How to Prepare for a Career Change Before Retirement

Our topic on this episode of the Ready for Retirement podcast is about understanding how to prepare for a career change (or lifestyle change) before retirement.

Questions answered: What should I take into consideration before I change my career (prior to retirement)? What are the best strategies when it comes to preparing for a career change (or lifestyle)? What is the best approach for my individual situation? 

Are you ready to start focusing on the things that truly matter when it comes to your financial future?

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Key Points

• Preparing For A Career Change
  • Are you in a career that pays a sufficient amount of income, but you feel stressed or burned out? Are you counting down the days before retirement?
  • Today’s episode is about understanding the financial aspect of changing careers before retirement.
• Retirement Income
  • The primary factors that influence your retirement income is the amount you save & how long you work.
    • I often tell clients longevity of work is much more important than how much you are compensated at work.
  • Example:
    • Let’s assume you’re 60 years old and have $1,000,000 in your portfolio, but you can only work 3 more years before you burn out.
      • Option 1: Let’s assume you can save $50,000/year for retirement.
        • Assuming your investments grow at 7%/year, you would retire at age 63 and your portfolio of $1,000,000 would be worth ~$1,385,000.
      • Option 2: Let’s assume you retire at age 66 (6 years of work as opposed to 3), but you don’t save any additional amount to retirement (as opposed to $50,000/year for 3 years in the previous option), you would retire at age 66 and assuming growth of 7%, your portfolio of $1,000,000 would be worth ~$1,500,000.
    • Which option would you rather choose?
      • Note: In option 2, assuming you delay Social Security, you allow your portfolio to continue to grow as you’re not taking distributions.
    • How is it that you can have a larger portfolio balance by not saving any additional amount?
      • The reason is because the growth on your money is much more powerful than additional contributions. 
    • You may end up with a larger portfolio balance with a job you really enjoy without saving any additional amounts.
• Pension
  • Let’s assume you’re making $100,000 of income that will end up with a pension with $60,000/year (40% reduction).
    • If you retire and start collecting that pension with a new job that pays $60,000/year, you will have increased your income by 20%.
      • You’re receiving $60,000 from your pension and $60,000 from your new career.
    • Oftentimes continuing to work may lose you money.
      • Instead, if you were to collect your pension and find a new position that pays an equivalent amount, you may increase your overall income and net worth. 
      • If you can collect 90% of your current income and there is a pension involved, you have the opportunity to double dip and take advantage of the years with a salary and pension. 
• Key Considerations
  • Understand the short-term considerations
    • What will your take-home pay be?
  • Understand the retirement considerations
    • What will expenses be in retirement?
      • Check out this episode for more information: 
        • Here’s How I Do My Budget And Why Most Budgeting Doesn’t Work
      • Let’s assume your retirement expenses are $60,000/year and your current income is $100,000/year.
      • Let’s assume your pension would be $60,000/year.
        • This tells me you can already fund your retirement and are safely in a position to make a career change.
      • Regardless if you have a pension or not, understand your expenses in retirement.
  • What does retirement look like?
    • The longer you work, the greater your Social Security benefit will be. 
      • If you switch careers that allow for longevity, that will increase your Social Security income.
      • Compare your Social Security benefits if you were to stay at your current position vs. taking a new position. 
  • How will the career change impact portfolio income?
    • This is driven by the amount you save and longevity of work.
      • How will your savings amount and years of work impact this?
  • It’s not all about retirement income
    • Balance the personal side of the career change (ensuring you’re not miserable today) and what your secure retirement looks like.
• Summary
  • Oftentimes, a lower paying career change that prolongs your working years is far better for your retirement (if you’ve saved & invested throughout your lifetime). 
    • If there isn’t a large enough starting balance, the compounding alone may not get you to where you need to be (additional savings may be needed).

Timestamps

1:00 – Introduction

2:17 – Leave Your Review

3:43 – How To Change Careers (Financially)

6:28 – Career Change Example

8:41 – Do You Need To Keep Saving?

11:17 – Pension Example

14:27 – Social Security Implications

16:20 – Importance of Work Longevity 

18:05 – Aligning Your Investments With Your Financial Goals

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