate their current employment situation. Many have found something sorely lacking — whether it’s recognition from their employer, a competitive salary, or the opportunity for career advancement — leading to what some economists dub the “Great Resignation.”
While quitting your job can often be a great move in the long run — especially if you use it as an opportunity to reboot your career elsewhere — it’s not without financial risks in the short term. Certainly, a lot of the landmines can be avoided if you have your next gig already lined up when you give your two weeks’ notice. But what if you feel that you need out now, even without a new job offer to soften the landing? That requires certain precautions.
Here’s what experts say you should be thinking about in the months leading up to your departure.
1. Understand the Implications
Heading for the exit sign at your current workplace can often be a smart career move, but it’s usually not a great idea to make it based on emotion alone. Typically, it’s a decision you want to think about for a while, especially if you’re planning to leave regardless of whether you have that next job waiting for you.
The last thing you want is to be blindsided by financial consequences to which you never gave much thought. For example, workers who resign need to realize that they can’t expect unemployment benefits, which are typically only available to individuals who are terminated without cause, says Michael Parry, a Stamford, Connecticut-based planner with Liberty Wealth Advisors.
And in most cases, you can’t expect to simply tap your retirement accounts for extra cash without facing some stiff consequences. Typically, if you’re below the age of 59 and a half, you’ll encounter income taxes on the amount you withdraw plus a costly 10% penalty, says Parry. With Roth accounts, you can pull out contributions (not earnings) tax-free, but you’re setting yourself back long-term by siphoning that cash.
You’ll also want to think through the implications for any outstanding 401(k) loans you may have. Often, employers will accelerate the repayment period to as little as 60 days when you separate from the company. Any portion you don’t pay back will likely get treated as an early disbursement, which means taxes and that nasty 10% penalty.
For married workers, Parry recommends talking through all the consequences — good and bad — with your spouse to make sure you’re both fully committed. “Going through a job change is always mentally challenging,” he says. “Having the support of a significant other is absolutely critical.”
2. Don’t Leave Money Behind
Should you choose to move forward with resignation, you’ll want to make certain that you’re not leaving money on the table. Now’s the time to lift up the proverbial couch cushions and look for sources of cash that may be available at your current workplace.
For example, the weeks or months before your exit would be a good opportunity to use any funds you’ve set aside through a flex spending account, advises Barry Korb, president of Lighthouse Financial Planning in Potomac, Maryland.
Here’s the surprising part: you’re actually eligible to use 100% of the FSA amount you committed to for the calendar year, even though it’s probably less than the amount deducted from your paycheck so far. So if you have any outstanding doctor or lab bills, or could use more contact lenses, now’s the time to use those funds.
And by all means, have any planned medical care performed now. “This can be significant if, say, you can schedule a surgery before you leave,” says Korb. “You can use funds you have not yet contributed and know you have the medical coverage.”
Another possible source of some extra money is paid time off. Often, companies will pay you for any unused hours you racked up when you leave (though not always at your full hourly rate). If that’s the case, Korb recommends postponing any longer vacations so you have more sick and vacation time that you can cash in.
In addition, Korb suggests that unsatisfied employees may want to reduce the tax withholding from their paychecks. Having less tax pulled out will allow you to build up your emergency fund. “If you limit properly how much you under-withhold, you may not even have to make it up later as your taxable income for the year will be lower,” he says.
3. Manage Your Cash Flow
Your household income is going to take a huge hit if you leave your job without a new one ready to go, and you don’t want to be racking up credit card debt to make up for it, says Parry.
He suggests building an emergency fund that can cover three to six months’ worth of expenses before jumping ship, as difficult as that may seem during a period of high inflation. For a lot of folks, that means dramatically cutting your discretionary spending well before you give your notice.
If there’s any low-hanging fruit, that’s obviously a good place to start — online subscriptions, seldom-used gym memberships, and lottery tickets, for example.
Parry also recommends using budgeting tools, whether it’s a simple Excel spreadsheet or a fancy money management app, to get a better sense of where your cash is going every month. “Being able to control your spending is extremely important as you’re transitioning to a new job,” says Parry.
Of course, there’s only so much financial fat you can trim from your family’s finances — you still need a roof over your head and food in the fridge, after all. If you need some extra cash after quitting your job, consider taking on some temp work during the transition, notes Korb.
“Helping out in sales or covering a hotel desk on weekends can still leave you time to job-search while helping to make up for the income shortfall,” he says.
4. Protect Against Catastrophe
Safeguarding yourself and your family from a worst-case scenario is always critical, although getting the protection you need gets a little tougher when you’re out of work. Before you leave your current job, Korb suggests seeing what insurance benefits you can bring with you.
For example, you can continue your group health coverage through COBRA for a set period of time, although you’ll be paying your employer’s share of the premium once you quit. You may find a better deal shopping around on the health care exchange since the loss of a job allows you to sign up outside of the open enrollment window. Depending on your income, your family may even qualify for a subsidy that helps keep premiums in check.
Short-term health coverage is another option. Often, these plans are the cheapest way for families to get temporary coverage. But there’s a big catch: they typically don’t cover pre-existing conditions, and they don’t provide the same “minimum essential coverage” as plans sold on the exchange. Is it better than nothing if you’re absolutely strapped? Sure. But it’s important to understand the risks before signing up.
Unfortunately, health insurance isn’t the only protection you need to plan for as you give your employer the send-off. Korb cautions that you also want to sign up for disability coverage before you leave, since you typically can’t buy a policy if you’re not working full time. Some employers allow you to convert your coverage to an individual policy when you quit, but that’s something you need to research ahead of time.
Korb also stresses the need to have adequate life insurance, especially since your employer likely provides at least part of your current coverage. “You don’t want your spouse and kids kicked out of the house should you pass prematurely,” he says.
Here again, some organizations allow you to convert your group coverage to an individual policy. Even so, you should do some comparison shopping to make sure you’re getting the best deal. You also want to be sure you’re getting the right level of protection — employer plans may only provide a death benefit of $50,000 or $100,000, which isn’t going to swing it for most parents with young kids.
5. Make It Easier to Land Your Next Gig
In the whole scheme of things, perhaps the best thing you can do for your family financially is to make your unemployment as brief as possible. “This doesn’t mean you have to have your next job or gig in hand, but it does mean that you have to plan for productively moving forward,” says Korb.
For anyone thinking about an exit, networking with folks who may be able to provide valuable advice or job leads is critical. Let people know you’re looking for a new role, and keep your relationships warm with the occasional phone call or meetup over coffee.
Korb also suggests looking into the requirements for your next role before you make your move. “If you need a license or a course for your next endeavor, start the process early so it doesn’t delay the start of a new job,” he says.
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