As 2024 hits its stride, many find themselves reevaluating their professional paths. Whether sparked by recent life experiences or a desire for fresh challenges, a new job can be invigorating. For those nearing retirement, it’s crucial to approach a potential job change strategically. Of course, the salary is important, but conducting a deeper analysis is essential to ensure a smooth transition.

Beyond the Bottom Line: Decoding the Offer Letter

While salary is a significant component of any job offer, carefully reviewing the offer letter can reveal many important details. Scrutinize the information concerning signing bonuses, performance incentives, and the full range of benefits offered.

The employer’s 401(k) matching program and vesting schedule are particularly important for those nearing retirement. While your own contributions always belong to you, your employer’s contributions may be subject to a vesting schedule and must be earned over time. If you are counting on your employer’s contributions as a source of wealth, be sure you have enough runway left to satisfy the vesting schedule. Take the time to consider the expected work hours, vacation policy, and reporting structure.

Planning for Retirement: Managing Your Existing 401(k) or Pension

Transitioning to a new position often raises questions about what to do with your existing retirement savings. Fortunately, there are several options, which include taking no action and leaving your old retirement accounts in your former employer’s plan, moving your retirement plan balances into your new employer’s plan (provided this is allowed), and rolling your existing balances into a new or existing Traditional IRA or Roth IRA that is held in your name.

When enrolling in your new employer’s 401(k), contribute enough to maximize the company match. Consider contributing more if the investment options are attractive and your cash flow can accommodate this. Carefully review the plan’s investment options and select mutual funds that align with your risk tolerance and time horizon to retirement. Consider working with a financial advisor to develop an investment strategy tailored to your specific needs.

Optimizing Your Benefits Package

A robust benefits package can significantly enhance your overall compensation. Familiarize yourself with the health insurance options offered by your new employer, including supplemental life insurance, disability insurance, mental health support, and wellness programs. When selecting a health plan, consider factors such as network coverage, deductibles, and out-of-pocket expenses. Additionally, explore supplemental insurance options like disability insurance and mental health support programs. You may want to consider a health savings account (HSA), which is a tax-advantaged account for those with high-deductible health plans. Contributions are pre-tax, which can reduce your tax burden and funds grow tax-free and can be withdrawn tax-free for qualified medical expenses like prescriptions and dental care.

Understanding Tax Withholding

When starting a new job, your employer will determine how much of your salary to withhold for federal and, potentially, state and local taxes. Be sure to complete the W-4 form accurately to avoid overpaying or underpaying taxes throughout the year. If you plan to become self-employed, remember to factor in estimated tax payments to avoid a significant tax burden come filing season. Significant life changes, such as marriage or the birth of a child, may also necessitate adjustments to your W-4 withholdings.

Fringe Benefits: A Rewarding Bonus

Many employers offer fringe benefits beyond base salary and traditional benefits. These perks can take various forms, including free meals, stock options, educational assistance programs, commuter benefits, and even employee discounts. Remember that most fringe benefits are taxable and will be reflected on your W-2 form.

A Strategic Approach to Career Change

A career change can be an enriching experience, offering opportunities for professional growth and potentially improved financial security. For those nearing retirement, it’s especially important to be strategic in your approach. Look beyond the headline salary and carefully consider the entire compensation package, including benefits, retirement plan options, and tax implications.

A client or prospective financial advisory client leaving an employer typically has four options regarding an existing retirement plan (and may engage in a combination of these options): (i) leave the money in the former employer’s plan, if permitted, (ii) roll over the assets to the new employer’s plan, if one is available and rollovers are permitted, (iii) roll over to an Individual Retirement Account (“IRA”), or (iv) cash out the account value (which could, depending upon the client’s age, result in adverse tax consequences). If the financial advisor recommends that a client roll over their retirement plan assets into an account to be managed by the advisor, such a recommendation creates a conflict of interest if the advisor will earn new (or increase its current) compensation as a result of the rollover. When acting in such capacity, a registered investment advisor serves as a fiduciary under the Employee Retirement Income Security Act (“ERISA”), or the Internal Revenue Code, or both. No client is under any obligation to roll over retirement plan assets to an account managed by a financial advisor.

Author Jonathon D. Merickel Portfolio Advisor

Jonathon has been involved in the financial services industry since 2002. He earned a bachelor of science degree from Syracuse University and an MBA from Le Moyne College.

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