Congratulations on your new job offer! And while the offer comes with plenty of excitement, there are many financial implications for you to consider before accepting.
When it comes to the new job, review the salary and benefits in its entirety to see if the position is the optimal choice for you financially. With the changing income, you will want to outline a new budget to match your means, this includes figuring out if you’re in a new tax bracket based on your new salary or subject to additional taxes based on the location of the job. For instance, those working in the city of Detroit will have a city tax deduction from their paycheck along with their state and federal tax; a surprise if someone is used to working in one of its suburbs.
Oftentimes, job seekers will be excited by the salary increase and not look at the full benefits package to see if it truly is a better option and better financial choice. It’s one thing to leave a position in hopes of career advancement, but if you’re looking to make more money, make sure you’re truly getting more financially, and not just getting extra cash upfront while losing out overall based on the benefits package.
The Retirement Plan
First of all, don’t forget about your retirement package at your old company. It’s quite common to leave it behind. In fact, a government study reported that only 0.5% of plans owned by former employees were moved to new employers. When you are released from your old employer’s retirement obligations, you’ll have options. Many choose to simply rollover their 401k into their new company’s plan, but consider taking your savings and rolling it over into an IRA where you have greater flexibility and more investment options.
If you have the benefit of a matching 401k plan, take advantage of this “free” money your employer is offering. For example, if your new employer matches up to 3 percent, and if you’re making just $50,000/year, as long as you’re contributing 3 percent of your own income, your employer will throw in an additional $1,500/year.
Review your health insurance package carefully and determine the best course of action going forward. Insurance companies consider a new job a life event so you have options when making the transition. If you’re married and your spouse is working, see if it makes sense for one of you to get on the other’s plan. It may even make the best sense financially to stay on your own respective employers’ health insurance. Same goes for the children – determine whose plan is best to ensure coverage.
You’ll also need to know when your health insurance is set to start. Some companies allow enrollment on day one, whereas other companies may not allow for enrollment for 90 days. When health insurance is delayed, you can take advantage of COBRA, which allows you to remain on your old employer’s plan, but usually at the full rate. Your other option may include purchasing temporary coverage from the marketplace.
It’s not uncommon for companies to provide a life insurance plan for free with an option to upgrade for a nominal deduction from your paycheck. One of the benefits of upgrading your life insurance plan is that you are getting a group rate and will not be subject to proof that you’re insurable. If you decide to purchase life insurance outside of your employer, you may be subjected to blood and urine tests, a visit from a nurse and a list of medical questions all to determine your insurability and rate. While the employer option sounds much better, most likely, if you were to leave your employer, you lose the life insurance policy.
When transitioning to your new job, evaluate your position in life and determine how much life insurance would benefit your family if you were to pass away. What you get from an employer may not be sufficient in covering your family’s needs.
Even if you don’t plan on quitting or it does not look as if you’ll be laid off or let go, it is beneficial to accumulate emergency savings and have a plan in place if you’re shown the door. There may be ways you can keep some money coming in during your transition, including severance packages and unemployment, if you qualify.
Financial advisors recommend between three to six months of savings in an emergency fund to cover expenses while you search for a new job. If there is a dual income in the household, three months is generally safe; a single income household will want to have six months on hand.
When debating between accepting a new offer, make sure to figure out the true value of the salary and benefits. From a budget perspective, a salary could be lower but with the right benefits, you’ll do much better in the long run. Speaking with a financial advisor, who can review your salary and benefits as a whole, as well as determine tax implications, can help set you on the right path to a financially rewarding future.