Investing
Zoe Team and Ian Wild, CFP® (Zoe Network Advisor)
6 min read
Transition funds offer financial flexibility during career shifts or unexpected job loss.
Avoid trapping all savings in tax-advantaged retirement accounts with liquidity constraints.
Brokerage accounts provide the necessary liquidity for transition funds compared to restricted retirement accounts.
A liquid financial cushion designed to support you during unexpected career breaks or when pivoting to a new professional path.
Retirement accounts often impose tax penalties and fees for withdrawals before age 59 ½, making them ill-suited for mid-career transitions.
Store them in a professionally invested brokerage account focusing on stability and liquidity rather than speculative assets.
While savings is one of the best financial disciplines to have, saving with the wrong purpose, or in the wrong account, can negate the benefits. Having a transition fund will be your savior in the case of unexpected career breaks.
Before the “Great Resignation” became headline news, I myself discovered the importance of a transition fund while undergoing a surprise career break. I played professional football before getting cut by the Buffalo Bills. Lucky for me, I was 22, had done pretty well in college, and graduated as an Accountant. So for a short period of time, I started a career in financial advisory out of pure necessity.
At the time, it was transitory - just a way to make ends meet while I was able to play football again. Plus, it wasn’t out of the ordinary for a recent college graduate to shack up with their parents, and I could get through the rough patch with little to no financial responsibilities. That said, getting cut from the Bills was my first experience realizing just how important it was to have a “cushion” in case life didn’t go the way you planned.
Some time later, I rejoined the NFL and then transitioned over to the Canadian Football League (CFL). As my football playing career continued, I would see my teammates get injured, cut, or retire from the game with little to no savings because their money was either spent or tied up in a retirement account.
After 7 years, I decided it was time to live up to what I’d known all along. As a Pro Football Player and Financial Advisor, I could cover all possible obstacles for my clients, ensure they were saving and investing with purpose, being thoughtful about life’s surprises, and playing it well in order to grow their wealth.
Retirement savings and investments are no doubt two of the most important pillars of a sound financial plan. In fact, some investors (such as many of my Pro Football buddies) put all of their savings into retirement accounts such as a 401(k) or IRA in hopes that they will someday outlive their savings by a long shot.
While savings is one of the best financial disciplines to have, saving with the wrong purpose, or in the wrong account, can negate the benefits. As an advisor who focuses on working with Millennials and Gen-Xers, I’ve seen a lot of high-income clients become prisoners of their own income.
The reason? Lack of liquidity in their investment portfolios.
After climbing the career ladder for 10+ years, some might find that they are trapped in their current job or profession because all of their savings are in a retirement account.
It’s a common perception that saving for retirement is the most important financial goal. At the end of the day, it’s your golden years! Where your years of hard work will pay off. And while the principle is true, trusting a retirement account with your entire savings can be risky.
Retirement accounts are great for the goal of retirement, but they are expensive to withdraw from before age 59 ½ because of taxes and the 10% penalty.
What if you want to change careers, start a business, or take a break from the 9-5? You might have to pay penalties, drain emergency savings accounts, and/or rack up personal or credit card debt.
This is one reason why I stress the value of a transition fund. You never know what can happen to your career path. Finding yourself financially tied to a career path you are no longer interested in or happy in is a terrible situation - but it doesn’t have to be!
Before the “Great Resignation” became a trend, I would advise my former teammates in the pro football world about the importance of a transition fund. In our case, a serious injury could set you back tremendously, both financially and professionally.
As physical health is primordial for athletes, every job requires a set of skills that if compromised, could limit your capacity to do the job. And this is leaving aside a possible scenario where you just need change, a break, or a new challenge.
Another factor that makes it hard for all professional athletes when they step away from their game is the fact that they often have no resume or “real world” experience.
Even if an HR Manager sees the value of adding a former athlete to their corporate structure, it often comes at an entry-level position earning far less than what they took home from playing a sport.
The same principle applies to an aerospace engineer who wants to become a financial planner at the age of 35. He or she might own a home, have a family to provide for, student loans that they still pay, auto loans, and day-to-day expenses that add up.
In order to successfully change careers and weather the period of time with a lower income, that person has two options:
Significantly reduce their expenses (and lifestyle)
Supplement their new lower income with savings
If you don’t want to change your lifestyle or have no option to reduce your living expenses, then using your savings is your only option. My recommendation to prepare for this scenario would be to start saving in a brokerage account that is professionally invested, with stability in mind.
The purpose of the account is for the money to be liquid, so it’s always there in case you need it. Typically, these accounts won’t include stocks, crypto, or your favorite Robinhood trend of the week. As this transition fund grows, your career options instantly expand.
With this fund in place, if you are “burned out,” don’t like your boss, the direction of your career, or have always wanted to take the entrepreneurial plunge, you have options for change.
Without a fund like this in place, you are a prisoner of your income. In these days of the “Great Resignation”, employees are feeling this pressure more than ever and are quitting their jobs at alarming rates.
A wealth planner will design and construct a savings strategy and portfolio based on your goals and preferences.
With the right certifications and experience, an aligned-interest advisor will know exactly what steps you need to take in order to make sure you’re ready in the case of an unforeseen financial road bump (or career crisis).
Don’t wait for the day you’ll need a transition fund to start building it. Start preparing today!
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