Companies & Industries

Financing a Second Career


Before you leap into your next act, look at your finances to make sure you can swing a career shift

There are plenty of reasons to think about a career change. Boredom, desire for new challenges, lack of advancement options, or a downturn in your industry or your field are some of the top ones. It could be as simple as your desire to—and the belief that you can—make more money. Perhaps you've just become intrigued with the idea of working in a completely different field and want to give it a try.

Regardless of why you want to make a switch, a big factor in whether you'll be successful in your new career is how you plan for and deal with the inevitable financial changes. In your enthusiasm to shift gears, don't make a leap until you're sure you understand both the short- and long-term financial implications and are sure that you and your family will have adequate financial protection.

Here's a four-step approach that could help you make a good decision: Consider the expenses involved in a career change; research the potential financial rewards of the change; review your current financial situation, including income and job benefits; and finally, compare the results. Ultimately, you'll have to make your decision based on both your financial wherewithal and your psychological resources for dealing with any financial risks that may come with the change.

Consider the Expenses

Start by drafting a list of costs for making the transition. Do you need training in your new field? How long will training take, and how much will it cost? Will you need to move or buy health insurance on the open market, or set up an office and pay for space, equipment, and the like? If so, research those costs.

If you can swing it, staying in your current job while preparing for the transition is probably your best strategy. Stacy Francis, a financial planner in New York, used to be an investor relations representative. When she decided to become a planner, she took night courses to get her credential and arranged interviews around her current work schedule. As a result, she did not have to give up salary and benefits, and the transition was "seamless," she says.

Research the Upside

In addition to estimating the short-term costs of a career switch, try to figure out what the long-term financial returns are likely to be. If the expenses of making a change will be $15,000 but you're pretty confident of increasing your salary by $20,000 a year, the $15,000 may not seem so daunting. Talk to people in the field and to job counselors or headhunters to get an idea of typical salaries and perks. Look into the industry's financial trends, as well as the financial health of potential employers.

Let's say your dream is to become a commercial pilot. You should start by checking sources such as BusinessWeek.com's Companies section, particularly its Sectors & Industries subsection and the Company Insight Center, as well as industry news for updates on the airline industry. Then go to the Pension Benefit Guaranty Corp., where you can enter a company name to search for news about the health of its pension fund.

Look at Your Finances

Next, you need to review your current financial situation: money coming in, money going out, and money owed. Include your current compensation and benefits—health insurance, retirement account match or pensions, stock options and bonuses, college assistance for your kids, as well as the debts you need to pay off. If you are lucky enough to still have a traditional pension, will you lose it if you leave now? Will you be able to continue with the same lifestyle or find a more attractive one if you make a career change?

Putting It All Together

The fourth step is assessing all the data you've collected and making a decision. Financial planners usually recommend having an emergency fund to cover three to six months of expenses in the event of losing a job, but in the case of a career shift—unless you are very confident about getting a job fast—planners suggest putting aside what you need for a year.

Tim Maurer, a financial planner in Lutherville, Md., says you should think carefully about where the emergency fund money will come from. Avoid using credit cards, which usually have high finance charges, or withdrawing retirement account money, which will probably cost you penalties as well as taxes and loss of the compounded savings. Instead, he suggests using some cash and keeping some money invested in a liquid account, such as a money market or savings account.

Another possibility, if you have a lot of untapped home equity, is a HELOC (home equity line of credit). If this seems right for you, Maurer recommends that you get the credit line before you leave your current job, and search for "a no-cost HELOC at no more than the prime" interest rate. The interest rate will probably be lower than on credit card debt, and you will be able to take a tax deduction for the interest.

Like most decisions in life, this decision to change careers comes with pros and cons, challenges, and risks. Transporting yourself from the comforts of a familiar job, work culture, and colleagues to a totally different environment—even if it's exciting to think about—is stressful enough. So it's worth doing everything you can to avoid adding financial uncertainty to the mix.

In addition to writing Your Retirement for BusinessWeek.com, Hoffman is the author of The Retirement Catch-Up Guide and Bankroll Your Future Retirement with Help from Uncle Sam. You can contact her through her Web site, www.retirementcatchup.com.

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