Considering a Career Change?

In a recent review meeting, clients told us they were considering changing careers to be able to spend more time with each other and their kids and to reduce their considerable professional stress. They were approaching this in a thoughtful manner so want to consider the financial implications of such a move – both short-term and long-term. This is exciting to contemplate and their existing financial plan is the perfect place to start the discussion.

First, who hasn’t dreamed of pursuing an entirely different career path at some point in their lives? In fact, I have personal experience of doing exactly what our clients – we’ll call them Lucy and Desi – are contemplating. After about 20 years of government relations work, I decided I wanted another challenge. It took time to determine what that was and some additional time preparing myself professionally – I completed the coursework and passed the exam to become a Certified Financial Planner™ before leaving my job at the University of Kentucky. But already having a financial plan geared toward financial independence, rather than simply retirement, helped provide some assurance we could manage a major transition and sustain our desired lifestyle in our future. Financial independence, in my book, means the freedom of choosing to work rather than having to work. Translation: saving early in one’s career provides choices later on.

So, Lucy and Desi have a financial plan that projects financial independence for them by age 60, about 20 years from now. They have saved with intent and their investments have performed well so they are actually ahead of schedule. Now, the next step in their process is for us to run some additional scenarios of their plan to see how lower incomes – and presumably lower savings rates – will affect their long-term goals. And, of course, to see if they can still maintain the lifestyle they currently enjoy.

Here are some other considerations:

• Will they still have adequate health insurance that is affordable? Working for one’s self provides freedom but purchasing health insurance in the marketplace is a complicated maze and can be expensive;
• Will they still have adequate life insurance as many employers offer free life insurance as a benefit;
• Will they be fully vested in their workplace retirement plans so their employers’ contributions to the retirement plans can be taken with them when they leave? If not, that’s compensation they’re potentially leaving behind;
• Do they have an emergency fund for approximately 3-6 months of expenses?
• Will they be able to continue contributing to their kids’ education savings accounts for college?
• Are there expenses that can be jettisoned in the short-term, at least, in order to meet more urgent obligations like their mortgage and ongoing expenses?
• Lucy and Desi don’t carry much debt but, for many, making sure they can manage their mortgage, car payments, and student loans is a critical piece of the evaluation puzzle.

Take it from me, changing careers can be exhilarating and re-energizing! Being thoughtful and deliberate about your finances, however, can prevent unwanted surprises. A financial plan that contemplates several different scenarios can be a valuable guide to the process and help provide peace of mind over the financial portion of the decision.

Steve Byars, CFP®