You may have gotten a new job, you are starting your own business, or you are becoming a new parent and want to stay home with your child. Here is what you need to consider and plan for when you leave your job.
This advice comes from the office of noted Philadelphia bankruptcy attorney David M. Offen, who has had to represent many people who failed to plan well before leaving their job.
Do You Have Six Months of Emergency Savings?
If the answer is not yes, you may want to wait to leave your job until you have saved up enough to pay your expenses for six months, unless you have another income source (like a new job) or you can rely on your partner’s income.
If you are starting a business, also be sure to save up the funds to cover operating expenses.
Will You Need to Apply for Credit in the Near Future?
It is difficult to get credit if you do not have a recent pay stub to show the lender. If you have no job, how can you show the lender that you are a good risk?
The answer is, you can’t. Unless you are moving to a new job or can rely upon your partner’s income, you will have difficulty getting a loan, and if you are successful, the interest rate will be higher than if you were employed.
What Will You Do About Health Insurance?
If you relied on the job you are leaving for health insurance, you must make different arrangements. With how expensive medical care has become, going without health insurance is not an option.
Typically when an employee leaves, Human Resources will offer the employee the opportunity to extend health insurance coverage for up to 18 months, to comply with federal COBRA law. However, you will have to pay the premiums.
If you are starting a new job, be sure to ask when the employer-provided health insurance takes effect. There will likely be a gap in coverage. You might feel comfortable with that initially, but think about it – if you fall ill or have an accident and are injured during that gap, you may have significant uninsured medical expenses that will come out-of-pocket. Not having health insurance can be financially devastating.
If you can get health insurance through your partner’s employment, consider paying for that. It will likely be much less expensive than sourcing individual insurance.
If you are leaving this job to start a business, paying for COBRA insurance or for coverage under your partner’s plan is your best bet. Be sure to shop around for replacement insurance in the months prior to COBRA terminating.
What Will You Do With Your 401(K)?
If you are starting a new job soon, be sure to ask whether there is a 401(k) or 403(b) available. You will likely be able to roll over what you’ve saved thus far and avoid any penalties or tax consequences.
If you are starting a business or staying home with the baby, you have options. Leaving the 401(k) where it is is not one of them, because you are no longer able to make contributions to it.
Consider opening another IRA and rolling your 401(k) into that because you will be able to make contributions and alter the risk level of the investments. Keep in mind that if you open a Roth IRA, there will be tax consequences when you roll your 401(k) into it.
Talk with Someone Who Did What You Intend to Do
If you are moving on to another job, this won’t be strictly necessary as you just have to plan for the transition to ensure expenses, health insurance, and your 401(k) are dealt with.
If you are leaving the workforce to care for your new baby, or you are starting a business, that is very different. You are making a significant lifestyle change. Identify someone who has successfully done what you are planning to do and talk with them about your plans. Be sure to ask what they would have done differently had they known better. Experience makes the best teacher, however, it doesn’t necessarily have to be your experience.
About the Author
Veronica Baxter is a legal assistant and blogger living and working in the great city of Philadelphia. She frequently works with David Offen, Esq., a busy bankruptcy lawyer in Philadelphia, PA.