So you want to have a healthy relationship with your finances and prepare for retirement, but you’re not sure where to start or how to get there. With Money Talks, three people in different life stages outline their experience of working with a financial professional for the very first time. As it turns out, it’s never too early or late to chat through your goals with someone who can help.
It’s time for a switch. I’ve spent years at my current job as an education leader, and the CEO of my company happens to be my wife. I love the work I do, but fear that I’ve hit a financial ceiling. So we’ve decided, as couple that shares finances and three children, that it’s best for me to find a new role elsewhere. Since there isn’t much room for growth—in terms of compensation or title—in my current field, I’m ready (and excited!) to consider starting fresh in a totally new industry. It’ll come with an initial pay cut, but will offer an opportunity for growth beyond my current income within a few years.
Even so, it’s daunting to give up the security and seniority I’ve built in my current field to forge this new path that stands to make my family’s financial situation feel less solid in the immediate future. I’m currently 45, and in addition to my intended career pivot, retirement planning is top of mind. I also have three kids to provide for, and as I watch sky-high college costs grow, it feels impossible that we could afford the price, despite our intentions to cover it.
I’d like to fully understand the financial implications of the change I’m considering—on both my short-term and long-term financial wellness. So I chatted with Fidelity Investments Vice President, Financial Consultant Ryan Viktorin, CFP, who helped me get a better handle on things.
Viktorian’s first suggestion was to audit my current expenditures and saving habits. She says the exercise may illuminate to me that the initial pay cut may not be as jarring to my lifestyle and savings goals as I presumed. But even before we getting into that nitty-gritty, she says creating clear, realistic goals is crucial.
“The more that you can take action to try to understand what your general goals are, the more empowering it is, and the more confident you can feel.” — Ryan Viktorin, CFP, Fidelity Investments VP Financial Consultant
“The more that you can take action to try to understand what your general goals are, the more empowering it is, and the more confident you can feel,” says Viktorin. “A lot of people think ‘If I actually put a pen to paper, then I’m gonna get the answer that I can’t do it,’ and it seems really scary. It’s probably not that—it just means what do we tweak? Even if you say, ‘I want to retire when I’m 60’ and then find out it makes sense to do it at 63 instead, it doesn’t mean you’re never going to retire.”
Chatting with Viktorin is helping me realize that I can make this career switch as long as I have a clear plan in place. Below are the best tips I learned from our conversation about how I manage a pay cut now for and still have a financially safe and fruitful future.
7 tips to manage a pay cut and still plan for a financially healthy future
1. Identify any gaps in your future financial situation
Viktorin says that to manage a pay cut, I need to first examine what our current expenses look like in reference to our current income, and how that would compare to our financial situation after my pay cut. The purpose is to gauge whether there will be a gap between what the expenses are and what the income would be, she says.
Right now, we’re covering our expenses, and we are putting a little bit away each month. But I’m anticipating a $30,000 drop in my salary once I switch jobs (our household income range is currently between $215,000 and $540,000), so we have to figure out where we can shift our spending to make up for that loss.
2. Temporarily decrease how much we’re saving in post-tax accounts
Beyond 401(k) contributions, my wife and I put $1,500 into a savings account each month. Although I feel like we should be contributing even more, Viktorin helped me see that it’s okay to cut the amount we save for the time being. “The $1,500 [portion of savings] is a net amount that you’ve already paid taxes out of, so you’re able to save $18,000 a year net after taxes,” she says. “If you gross that back up, it’s probably closer to maybe $20,000 [of your actual salary].”
I never thought about it this way, and having her here to do the math helped me realize that this pay cut won’t be as scary as it first seemed to me. Especially because it’s only temporary—I’ve been assured that there is a lot of room for growth in the new field I’m considering and that it won’t take long to get back to the salary I’m currently making. So in a few years, we’ll ideally be able to save more than we already are.
3. Get what we are saving into a high-yield savings account
It turns out the rise in federal interest rates can be beneficial for my savings as long as it’s in the right kind of account. “For 15 years, it didn’t matter what type of savings account you used because nothing made any interest, but now it does,” says Viktorin. “If your cash is not in an account making 4 or 4 ¼ percent, go find an account that makes that.” She says to look for a high-yield savings or money market account, which is a savings account that may have debit-card and check-writing privileges.
Viktorin emphasizes that 4 percent absolutely can add up and make a difference in your savings. “If you start to think about the assets you had a year ago that were making no interest and then now they would make interest, that’s also closing that gap between what your expenses were and what they will be.”
4. Consider the financial value I contribute to my family outside of just salary
I’ve always made less money than my wife, and this change will make my contribution even smaller. But Viktorin reminds me that this move from a smaller nonprofit to a larger for-profit means I may bring more, different benefits to the table. “Once you land a new job, if that’s where you’re going, you definitely want to look at what that whole benefits package is and see how you can leverage that as a family,” says Viktorin.
For example, if we move the family under my health insurance, that’s a substantial contribution for a family of five. “You can start to say, ‘oh, there’s more benefits, even though it’s not pure salary,'” says Viktorin.
5. Stay on top of retirement planning
Once I’m in a new role, Viktorin says to make sure I’m continuing to put money into a 401(k) and working toward saving the amount I’ll need. (There are some quick and helpful tools available online, like this one, that help gauge how much I have saved compared to what I’ll need and how I’m tracking.) Because many employers will match up to a certain amount of your own 401(k) contributions, “contribute whatever you can to get the match to start,” says Viktorin. “As you ramp back up to your other income, say, ‘I’m saving actively into my 401(k).’ That’s your 401(k). It’s pretty empowering to be able to do that.”
After getting on track to save what I need in my 401(k), I might explore other tax advantaged retirement accounts, like IRAs and HSAs as a way to help diversify my retirement savings.
6. Automate, automate, automate
A few years in the future, I’m hopeful I’ll be settled at a new company and back to making a comfortable amount of money that allows me to go back into savings mode. At this point, Viktorin says to “automate your savings as much as humanly possible. I say that to everybody, but especially people with kids,” she says, of the ability to set up a plan that works without you needing to remember to manage it. “Create an auto payment, create an auto-invest—automate it as much as possible. But just make sure that you’re reviewing it a couple of times a year just to make sure it is still functioning the way that you think it should and that you’re still on track for what you want.”
7. Don’t be afraid to ask for help along the way
As I go through this transition and beyond, Viktorin says to remember that I don’t have to navigate finances all on my own. “Don’t be afraid to ask for help,” she says.
*As told to Kara Jillian Brown
