Your income is the foundation of building wealth for your future. This includes investing in a personal portfolio, purchasing real estate, and building up your nest egg for retirement. When you meet with a financial professional, your income is going to be the first consideration for your investment goals. However, your income, and even your sources of income, can change throughout your working life.
When your income changes, it’s important to evaluate your financial plan. If you’ve lost your job and can’t find one at your previous salary level, you’ll have some tough decisions to make. Maybe you pause retirement contributions until you can increase your income level again. Maybe you need to downsize housing or transportation. It’s important to have your financial plan in place for this situation so you can focus on your employment next steps rather than your bank accounts.
Financial planning for employment events, such as a new job or job change, will mean considering the new realities. Maybe your new employer has a great employer-sponsored 401(k), and you invest in that before you invest in your individual retirement accounts. Did your previous employer offer a retirement plan? That account is still yours to manage, but what should you do with it now? There are a lot of options for your financial plan during your employment years, so it’s important to take them all into account and ask your financial professional for help when needed.
The short answer is that you decide what happens to your retirement plan when you switch jobs. You could leave the account alone. Just know that you won’t be able to contribute to it anymore and it may become increasingly difficult to manage as you are no longer connected to the employer hosting the plan. You can roll it over into a retirement plan at your new company, which will require a bit of paperwork and an allocation review. Or you can roll it into an individual retirement account (IRA) of your own choosing. As with all financial accounts, you also could withdraw the funds. However, this is not recommended as it comes with penalties and fees. For more information about what you can do with your retirement account, learn more here and schedule a planning meeting with us.
It’s a good idea to review and update your financial plan if you lose your job, unless you immediately find another one. Ideally, you have some savings to get you through the interim period, and maybe you qualify for unemployment benefits. Until you have an alternative income source, you may want to put your investment and retirement contributions on hold and focus on paying for necessities. Most importantly, if you have questions, please ask your financial professional. You don’t have to figure this out on your own.
If your income frequently changes because you’re a seasonal worker or self-employed, it’s vital to have a financial plan. This way you’ll stay on track with your short and long term financial goals by knowing how you’ll manage at any point of your income wave. You may have to keep a bigger savings cushion to get you through the lean months. And maybe you don’t know how much you can contribute to your retirement accounts until the end of the year. With the help of a financial planner, you can create a solution that works for you.
It’s possible and recommended to develop a plan for your retirement, even if your income fluctuates throughout the year. Your plan simply has to fit your circumstances. It helps to have the support of a financial professional to assist you in setting up a plan that you’re comfortable with and that allows for flexibility.
Financial planning for increased income is relatively simple. If possible, you may want to use any extra money you’re about to earn to contribute to your wealth building activities, ideally before you get used to the increase in pay or lump sum of cash. These activities can include increasing your monthly retirement contribution, investing the additional funds, shoring up your emergency reserve, or a combination of opportunities. And don’t forget to account for possible tax implications of your wage increase.
Call us today to talk about how we can help you build wealth and save for retirement in any income circumstances. Our first priority is helping you take care of yourself and your family. We want to learn more about your personal situation, identify your dreams and goals, and understand your tolerance for risk. Long-term relationships that encourage open and honest communication have been the cornerstone of my foundation of success.