Changing jobs? How to decide if a job offer is worth it financially
When considering a new job opportunity, it's easy to focus on the base salary as the most critical factor in your decision. However, understanding the true impact of a career move on your future finances means looking at the full picture of your current and new compensation packages and considering indirect benefits such as career growth.
Key takeaways
- Consider all the financial benefits — direct and indirect — you're leaving behind from a current role when considering a new one
- Monetary compensation can take other forms beyond salary, like bonuses, profit-sharing or stock options and retirement savings plans
- The value you place on healthcare benefits, plans and costs may depend on your personal situation
How to assess the value of a job change
When weighing a job change, it's essential to consider the full compensation package: not only the salary and other monetary compensation like bonuses or equity, but health insurance, education reimbursement and retirement savings plans, which can have a significant financial impact over time. Then there are the indirect benefits like work-life balance, vacation and sick time, remote work options and potential for career growth.
Here are steps to help you compare and determine which job is 'worth' more to you:
1. Compare salary and monetary compensation
Begin by comparing the base salaries of your current and potential new job. Consider the opportunity for salary growth and promotions, as these can significantly impact your long-term earning potential.
Variable compensation like profit-sharing, commissions, stock options, equity rewards or bonuses can be harder to quantify, whether they're part of the job you are going to or the one you're leaving. You'll need to make an estimate of their value — for a new job you can do this based on research or asking your prospective employer for historical data.
Michael is a 35-year-old project manager
He's considering leaving his job for another with a 15% higher base salary. However, his current job usually pays out substantial end-of-year bonuses, and it's only a few months until those would be issued. He doesn't want to lose that bonus, so Michael makes a point to leverage this fact in negotiating his new job's compensation package. He might ask for a later start date or request a sign-on bonus or higher base pay to offset the loss of his expected end-of-year bonus.
2. Evaluate health benefits
When comparing health benefits offered by two different employers, consider the coverage provided, premiums, deductibles, copayments, out-of-pocket maximums associated with each plan, and when benefits start. Evaluate the network of providers available, as well as the extent of coverage for essential services like preventive care, hospitalization, and prescription medications.
It's important to assess how the plans fit your personal and family health needs, taking into account any pre-existing conditions or expected life events, such as the birth of a child. Additionally, consider whether the employer offers supplemental benefits like dental, vision, or mental health coverage or
health savings accounts (HSAs). The assets in an HSA remains yours even if you change jobs. In contrast, employer-sponsored flexible spending accounts (FSAs) won't travel with you to your new job, so consider how you can use those funds before you lose them.
Sarah is a 27-year-old graphic designer
She's currently self-employed, making an income comparable to a job offer she has on the table, but she's been paying for health insurance through the independent marketplace and the new job offers comprehensive health insurance. Sarah considers the savings on insurance premiums and potential improvements in coverage as a major draw to the new job and feels this benefit could outweigh other factors like the potential loss of freelancing flexibility, even though the take-home pay will be similar.
Don't forget to plan for a gap in insurance coverage and other expenses between jobs. Learn about continuing your existing health and life insurance coverage through COBRA or other options until your new benefits take effect.
3. Review retirement savings plans
When comparing your current retirement plan with a new employers', there are three important aspects to consider:
- Whether the employer offers a match, which is the amount your employer contributes to your retirement plan account based on your own contributions. Employer matches can significantly boost your retirement savings, so it's essential to compare the percentage of your contributions that each employer is willing to match and the caps on the matching amount.
- The vesting schedule — the time it takes to earn ownership of employer contributions — of your current employer's matching contributions. Leaving before you are fully vested may result in forfeiting some or all of your employer's contributions.
- The investment options available within each plan. A retirement plan with diverse, low-cost investment choices can help you optimize your long-term returns and build a more secure financial future. You can ask your potential new employer about the investment options available with their plan.
Elena is a 45-year-old professional
After 10 years at her current company, she's contemplating a move to a startup that offers an exciting role. However, she's accrued significant benefits in her current company's profit-sharing retirement plan, and a large portion of those company-match retirement funds are set to vest in the next few years. If she leaves, Elena needs to account for the potential loss of her soon-to-vest profit sharing, the potential future growth of those funds, and whether the new role's other benefits and opportunities for growth or equity could compensate for it.
If you do decide to take the new job, don't forget about your current 401(k). It's important to consider all of your options before deciding what to do with it. You may need to check with your current and new plan provider for more information.
4. Consider the intangibles
In addition to salary and benefits, it's crucial to evaluate factors that can indirectly impact your overall financial well-being.
Work policies, such as remote work, flexible hours, and dress codes, can have financial implications. For example, remote work may save you money on commuting costs, while a dress code could change your clothing budget. Additionally, consider how you feel about each job's impact on your quality of life, taking into account the role's demands, company culture, overtime expectations and paid time off policies.
By doing your research in advance, you'll be empowered to not only make the right call when a new opportunity is on the table, but to also negotiate the compensation package that you deserve while keeping your financial life moving forward.
Merrill, its affiliates, and financial advisors do not provide legal, tax, or accounting advice. You should consult your legal and/or tax advisors before making any financial decisions.
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