The Great Resignation: What to Consider Before Quitting
Amid Covid burnout, rising wages, and a job market where demand for talent outstrips supply in many key industries, Americans are quitting their jobs in record numbers. In December 2021 alone, 4.3 million Americans, representing nearly 3% of the workforce, voluntarily resigned their positions, according to the U.S. Department of Labor’s monthly report on job openings and labor turnover, continuing a trend that began in the spring of 2021.
Whether it’s to achieve a better balance in life, improve career prospects, a matter of being ready to retire, or just to take a breather, if you are thinking about joining the “Great Resignation,” you should know, depending on your circumstances, that the decision could have ramifications for your retirement security.
Before taking the leap, consider the following four questions to help keep your retirement plans on track.
- Do you have enough savings in case it takes longer than expected to re-enter the job market? While many Americans taking part in the Great Resignation seek other opportunities or plan to return to the workforce after a break, there’s no guarantee that today’s healthy job market—where it might take only a few weeks or months to find a new job—will still be around when you are ready to re-enter.
Typically, workers are advised to have at least three to six months of living expenses saved in case of emergencies, like unemployment. Before quitting, make sure you have enough emergency savings to cover your bills for several months if you are not planning to work. Also have a good understanding of how much net income you need to maintain your lifestyle over the longer term, so you know what kind of employment to pursue if you are making a career change.
- Will you still be able to contribute to your retirement savings? When you quit a full-time job, you might lose the ability to contribute to a tax-deferred 401(k) account, as well as to the matching contributions many employers offer their plan participants.
It’s also important to understand your options once you leave a plan. If you or your spouse will earn some taxable compensation after you quit, you’ll still be able to contribute to an IRA. (see rules for IRA contributions, including spousal IRAs, here).
However, if neither of you will be earning qualified taxable income after you quit, and your retirement plan isn’t fully funded, you may want to consider working part-time. This would allow you to continue saving up to $6,000 a year ($7,000 for those 50 or older) in an IRA. Consider consulting with your tax professional or financial advisor for the best options to keep your retirement plans on track.
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Do you know what you’ll do with your old 401(k) after you quit? Even if retirement is the last thing on your mind as you switch jobs, it’s important to remain mindful of your retirement security. Though you may be able to keep your 401(k) in your prior employer’s plan—or add it to your new employer’s plan, maintaining separate 401(k)s at past employers makes it difficult to manage all your retirement assets. The more former employers you have, the more complex it can be
The typical American holds roughly 12 or more jobs in their lifetime, according to the Bureau of Labor Statistics.
Rolling your 401(k) into an IRA when you change jobs, makes it easier to keep track of savings. With an IRA rollover, you’ll also gain the flexibility to choose your own custodian. Many custodians, ourselves included, can offer you access to a broader range of investments and asset classes—including real estate and private equity—that may not have been available to you under your employer plan.
- How long do you plan to sit out? A consequence of taking a multi-year break from working full-time, or shifting to part-time or gig work, is that it can reduce the amount of the Social Security benefits you will be entitled to later in life. Those benefits are calculated in part using your highest 35 years of earned wages. The more “zeros” or low-income years you have affects the calculation. For middle-aged workers who decide to turn to part-time work during their highest earning years, it can significantly reduce their eventual benefits, meaning they will be more reliant on their retirement savings to support their lifestyle. To better understand how you might be impacted, talk to your financial advisor.
If you are among those thinking about taking part in The Great Resignation, it does offer a unique opportunity to redirect your career path and re-establish balance in your life. And, with a bit of planning, it needn’t impair your path to retirement.
The material in this Blog is presented for informational purposes only. The information presented is not investment, legal, tax or compliance advice. Millennium Trust Company performs the duties of a directed custodian, and as such does not offer or sell investments or provide investment, legal, or tax advice.]