How To Financially Prepare To Make A Career Change

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If you run into a CMO in their 40’s and 50’s, you’ll find many pondering a career change. Some are interested in consulting. Others are interested in starting a company. Some seek a different functional experience. And some are interested in teaching and working with undergrad or graduate students. As a former GM and CMO who returned to school to get a PhD—and then became a professor, I understand the desire to switch careers and do something that is more personally meaningful.

I have regular conversations with those who are interested in switching, likely because of the career change I made. After some discussion, the crux of the challenge usually comes down to money. Those interested in becoming adjunct professors are surprised by the significant cut in pay that role would bring. And those interested in starting a company have to worry about the high costs of obtaining individually-purchased healthcare in addition to startup costs.

To better understand the steps marketers (and others) can take to be prepared to pull the trigger on a career switch, I turned to the CMO of Morningstar, Rob Pinkerton. Morningstar recently published a terrific report called “Easing the Retirement Crisis”, and Pinkerton shared some of the key points in our discussion. (Full disclosure, my father was a banker, so I grew up reading Morningstar reports and using their ratings system to help make financial decisions.)

Kimberly Whitler: Do you have any data or insight regarding what it takes to be financially prepared to switch careers?

Rob Pinkerton: There are numerous reports about how unprepared most Americans for retirement. For example, one report indicated that “42% of Americans will retire broke.” Now this is for retirement. For individuals wanting to switch careers, they have to be financially prepared to do this much earlier than retirement and so the hurdle is higher. However, you are talking about senior-level marketers wanting to switch careers and they tend to make more money than the average American.

Regardless of the age that somebody might want to depend on their savings, it requires planning. It’s very difficult to wake up and decide to stop working in a week if the financial preparation isn’t in place. Rather, it requires forethought and a financial plan to be able to make the switch.

Whitler: That is a great point. That is exactly what I did. I started planning in my mid to late 20’s to “retire” when I was 40 and choose to pursue whatever career would most make me happy. So I started saving and living more frugally than I otherwise would have. As it turned out, to get a PhD, you go through five years of essentially no income to come out the other side making much less money than I was making going in. If I hadn’t planned for the career switch, I wouldn’t have been able to do it. I know that you recently conducted research on the most effective actions that individuals can take to improve financial outcomes. What are some of the key learnings?

Pinkerton: We actually analyzed eight different actions—or interventions—that individuals can take to improve outcomes. It included working longer, increasing the proportion of stock in the portfolios, saving more over time (contribute 3% more per year for 20 years), making a significant one-time investment (20% more now), cut the standing of living to 40%, etc.

What we found is that for both general public and the mass affluent households (i.e., CMOs), it’s the basics that matter the most. Saving more, choosing to invest savings, working more years, and lowering living costs have a far greater effect than asset allocation, reducing fees, or achieving alpha.

Whitler: Any advice you would give somebody who wants to start thinking about a career switch?

Pinkerton: First, work with your financial advisor. That goes without saving. However, in conjunction with your advisor, our research would suggest that you consider a multi-pronged attack by asking the following questions:

1) Can you cut your living costs? Can you delay buying a new car for a year? Do you really need a new winter wardrobe? Or can you eliminate one trip to Nordstrom?

2) Can you reinvest the living cost cuts in savings? Can you take the Nordstrom shopping money and invest in that in your “switching career” fund?

3) How might the career switch impact your ability to save? In some cases, it may just mean a lower income. In other cases, it may mean no income at all. The different scenarios require different planning.

Whitler: This is terrific advice. Because I knew I wasn’t going to earn much money for the five years I pursued my PhD, going in, I had to essentially have both my retirement established and five years of living costs saved up to support myself. I did those very things you suggested. I consistently lived far below my means for the 5 years before I entered the PhD program. I tried to “think like a college student”. I started clipping coupons and questioning every purchase. I got rid of my nice car and purchased a Honda CRV (very reliable with low maintenance costs). I lived in an apartment. One of the best savings tips I found was to rent a small apartment. You don’t have room for material items so you don’t spend money needlessly.

Once I finished my PhD program and started earning a paycheck again, the first question I asked was how I could maximize my savings. Although I had prepared ahead of time, after the switch, I immediately looked for opportunities to make up for the five years of lost income. Because my academic income is far lower, this is obviously impossible. But even with a lower income, I can still seek to make smart decisions for long-term financial health (should I want to switch careers again).

[“source=forbes”]