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3 Keys to a Successful Midlife Career Change

By Christy Bieber - Mar 10, 2017 at 9:27AM

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Are you thinking of changing jobs in the middle of your career? You can make a successful shift to a new profession, but you have to do these three things.

Are you satisfied with your job? Less than half of the workforce is, and more than 80% of people over 45 dream about making a career change.

For most workers in the middle of their careers, dreaming about a new job is as far as it goes. Only 6% of older workers actually make a career change, even though studies show that workers over 50 who change careers are usually successful and usually happier after moving to a new profession .

Changing careers can be scary if you've advanced in your profession and acquired obligations like kids and a mortgage. You can make it happen, though. Following these three steps increases your chances of transitioning to a new career without risking your financial security.

Middle-aged businesswoman sitting on a bench and talking on a cellphone

Image source: Getty Images.

Take care of your retirement when you change careers

One of the biggest risks of changing careers in midlife is falling (further) behind on your retirement goals.

About 29% of households aged 55 and older have no retirement savings at all, nor do they have a defined benefits pension plan. Among households aged 55-64 who do have savings, the median amount saved is $104,000, which is not nearly enough to live on. Playing catch-up or staying on track is essential at this age, especially since you're allowed to start investing more pre-tax money in both your 401(k) and your IRA once you reach age 50. 

You want to take advantage of the opportunity to make "catch-up contributions," but changing jobs can interfere if you aren't eligible for a 401(k) in your new position or if you don't have enough cash to invest in an IRA because of a career change. Before you jump into a new career, find out what retirement benefits, if any, will be available at your new job and make sure your new salary will allow you to invest in an IRA.

If you won't get a 401(k) match or must pause your retirement savings, you'll have to work longer. It may be worth forgoing some retirement savings for a new career you love, but be conscious of the trade-off. 

You also need to protect any retirement savings you currently have as you transition into a new career. If you had a 401(k) at your old job, then you must decide whether to move that money when you leave or to keep it where it is.

If your account offered through your former employer offers ample low-fee investment opportunities, you may want to leave your funds where they are. Some larger employers use their bargaining power to provide lower-fee investment opportunities than those available in a traditional IRA.

However, an IRA offers far more investment options, and a 401(k) offered through a new employer may offer a better selection of investments, so compare your options carefully to determine if you should roll over your old 401(k). If you want to make a move, you can ask the plan administrator to have the funds transferred directly into a new 401(k) or into an IRA.  

If the funds from your retirement account are paid directly to you, you have 60 days to get that cash into a new 401(k) or IRA to avoid penalties. Act quickly, especially if you need to open an IRA to have somewhere to put the money. 

Explore healthcare options before leaving your current job

Healthcare can be a substantial expense if you're older and must purchase insurance on the individual market. Average monthly premiums for insurance total around $400 if you're between the ages of 45 and 54. If you've been relying on your employer for health coverage, and you're transitioning to a career that won't offer that benefit, then the high premiums and deductibles that come with most individual policies on the market can be a shock.

Planning ahead will be especially important if the Affordable Care Act is modified or repealed. The ACA imposes cost controls to keep the price of insurance down for older policyholders, and it guarantees that people with pre-existing conditions can purchase a policy. Subsidies are also provided to help those with lower incomes to get covered.

If the ACA is repealed, you may be at risk of a coverage denial if you have health issues, or you may be unable to find a plan you can afford. Lawmakers have promised to provide at least some protection for people with pre-existing conditions, but proposed ACA modifications could result in higher premiums, could reduce subsidies, and may allow insurers to charge higher rates to people with coverage lapses. 

COBRA allows you to stay on a plan offered by your current employer for up to 24 months after leaving your job . This would ensure continued coverage if you have a pre-existing condition. However, if your employer was paying premiums, this will end when you leave your job. The policy could be difficult to afford if you must pay for the full cost.

Because healthcare is both expensive and important, you must find out what options a new employer will offer or be sure you can afford and qualify for a plan on your own before you give notice.  

Don't take a paycut if you can't afford it

In one study of older career-changers conducted by American Institute for Economic Research, those who successfully changed careers spent an average of 11 months looking for a new job and applied to an average of eight positions before being hired. Many who successfully changed careers reported taking a pay cut initially, although working back up was usually possible over time. 

If you experience a job gap where you have no income, or if you take a pay cut in order to get your foot in the door of a new career, that will impact your ability to cover costs and meet saving and investment goals. Before making a career change, calculate your monthly spending, including the cost of saving for retirement. Make sure your new salary will bring in enough for you to live on without going into debt. 

If you cannot afford to transition to a new career, you may have to stay at your current job as you save up cash and look for ways to cut expenditures.

Consider finding part-time or volunteer work in your new field or starting your business on the side. If you can moonlight or freelance part-time and build up experience in your new chosen career, you'll not only earn extra money to cover an income shortfall as you change careers, but you also may avoid a big pay cut in your next job, because getting experience means you won't start at the bottom of the totem poll. 

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