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Making the Leap: Changing Jobs

I thought I would share my new experiences with changing jobs. I worked at my former employer for just over two and one-half years. Over that time, I had invested about $2,400 in a 401k. I am not sure if I am vested in the employer contribution (from what I have read I should be 20% vested, but the HR assistant thinks that I may have needed to wait until December 31st). Anyhow, that 20% would only be about $80.

One of the other financial factors of my old job is the pay. I was an hourly employee, but my hourly pay for 40 hours a week (I always worked a minimum of five hours of overtime a week) came out to about $20K less than the industry average for my qualifications (I am a network administrator with industry recognized certifications and plenty of practical experience). While I do not think I should have gotten paid $20K less than the average, I do not think I was quite worth the $20K more when I started (purely because of my personal confidence at the time). I think I should have been at least $10K more, when I started. My former employer had a 3.25% cap on raises; I would never get the rate that I deserved by staying there, unless they decided to change my title/responsibilities and give a raise.

I was not really making a huge effort at finding a new job. However, I would browse the classified ads in the paper and look at the job sites on the Internet. If I saw a job that looked like it would be a nice move, I would send my resume. I had several phone interviews and a couple of face-to-face interviews. There was one job that really seemed like a lateral move (I wanted to move into more of a managerial role, that was one of the reasons I was looking... that was not possible at my former employer), but the location and other aspects struck a chord. I received an email back from the poster, and he stated that he selected sixteen individuals to send questions via email. From these sixteen, he would select five or six to have phone interviews with. Now, the questions, while not crazy, could easily deter people from answering them (obviously they did). I received a phone call the day after I submitted my responses and he asked me to meet him for lunch. Apparently, only five or six of the original sixteen even replied. He skipped the phone interviews entirely. We had lunch and discussed the "soft skills" associated with the job (apparently, the last person was alright technically, but had no soft skills). He seemed extremely satisfied with my soft skills, but commented that we did not really discuss any technical topics. The next day we had a conversation on the phone about the technical aspects of the position. At the end of the conversation, he asked me to come to his office that afternoon. They made an offer right then. The offer was about 60% more than I previously made (putting me at or just above the industry average for my qualifications), and much better benefits.

Here is how the new 401k program works:
  • The employer matches the first 3% of my contributions by 100%.
  • The employer matches the next 2% of my contributions by 50%.
  • The employer contributes 8% of my pay, annually, into my 401k at the end of the year.
  • The employer's board of directors votes on an additional 2% contribution to put into my 401k at the end of the year (apparently they have always voted to do so).
So let's figure it all up. If I contribute just 5%, I will have a total contribution that is equivalent to 19% of my annual pay. Also, the vesting period is just two years; that is much better than the six year vesting schedule at my former employer. Another great thing is that I have a review for a potential raise after just six months.

Other benefits include a health insurance deductible that is $500 less, annually, than my former employer, and an HRA that has $1,600 (for my family; $800 for me, and $800 for the others) in it. Also, the other great thing is that if I do not use my $800 portion, it accumulates. I get to take it with me when I leave the company. Beyond that, they discourage overtime, as they believe taking 40 hours a week from your life is already excessive.

Here is the kicker about the company; it is a pseudo-not for profit. It is a corporation that is owned by several religious not for profits. Any profits get passed along to the owners and they use it for charitable purposes.

So what does this all mean for me? I get a nice pay raise; I will be contributing 5% to my 401k, rather than my previous 4%; I have a much better work environment; and I will effectively have my retirement covered in five years, rather than the ten years I had previously estimated.

My next step is to find a rollover IRA for my previous 401k. Why an IRA, rather than rolling over to my new 401k? Flexibility. As with any 401k, you are limited to the investments made available in the plan. With an IRA, you can invest in nearly anything you can imagine. Also, I cannot enroll in my new employer's plan until July 1 of next year, so I will have nine months where I could not make any contributions. I will be making contributions each month to the IRA. I plan on converting it to a Roth IRA, as well. When that happens, I can deduct my original principal after five years. That is important to me because I want a more liquid investment than is available from other retirement plans; I intend on being semi-retired by the time I am 35 (this does not mean I am lazy, I just want to be able to spend time with my kids and choose what I do each day... be it work, travel, or anything else). To make that happen, I plan on making many other investments, but I will have a ten year timer starting in a couple of months.


PMI Options

With the way home ownership has changed in the past years, it is very likely that you either carry private mortgage insurance (PMI), or that you have multiple home loans in order to avoid PMI. PMI costs about $45/month for every $100,000 of your mortgage. With an average home price of $200,000, across the United States, that means you are probably spending about $90/month on PMI. Considering that you receive no tax advantages for PMI, like what is available for mortgage interest, you may feel like you are just throwing money away. Chances are you have better options available.

What is PMI?

PMI, or private mortgage insurance, is outside insurance that is payable to your mortgage lender if you default on your loan. Before PMI, lenders would not give you a mortgage exceeding 80% of a homes value. With PMI, you are able to purchase a home with less than a 20% down payment. Lenders now require you to carry PMI if you do not have at least 20% equity in your home. Once you have 20% equity in your home, you can cancel your PMI. PMI can be reduced if you have some down payment, as well.

How PMI is paid

There are three ways that you can pay your PMI. The most popular option is a monthly option. When paying monthly, you are required to pay two months up front at closing. Then, you pay your PMI premium along with your mortgage every month. This comes out to about 0.50% annually. Another option is to pay your first year up front, and to pay your PMI annually via your escrow account. There is not much benefit to doing this. The third option is to pay your entire PMI premium, called a single premium, for the life of the loan, up front. In the past, this was about 2.2% of your mortgage. This option nearly became non-existent in the recent years.

You have options

One of the most clever options has become known as the piggy-back loan, or the 80-10-10 option. In this option, you put just 10% down, and your mortgage broker gives you two loans, one for 80%, and a second for 10%. This meets the 80% requirement to avoid PMI. This has become very popular, because you do not pay PMI at all. However, the second loan for 10% is usually at a much higher interest rate in a quick term of 10 to 15 years. Usually, this negates most of the savings made by avoiding PMI. However, all the money is in a mortgage, and the interest is tax deductible.

The latest option is the return of the single premium. In response to the housing market, mortgage insurers have revised the single premium to be 1% of the mortgage value. In addition, this value can be added to the value of your mortgage, so that you do not have to pay it out of pocket at closing. With this option, you do not pay a monthly or annual premium for mortgage insurance, so you can avoid the national average of $90/month. Also, since all of the premium is added to the mortgage, the interest is tax deductible. The only disadvantage is that it increases your mortgage, but only by 1%. What does this mean? Well, the average mortgage costs about $50/month for every $10,000 borrowed. So, if you have a $200,000, your monthly payment would be about $1,000. Adding the 1% premium to the mortgage makes it $202,000, and the monthly payment is $1,010. That is only $10/month more, as compared to the $90/month for PMI. The interest is tax deductible. You have only one mortgage which means you have one payment, and you have one set of paperwork to handle at closing, which typically translates into lower closing costs. Also, you avoid the high interest second loan that may cost you about $20/month more than a single premium option.

Be advised, not all mortgage companies do this. You have to shop around. Even if you have closed on your home in the past two years, you may benefit from refinancing if you have a piggy-back or pay for PMI monthly.



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