Whether you’re looking for a new job by choice or caught in layoffs due to corporate restructuring, a job transition surfaces a number of personal finance questions and challenges. Here are 9 key financial considerations, and why a period of transition is an ideal time to address them:
Exercising stock options – Employer stock options often expire within 90 days of departure, so it’s important to make sure that you aren’t leaving any money behind. It’s also important to consider how much cash this requires, and what tax treatment it will receive.
Updating your financial plan - Doing this early on is important to avoid financial stress, and so that you have a clear estimate of living expenses. If you expect to be evaluating several job offers, it’s important to balance finding something quickly vs. how long you’re willing to wait for an ideal opportunity. With a solid understanding of your current financial situation, you can avoid feeling compelled to accept an offer that isn’t ideal later on.
Avoiding portfolio concentration – The tech industry makes up a large component of the stock market, and concentration in the sector tends to be especially high among those who receive stock-based compensation and those with growth-oriented portfolios (likely people who aren’t nearing retirement). It’s always important to avoid having too much of your investments in one industry, and even more so if you expect to draw on your portfolios for living expenses for a few months.
Managing investment risk – Finding the right balance of risk/return in your portfolio is always important, though career transition often raises an unexpected issue. Namely, even though you aren’t nearing retirement, it can make sense to consider reducing risk in your portfolios in the (hopefully unlikely) event you need to take any withdrawals. Even if markets are currently high, you don’t want to be forced to take money out if that starts to change. Also, you want to avoid penalties from taking money out of retirement accounts, so it’s worth considering which investments from non-retirement accounts can be sold with the lowest potential tax liability if needed.
Monitoring your emergency fund – If you have an emergency fund in place, then you’re already one step ahead because it was engineered to protect you in a situation just like this. You’ll want to make sure that it’s readily accessible, know how long it will last, and that it’s still earning some interest.
Monetizing employer stock – if you have vested restricted stock, it may be worth asking an advisor is if it makes sense to sell some of it. If your employer recently went through a restructuring, it’s likely a sign that they aren’t doing well and it may be a bad time to sell. On the other hand, aside from a small group of people that systematically sell off their employer stock, most people sit on it until it becomes an unwieldy amount of their total investments.
Rolling over 401(k)s – Many people end up leaving money in their former employer accounts when they change jobs, and when they do, they rarely closely watch what is going on in them. Rolling several accounts into one makes it easier to see your hard-earned savings get the attention they need. Not to mention that the investment options in employer plans tend to be very limited (~ 20 or so to choose from), whereas a trained financial advisor will have access to thousands, often including lower cost funds you may not have access to.
Negotiating your next job offer - Stock-based compensation is common among tech employers but is seldom explained well during the offer process. That leaves job seekers wondering: “how do I really understand the value of what I’m being offered?”. Moreover, you’ll also want to understand when your stock will have value. If you’re considering working at a public company, restricted stock has value to you as soon as it vests. Whereas at a startup, you’ll likely receive a greater quantity of stock (in the form of options), which you have to purchase and may require an exit (M&A, or IPO) for you to get your money out. An advisor can help you assess the value of equity included in a job offer in order to make sure you know what you’re signing up for.
Even though finding your next role is likely to be your top priority, don’t underestimate the impact that having a strong financial plan can have in supporting your career goals. In most cases, advisory fees can be charged directly to investment accounts, so it doesn’t have to be an out of pocket expense either.
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This blog was written by Jeremy Bohne, Principal & Founder of Paceline Wealth Management. Paceline is a fee-only investment advisor serving clients in the Boston area, and on a remote basis throughout the country. Paceline specializes in helping tech and biotech executives, physicians, and those seeking financial planning services.