Putting Your Career on Hold? Don’t Overlook 3 Key Financial Considerations
My decision to interrupt my career and to return to it was voluntary; but I know many others, especially those in the sandwich generation, who’ve had little choice but to put careers on hold to care for children, aging parents or both. Often, they are women in the prime of their careers: The average age of a caregiver is 49, and the majority of them (66 percent) are women.
Whether by necessity or by design, if you’re considering taking time away from work, you owe it to yourself to be fully aware of what it may mean for your long-term financial security. Consider these three things as you evaluate the impact on your finances:
1. Your retirement plan will probably be affected. When you leave your company, you’ll no longer be contributing to your qualified retirement plan, such as a 401(k). You’ll also be giving up any matching contribution that may have been offered by your employer. This kind of interruption—even for a short time—can have a significant impact on your ability to reach your long-term financial goals. So you’ll want to do everything you can to keep your saving-for-retirement momentum going. Open an individual retirement account (IRA) and contribute as much as your new budget will allow; saving something is always better than saving nothing. If you leave your job for good, you’ll also need to decide what to do with the money you’ve accumulated in your 401(k): Leave it where it is or roll it over into another retirement savings vehicle.
2. You’ll want to replace employer-subsidized insurance. If the position you’re leaving included health insurance, you’ll want to replace that coverage. If you’re married, your spouse’s health care plan may be an option. You may also be able to obtain coverage through COBRA (Consolidated Omnibus Budget Reconciliation Act), which allows former employees and their dependents the option to continue their group health insurance coverage under the company’s group rate for a period of either 18 or 36 months, depending on the circumstance. Or you can buy health insurance from the government-sponsored Health Insurance Marketplace. The cost of insurance will vary depending on your health and your location, but it could be significant. Investigate your options in advance, and plan for the expense in your new budget.
When you leave your position, you’ll likely be losing any group disability income insurance that may have been offered by your company. So consider getting individual disability income insurance while you are still working. This way your coverage will remain in place, even while you are not working, as long as you pay your premiums, and you may be eligible for some income benefits in the event you become ill or injured. And if you do return to work, your individual policy will supplement any new group disability income coverage that may be provided. And just as important, be sure you have adequate life insurance in place at all times.
3. Revisit your investment strategy. If your time away from work will be a deliberate choice and is planned in advance, you may want to double up your efforts to save for the future now. I have a few friends who left high-paying jobs to become teachers. They saved more in advance knowing they would eventually have to scale back on their retirement plan contributions. But even if the need to interrupt your career is not something you expected or planned for, revisit your investment strategy. It’s still important to keep saving as much as you can, but you may choose to take a different approach with your investment portfolio (more risky or more conservative) based on your situation and tolerance for risk.
Taking time away from your career can be an enriching and satisfying experience, especially if it means spending more time with your loved ones. And while I’m a big believer in letting your values drive your decisions, I also feel strongly about doing so with your eyes wide open. So before you take a leave from the workplace, take the time to fully understand the impact it will have on your plan for financial security—today and in the future.