Changing Careers at 50 Without Missing a Beat
May 13, 2015 | Business and Careers
A career change can be exciting and scary. You’re entering an unfamiliar world full of unknown but also possibility. It can be even more exciting and more frightening when you make such a move in your later working years—especially if you decide to move to a career that is more personally rewarding but pays less money.
“Creating a comprehensive financial plan is key when considering changing careers in your 50s,” said Jim Fitzgerald, a wealth management advisor with Northwestern Mutual. “The plan will give you the confidence and clarity you need when evaluating your options. It’s important to have a vision for how the change will affect your financial future.”
Fitzgerald recently worked with a client who sold a successful franchise to pursue his dream of becoming a teacher. At age 50, with kids in college and a second home, he needed to make sure his job change would work with his financial goals.
Fitzgerald helped his client design a plan to account for the changes in income and retirement savings. They transitioned some of the client’s 401(k) to a Roth IRA during years when he would be making less money in his new career. The move resulted in the client paying taxes earlier in exchange for tax-free income and more flexibility in retirement. It made sense because the client would be paying taxes during years when he would have less income and would be in a lower tax bracket. They set up an annuity designed to provide guaranteed lifetime payments that started once the client retired from his new career.
“Since we have a plan in place and everything is on track for his retirement, his transition is going smoothly; and he’s very happy that he’s pursuing his dream job,” Fitzgerald said.
If you’re planning to make a career change after 50, Fitzgerald recommends the following:
1. Look at your portfolio. When changing careers later in life, you need to assess risk tolerance, which will usually decrease. If that’s the case, you should consider shifting to more moderate or conservative investments. This is especially true if you’re starting a new business or taking a role that pays less. You want to be sure to protect as much of the money you have already saved as possible.
2. Make sure you’re insured. Whenever you change jobs, it’s a good idea to review your insurance. If your family’s health care was through your old employer, make sure you have a plan to stay covered as you move into your new role. If you had disability income insurance through a previous employer, check to see if you have it through your new employer. It’s also a good time to review your life insurance to ensure you have the right coverage for your new situation.
3. Account for all retirement funds. If you had a 401(k) with your previous employer, you need to decide what to do with it. You may have the option to leave it where it is, roll it into a new employer’s 401(k) or convert it to an IRA. Depending on your situation, you may want to consider converting to a Roth IRA. Such a move could have future tax benefits.
Did you have a pension at your former employer? Even if the employer got rid of a pension while you were there, you may have a benefit that’s owed to you. If you have a lump-sum option, you will want to evaluate keeping the pension versus taking the lump sum and rolling the proceeds into another tax-qualified account like a 401(k) or IRA.
Make Your Change with Confidence
“Having an advisor look at your whole financial picture when you’re making a change like this is so important because it paints the picture of your financial future and makes sure you are considering how every aspect of your plan is impacted by the change,” Fitzgerald said. The plan provides clarity, which leads to confidence and can allow you to move forward and pursue your lifelong passions.
If you’re financially secure when you’re changing careers in your 50s, you can enjoy the opportunity to reinvent yourself without financial worry. A new job can allow you to learn new things that can bring you excitement and a new sense of purpose. It’s a second chance to try something you’ve always wanted to do.