finances
The COVID Career Two Step
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by John D. Eadie
CPA, CFA, CFP®, PFS, CLU®, CIMA, CKA® Founder and Managing Director – Covenant, a Registered Investment Advisor
Should I change careers during a pandemic and a very unsettled economic period? You must be crazy! That would be the most expected response you would hear. However, a change might just be what is needed to impact and accelerate your personal and financial life. Doing so, though, should be done with great thought and planning. First of all, you should be running to something, not away from something. Take some time for self-reflection to really understand your skills, your passions, and the needs in the marketplace. The intersection of those three things is where you want to step into your next career. That intersection may be harder to find than you initially think, so be willing to do your homework before making the change. Whether the current environment is requiring you to make a change, or you are simply using the uncertainty to explore new opportunities; there are several financial matters you must consider as you embark upon this journey. Before you decide to leave your current employment, you must deeply understand what you are giving up across all your compensation and benefit plans. It’s easy to understand how much salary you are leaving behind, but fully grasping the value of health plans, retirement plan matches, and other company perquisites will likely take a little more work. The fact that your current employer pays 100% of your health care benefits, and a potential new employer pays only 50%, but they cover your entire family plan could impact your monthly cash flow dramatically either positively or negatively. Start with the basics. If you change employment, will your new cash compensation allow you to continue meeting all your monthly cash flow needs? If not, what are you going to do differently to
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meet those needs and adding credit card debt is not a viable choice? Also, be sure you consider all new compensation as that may include salary, bonus payments and potentially equity compensation that can be converted to cash over time. You also want to be sure you can continue saving for retirement and other larger goals through your new employer’s plans. If your new employer does not have a 401(K) plan, for instance, you will need to devise a strategy for continuing to save. Even if they do have a plan, do they provide a match to your contributions to the plan? If your prior employer had a nice match and the new plan does not, you would need to reassess your ability to retire on your original timeline. Health Savings Accounts (HSA) provide many employees a great way to save for postretirement health care needs. HSAs allow you to annually contribute to a savings account on a pre-tax basis which can grow tax free if you ultimately use the account to pay for healthcare costs. The tax-free contributions and growth allow these accounts to become valuable benefits for many employees. Most likely one of the more difficult changes to assess are the non-cash perquisites you may give up or gain by changing careers or jobs. Personal time off like vacations, sick leave, bereavement, or jury duty time away all come into play when making a decision to change. These benefits do not have hard
dollar cash amounts associated with them, but they do impact the lifestyle you may have after a change. Once you really have a solid understanding of what you are leaving, now you are ready to negotiate with your new employer. This is especially key if they are pursuing you, and you have the leverage. Be ready to ask for compensation adjustments or bonus compensation if you are having to leave value on the table at your old firm. Deferred compensation or unvested equity compensation are prime examples of things that are often left behind at your old employer. While it is harder to negotiate the benefits side of your new, total package, you do need to make sure your financial position does not deteriorate with the change. For example, your old employer may provide life insurance at no cost or very competitive rates. This may not be true at your new employer, or at a minimum, you may need to qualify for the new coverage. That can be a real negative if your health situation has changed in the last few years. The list can go on and on, so take the time to really do your due diligence as you contemplate a change. It is clearly more than a simple two step. If you are unsure about how to go about addressing all the possibilities, reach out to a qualified financial advisor with experience in working with employees in transition. The dollars they could save you will likely more than compensate for the fees they may charge. BBM
John is the founder and a managing director of Covenant. In his several leadership roles with Covenant, John serves as the firm’s CEO, chief wealth advisor, and leads all client service efforts. John has lengthy experience assisting families with their investment, income tax, wealth transfer planning, family governance and philanthropic strategies. Throughout his career, John worked with Fortune 500 executives to assess and implement complex compensation strategies—including deferred compensation, restricted stock, stock option, and other employee benefit planning. John was named a Barron’s 2012 and 2013 Top 100 Independent Financial Advisor. He has also been recognized since 2012 as a Five Star Wealth Manager. Earlier in his career, John was named by Worth magazine as one of the Top 100 Wealth Advisors in the country.
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The contents of this article are provided for informational purposes only. It is not an exhaustive list and is not intended to provide any legal or tax advice. Please consult your respective legal, tax and financial advisor before taking any action.
B oerne B usiness M onthly | November 2020
