Career changes have become more common as people work longer to save enough for retirement.
Switching to a new career later in life can help you stay in the workforce longer.
The odds of still working at age 65 were 9.1 percentage points higher for people who changed jobs in their 50s, according to a recent analysis from the Center for Retirement Research at Boston College. (See the table below.)
The problem for many career changers is that they can usually expect a drop in pay when starting out in a new field. And the lower pay may decrease what they can save for retirement.
“In fact, I recommend that people who are changing careers not to worry about the lack of short-term retirement savings. The most important is the long-term career path,” said Hui-chin Chen, planner. certified financier and co-owner of Pavlov Financial Planning. in Arlington, Virginia.
If you are considering a career change, here are three steps you can take:
Know your worth
Career changers often make the mistake of not adjusting their market value accordingly and not properly anchoring their new numbers in pay conversations with their potential employers, said Rachel Kim, senior executive of the advisory board. career with the online lender SoFi.
“Your professional market value is not a fixed number – it is a value that must be adjusted not only with your education, experience and expertise, but also with the context of the market in which you work and the company. in which you work for, ”Kim said.
Career websites, such as Glassdoor, LinkedIn, and PayScale, offer free online tools that can help you estimate your salary if you change jobs.
Boost your value to potential employers by showcasing your transferable skills, such as communication, teamwork and leadership, which apply to all fields and roles, said Blair Decembrele, expert in career at LinkedIn.
“With 59% of hiring managers in the US struggling to find enough candidates with soft skills – abilities like interpersonal management and critical thinking – it’s important to showcase everything you bring,” Decembrele said.
More of your money your future:
What financial advisors recommend for your bond portfolio
“Closed indexing” can hurt investors, says expert
Aspiring snowbirds come home to roost as retirees age in place
Run the numbers
Once you have an approximate salary, figure out how that salary fits into your financial plan.
“The problem here is how the career change plans to handle your new lower income,” said David Mendels, CFP and director of financial planning at Creative Financial Concepts in New York. “Are they planning to adjust their spending downwards accordingly? Or are they planning to try and maintain their previous lifestyle with a now lower income? “
It’s not just your salary and expenses that should adjust to your recall career. Understand how the income from your new contract will affect your Social Security benefits, which are based on your highest 35 years of earnings. Use these free calculators to determine how your salary will change your Social Security payments.
Remember your 401 (k)
Continue to save money in workplace pensions if your new employer has one.
“You want to know what retirement benefits are available and how they differ from what you currently have before signing on the dotted line,” said MaryJo Fitzgerald, Glassdoor community expert.
Find out if your new employer is making any matching contributions to their workplace pension plan. According to Vanguard, the average employer matching contribution in a large business 401 (k) plan is 50 cents on the dollar on the first 6 percent of salary.
One in four employees, according to investment advisory firm Financial Engines, does not receive the full company’s return by not saving enough, leaving an average of $ 1,336 on the table each year.
The consistency of your pension plan contributions matters a lot. Investors who have participated in their company’s 401 (k) plan for 15 years in a row have seen their average balance increase by 14% on an annualized basis, according to a recent analysis by Fidelity Investments.
If you don’t have a retirement plan with your new employer, you can maintain your streak of contributions by opening an IRA and putting money in regularly.