Life Stages Planning

CHANGING JOBS

So you're about to land the next job in your career path. Congrats! Now there is a lot to think about and confirm before you take that offer—like making sure to consider things like vacation time as part of your compensation. Or, have you considered what is best to do with your retirement account from your previous employer? And if you need to relocate for this next job, how can you best cover your relocation expenses?

  Your Old Company 401(k)  

HOW SHOULD YOU BEST TRANSITION IT?

There are 4 options investors can choose from when changing jobs, each with their own advantages and disadvantages, outlined below:

1. Leave funds with former employer’s plan

  • Advantages

    • Generally low expense ratios and fees (wide variance by plan)

    • Familiarity with the investment funds

  • Disadvantages

    • Limited investment selection

    • Generic advice - call the 800 number for service and support

    • Regular withdrawals and one-off distributions are a cumbersome process

2. Rollover funds to new employer plan

  • Advantages

    • Generally low expense ratios and fees (wide variance by plan)

    • Able to consolidate and simplify retirement accounts under 1 retirement plan

  • Disadvantages

    • Less familiar investment options

    • Limited investment selection

    • Generic advice - call the 800 number for service and support

    • Funds rolled over may be less liquid than otherwise due to the current employer’s distribution rules

3. Rollover funds to an IRA

  • Advantages

    • Greater control over your investments

    • Broader range of investment options

    • More hands-on service and individualized advice

  • Disadvantages

    • Fees are sometimes higher, more so if moving the funds away from a large corporate retirement plan

    • Some advisors are known to “sell” an investor a high commission product

4. Withdrawal Funds for Personal Use

  • Advantages

    • Fulfills emergency need for obtaining cash

    • Cash can be used to fund a business venture or invest in yourself

  • Disadvantages

    • Potential to severely delay retirement – loss of tax deferral and compound growth

    • Taxes - withdrawals are taxed as ordinary income, and if taken out before the age of 59 ½ there is a 10% IRS penalty

 

NOTE: Small Balances are Forced out of the 401(k) Plan.

  1. Less than $1,000 - Your employer will typically mail a check and automatically remove you from the plan. To avoid taxes and the 10% IRS penalty that money can be put into an IRA. This indirect rollover must be completed within 60 days.

  2. $1,000 - $5,000 – If your balance is in this range your previous employer may move your account into an IRA with a service provider of their choosing. You can move the funds to an IRA of your choosing, but this requires additional paperwork.

  Understand Your Total Compensation  

INSURANCE BENEFITS

  1. Healthcare - It is important to look over your current healthcare coverage through your employer (if provided) and compare it with the coverage being offered to you by your new employer. Things to look for:

    • What kind of coverage are they offering? The first step is to learn the differences between some of these healthcare plans

    • In-Network – In all cases it is cheaper to stay within the network of the specified plan. With that in mind, it’s important to verify the plan size and which doctors are “in-network.” If you have a primary doctor that you want to keep seeing but is no longer in the network of the new company’s plan, it will likely cost a lot more money out of pocket.

    • Take an inventory of medical needs – It’s in your best interests to have an idea of how often you family goes to the doctor, which could influence what plan to select.

      • Premiums -

        • Payment made to the insurance company through payroll to cover your health insurance needs

        • Your company has the discretion to subsidize your premiums and reduce a portion of this cost

        • A good benchmarking resource is the Kaiser Family Foundation, which provides the average amount employer’s pay towards premiums by state

      • Deductibles - 

        • When to choose a low-deductible plan: 

          • When to choose a low deductible plan

            • You or family members covered under your plan are expecting a lot of visits to the doctor in the coming year

            • Examples include having a baby, chronic illnesses, or pre-planned surgical procedures

          • When to choose a high-deductible plan

            • Relatively good health and minimal visits to the doctor

            • An added benefit is that you may qualify to contribute to an Health Savings Account (HSA)

      • Medication – Always price check expensive medications (i.e. EpiPen) that you or a loved one are currently taking to compare the potential increase or decrease in cost with changing jobs.

    • Deciding on the “Right Plan”

      • Gather information about each plan and put them side by side

      • Create a pros and cons comparison of your top choices to determine best fit

      • If you have a preferred doctor, then eliminate any plan that doesn’t include them.

      • Decide whether you would rather have a…

        • Low Deductible Plan - broader coverage, pay higher premiums, much less vulnerable to catastrophic healthcare costs

        • High Deductible Plan - less coverage, pay lower premiums, subject to higher-out-of-pocket cost, more vulnerable to catastrophic healthcare costs
           

  2. Life Insurance - Some employers will offer life insurance as part of their benefit package. Oftentimes a limited amount of coverage is offered for free. Generally, there are some advantages and disadvantages to be aware of when signing up to purchase supplemental insurance that is over and above what the company is providing at no cost.

    • Advantages

      • Cheaper – Since employer’s purchase larger plans from insurance companies, they often get lower rates than you would be able to get through an individual policy.

      • Convenient – For most people, especially younger professionals, life insurance isn’t at the top of their mind. Purchasing through your employer, or just signing up for their free group plan, will ensure that you at least have some life insurance.

      • No exam required – For most group plans, individuals are not required to do a health exam to qualify (usually for $1M or less in coverage). This can be especially useful for people that have more serious medical conditions and either wouldn’t qualify for life insurance or would have substantial premiums if they bought an individual policy.

    • Disadvantages

      • Mobility – One of the major disadvantages of having life insurance through your employer is that the plan is canceled if you leave that job. Sometimes you can convert the policy to an individual policy, but often at a higher cost.

      • Age – Life insurance gets more expensive as you age, so if you are under your employer’s policy for an extended period and then quit, your cost will be higher when you go to purchase a new plan.

      • Options – These policies are typically rather basic, if your specific needs involve a more complex policy, it would be best to purchase an individual policy.
         

  3. Disability - People often forget that their biggest asset isn’t their car or house; it’s the ability to generate income. No one thinks that they will end up needing disability insurance until it is too late. The following are some important considerations to take into account when signing up for your company’s disability insurance benefits.

  • Types of Coverage:

    • Short-term

      • Shorter waiting period

      • Pays out for several months to one full year.

      • Replaces 60% - 70% of your base salary

    • Long-term

      • Most common waiting period is 90 days before it pays out

      • Benefit ends when disability end, or a specified number of years after retirement age.

      • Replaces from 40% - 60% of base salary

    • Buying through you employer – Employer-sponsored coverage typically pays for all or part of the premiums. If they don’t contribute, they are often given cheaper rates than you could get buying an individual policy

    • Vision / Dental – Relatively inexpensive and won’t be a deal breaker when reviewing a job offer. The steps on deciding which plan to choose is similar to the evaluation process with your health insurance options.

      • Preferred provider – Ensure your preferred dentist or eye care provider is accepted by your new insurance plan. 

      • Evaluate your needs – Verify what types of coverage (if any) are provided beyond normal routine check-ups.
         

4. Vacation Time – Many people don’t quantify vacation time as part of their compensation, however this should be evaluated just like any other part of your benefits package.

  • How to Calculate:

    • Take your annual salary (ex. $50,000) and divide it by 52 weeks to calculate the weekly rate ($50,000 / 52 = $961.54)

    • Divide your weekly rate by the number of hours per week your job considers full time – typically 40 hours – to arrive at your hourly rate ($961.54 / 40 = $24.04) 

    • Multiply your hourly rate by what would be considered a full day of work - typically 8 hours – to arrive at your daily rate (8 x $24.04 = $192.31)

    • Multiply your daily rate by your total vacation days each year (ex. 2 weeks) to arrive at the total value of your paid time off ($192.31 x 10 = $1,923.08)
       

5. Sign-On Bonuses – Some companies offer a signing bonus to entice top talent to their firm. The range of which these bonuses are offered can be quite wide. For example a new college grad might get $2,000 - $5,000 or a small percentage of their annual salary, while an executive may be offered 100% - 300% of their annual salary. When evaluating whether to ask for a sign on bonus or to evaluate if the bonus makes sense to you, these are some key points to consider:

  • Ask – More and more companies are allotting money for signing bonuses in an attempt to land top talent, but if you never bring it up they won’t either.

  • Do research – Some industries lend themselves to signing bonuses more than others. If other competitors are offering signing bonuses to new candidates, it is more likely that you will be able to negotiate a better package.

  • Timing of raises – Although it may seem presumptuous, asking how often employees are reviewed for increases in salary can give you some leverage in asking for a signing bonus. For example, if because of the timing of your hiring, you won’t be eligible for a raise for over 12 months, you may be able to ask for a signing bonus to compensate for bad timing.

  • Understand the terms – Like any contract, you want to know exactly what the stipulations are when deciding if accepting a signing bonus is good for you. The larger the bonus the more complex the terms may be.

    • No employer wants to pay a new employee a large signing bonus, only to see him or her leave for a job a year later. To protect themselves from such instances, a company will usually include a claw-back provision within the contract.

      • For example, if you leave within a year, you will have to pay all or a portion of the bonus back to the company.

    • Some employers may take the bonus and split the payments up and pay in installments over 3 – 6 months.

      • Potentially beneficial towards reducing income taxes if the bonus occurs towards the end of the year. 

  • Taxes – Remember that these bonuses are taxed as ordinary income, but often don’t include the withholding upon receipt of the funds. Meaning if you are offered a $10,000 signing bonus and have a marginal tax rate of 24%, then you will be paying $2,400 in taxes out of pocket from the original $10,000.  And don’t forget about state taxes. This is especially important to be aware of if moving from a state like Florida (no state income taxes) to a state like New York (high state income taxes).

6. Student Loans – With more and more recent graduates feeling the pressure of mounting student loan debt, some companies are offering student loan assistance as part of their benefits package.

  • Student Loan Repayment Assistance Programs

    • Annual Limit – Caps the amount you are eligible to receive each year – ranging anywhere from $500 to $10,000/year.

    • Lifetime Limit – Caps the cumulative total assistance received. This can range anywhere from $3,000 on the low end all the way up to $60,000 on the higher end. Some employers offer assistance with no cap and will pay the annual limit until your debt is paid.

    • Taxable – Any repayment assistance provided is taxable to the employee as ordinary income and must be reported on your W2s.

    • Length of employment – Employers may require someone to have worked with the company for a certain period before they begin receiving assistance.

    • Retirement Incentive – Rather than provide taxable repayment assistance, some companies are matching a percentage of an employee’s student loan payments into their 401(k) plan.

  Relocation: What To Look For  

If you are offered a position in another city or state, it’s not uncommon to receive an incentive package for relocation related expenses. Here is what you should know:
 

  1. Most Common Benefits:

    • Moving expenses – You may be reimbursed for expenses stemming from your physical move. These can include:

      • Packing & moving

      • Storage

      • Short-term lodging

    • Property Transactions – Employers could assist with expenses involving:

      • Commissions – They may pay commissions received by the real estate agent that sells your property before moving.

      • Purchase Expenses – They may choose to help with the purchase of your new property, including expenses such as closing cost.

    • Utilities – They may pay for the cost of turning on / off your utilities.

    • Vehicle moving – They may pay for one or more of your vehicles to be moved to the city where your new job is located. This can be especially useful if you are moving cross-country.

    • Other fees – They may be willing to help with the cost of fees incurred because of the move. This can be for early cancellation of certain services or other things like spousal support.
       

  2. College Grads: 

    • Lump Sum Amount – Benefits usually start at $3,000 and can go up based on position and city.
       

  3. Executives:

    • Lump Sum Amount– $10,000 - $100,000

      • Overall Average = $21,033

      • C-Suite Average = $65,333
         

  4. Cost of Living - When applying for a job in a different city or state, it is important to focus on the cost of living in that area. For example, the cost of living in Manhattan, NY is 2.6 times more expensive than in Jacksonville, FL.
     

  5. Calculators - There are several calculators available online that can help you estimate how attractive the offer may be.

    • This one from Nerd Wallet will equate your earnings based on certain inflated costs in one city versus another.

    • Our calculator will allow you to compare total compensation packages in multiple cities

 
 

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