Managing Personal Finances During a Career Transition

Walmart is reducing several hundred campus roles as well as asking remote employees to relocate. As a result, many people will accept severance packages and transition to another company or, in some cases, retire. It is a stressful time for many, especially financially. Here are some common questions that I'll discuss below.

1. How will I cover my expenses during the transition?

2. Do I need to adjust my spending during the transition?

3. How long do I have to find another position?

4.) Can I just retire?

If you or a colleague would find it helpful to have a quick consultation, feel free to grab time on my calendar or reply to this email. I'm happy to help and there is no charge for these one-off consultations.

Schedule a Free Consultation

Covering Expenses During the Transition

In a perfect world, the severance package sufficiently covers expenses during the transition. If that is not the case, a Walmart employee can pull funds from their Cash Account or Emergency Fund, After-Tax Investment Accounts, or Retirement Accounts (401k/IRA.)

Typically, it is best to spend down the accounts in this order:

1. Cash from Severance: Once received, allocate a portion to cover short-term expenses and deposit the rest into a Cash Savings Account, currently yielding around 5%.

2. Emergency Fund: If you have an emergency fund with enough cash to cover 3-6 months of expenses, this is the time to use it.

3. After Tax Investment Account: Since this is an investment account, it is not ideal to draw down these savings as you are borrowing against your future. That said, it is liquid and does not penalize for withdrawals like some retirement accounts.

4. Retirement Accounts: 401(k) and IRAs are your last resort. There is a 10% penalty on withdrawals before age 59 1/2 plus income taxes are owed on pre-tax dollars.

Other possible income sources:

Walmart DCMP: If you contributed to this plan, distributions would start based on your chosen schedule.

Home Equity Line of Credit (HELOC): You can borrow against your home's equity, but interest rates are typically high.

Should I Adjust Spending During the Transition?

It depends. If you expect the cash from your severance and emergency fund to cover all expenses, it is not necessary to cut back.

However, since it may be uncertain how long it will take to find the right position, it might be prudent to reduce some spending. While expenses such as a mortgage, car payment, education, and household staples are fairly fixed, cutting back on discretionary and large-ticket items is an option.

How Long Do I Have to Search for My Next Role?

A simple way to estimate how many months you have to look for your next position is this:

1. Add up the severance payout (after-tax) and emergency fund.

2. Add up your expected monthly expenses minus any other household income (e.g. a spouse's income).

3. Divide the total from Step 1 by the total in Step 2.

The goal is to avoid spending down accounts that are earmarked for retirement such as the After-Tax Investment Accounts and Retirement Accounts.

Remember, remote employees asked to relocate have a few weeks to make a decision which buys a little extra time.

Can I Just Retire?

For some, retirement is an option. While there are rules of thumb - such as the 4% withdrawal rate - it is more complex and nuanced. Here are few things to consider:

1. Withdrawal Rate: What % of your savings will you need to withdraw annually to cover expenses in retirement?

2. Social Security: Are you eligible for Social Security? If so, does it make sense to start or defer payments in exchange for a higher amount?

3. Other Income: Do you have other income from the Walmart DCMP, Rental Property, Investment Portfolio or an "Encore Career" to cover some expenses?

4. Healthcare Costs: How much will health insurance cost, especially if you are not yet eligible for Medicare?

Again, if you or a colleague would find it helpful to have a quick consultation, feel free to grab time on my calendar or reply to this email. I'm happy to help and there is no charge for these one-off consultations.

Schedule a Free Consultation

Thanks for reading,

Mark Chisenhall, CFA

Taurus Financial Planning

Taurus Financial Planning is a Fee-Only Wealth Management firm based in Bentonville, AR. The firm offers comprehensive financial planning, tax planning and investment management to corporate executives across the country.

Taurus Financial Planning is a Registered Investment Advisor with the State of Arkansas. This information is provided as a guide to assist you in your financial planning. The specific examples are provided for illustration purposes only and are not representative of specific investments or guarantees of future returns. Please consult with a professional for specific questions regarding your particular situation. If there is any error or inconsistency between this document and the official company plan documents, your company plan documents will govern.

This publication is for informational purposes only and is not intended as tax, accounting or legal advice or as an offer or solicitation of an offer to buy or sell or as an endorsement of any company security fund or other securities or non securities offering. This publication should not be relied upon as the sole factor in an investment making decision. Past performance is no indication of future results. Investment in securities involves significant risk and has the potential for partial or complete loss of funds invested. It should not be assumed that any recommendations made by the Author, in the future, will be profitable or equal the performance noted in this publication.