Navigating retirement benefits during a career change
Though Newsom’s high-profile roles weren’t the perfect fit, she planned to return to state government to finish the 30 years she needed to qualify for full retirement benefits.
One significant consideration during career transitions is how your employer’s pension plan impacts your retirement savings. If you’re enrolled in a 401(k), profit-sharing or another defined contribution plan, you may have the option to take a lump-sum distribution of your retirement funds when leaving a job.
On the other hand, defined benefit plans — which provide a fixed benefit at retirement age — rarely offer early withdrawals. These benefits generally become accessible only upon reaching the plan’s retirement age.
The specifics of how and when you can access your retirement funds depend on the provisions in your plan. Some plans restrict distributions until you reach a specified age, while others may require a certain period of unemployment before funds are available.
With the variety of retirement plans, it’s wise to consult a financial advisor before leaving a promising career with a strong pension plan. They can help you explore ways to secure your pension benefits and plan for a stable financial future.
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Explore better ratesWhat about pay cuts?
A recent Ford Trends survey of 16,086 adults conducted between Aug. 11 and Sept. 1, 2023 revealed that 52% of Americans would be willing to take a 20% pay cut to improve their quality of life. While there is a growing emphasis on work-life balance, the decision can have significant implications for your financial future, particularly your retirement savings.
Lower earnings may decrease the amount you’re able to contribute to retirement accounts, such as a 401(k) or IRA. If your employer matches contributions, a reduced salary would also mean losing out on a portion of those benefits. Over time, this can result in a smaller nest egg, potentially leaving you unprepared for retirement.
The financial strain is already evident among older Americans. According to a Nationwide survey one-third of Americans aged 60 to 65 are considering re-entering the workforce. Among those respondents, 50% cited concerns about running out of money or already experiencing financial difficulties as the main reason for their decision.
It could be that simply changing jobs or industries is a better option for some — rather than completely exiting the workforce altogether.
Ultimately, it’s your call whether or not the switch is worth any potential pay cut. If you pursue the right passion for the right reasons, it could even end up making you more money than your previous career.
Either way, it’s important to carefully evaluate how it may affect your retirement goals. Ideally, you can get the best of both worlds and won’t have to sacrifice much when following your new path.
“People say if you love what you do, it won’t seem like a job,” Newsom told WSJ. “And that is how I feel about design.”
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