I look at the benefits and drawbacks to this crucial question.
What do people interested in “off-ramping” need to consider from a financial perspective?
- More men than ever are making this choice as well – it’s no longer just a “women’s issue.” Eleven percent of households today have an “alpha earning wife” or “breadwinning mom” who makes more than her spouse and is supporting the family financially.
- The family needs to ask themselves: how will they afford their current lifestyle?
- Can they do it on just one income?
- If not, can they downsize and get rid of expenses to support the lifestyle they desire? Such as: Move to a smaller house with a smaller mortgage; Take less expensive vacations; Get by with one car; Create and stick to a budget; Have an emergency fund of at least 3 months of expenses.
What are some the financial risks associated with giving up a career or a job?
- The first risk is your immediate loss of income but there is also an “opportunity cost” of being out of the job market. You are giving up health care benefits, career advancement/future earnings and retirement plans. Don’t just look at your income in the short-term and the day-to-day expenses. You have to look at what you are giving up now and later in life as well.
- A real consideration is the cost of waiting to fund your retirement. The earlier you save for retirement the better off you are later in life. If there are gaps in savings and contributions you simply will have less at your desired retirement age.
- The same thing goes for career advancement. As a career develops you gain more responsibility and along with that come pay increases and bonuses. That progression stops once you leave the workforce.
- Go online to one of the many financial calculators and run a financial model based on what you are making and saving now. Then run one based on having reduced earnings for a period of time and notice what the difference is 20 or 30 years from now. Most people will be surprised with how large the gap becomes. MSN Money Retirement Planner helps calculate how long you can live off of your next egg before it runs out.
How do you analyze the costs of working vs. staying at home?
- First map out all your expenses and which expenses are work-related: You might save the costs for day care, business lunches, travel to and from your job, your wardrobe or uniform expenses. You might save on health care costs if you are leaving a job that is literally making you sick.
- Be realistic about the trade offs: Will you use less gas or more gas if you traded your work commute for shuttling your children and the neighborhood kids around to all their activities? Will your spouse earn enough to fund both of your retirement accounts? Will you take on an expensive hobby now that you have free time – golf, boating, traveling etc.?
- Are you leaving your job to return to school? If so you may have more expenses for tuition and books.
What are some strategies for those who are off-ramping and or leaving the workforce?
– Keep the job door open. Find ways to keep your skills current. If you are taking a sabbatical or transitioning into a stay at home parent, you need to maintain your business network and skills: Attend professional association meetings and continuing education programs even if you are not working; Volunteer with organizations that will help you expand your network; Work on a consulting or part-time arrangement with your former employer.
The generation of women today is better at this than my generation. They are alpha mom’s who use technology like blackberry’s, cell phones and email to communicate versus the PTA mother of my generation who was isolated from the business world.
One of my employees left our firm and had a child. She is now back working on a part-time basis earning money for savings and keeping her business connections and skills current.
Another client works on a project-by-project basis with her former company. They call with project work that she can do from home, which keeps her earning money but allows her the time to spend with her children that she desires. Don’t assume your employer will not work with you. It doesn’t hurt to ask.
- Consider how the financial impact with affect you emotionally in addition to financially. Many times the balance of power in a relationship shifts when one spouse is longer a financial contributor. This can have tremendous mental impacts on self-esteem and confidence. You need to discuss the budget and how the money will be spent with both partners managing the financial decision making in the family.