Can You Afford to Join the Great Resignation?
(Bloomberg Opinion) -- Many of us fantasize about quitting our jobs. In 2021, more people than ever turned that dream into reality. The latest U.S. Bureau of Labor Statistics data show that 4.53 million Americans voluntarily left their jobs last November. This was both a new monthly record and the eighth successive reading above the pre-pandemic high.
In the U.K., the story is a little more nuanced. Nevertheless, the number of job vacancies as of November 2021 stood at a record 1.21 million, according to the Office for National Statistics.
It would appear that the Great Resignation is alive and well and likely to continue into 2022. If you’re considering jumping ship, one of the first things you should ask is: Can you afford to?
In the U.S. and U.K., many quitters actually had new jobs to go to, or at least good reason to believe they weren’t taking a huge risk with their careers or finances. Indeed, positions were aplenty. Similar to the U.K., the U.S. JOLTS job openings report showed vacancies remained far above pre-pandemic levels at 10.6 million in November.
But not everyone resigning has their next gig lined up. In these cases, it is vital to consider the costs involved in voluntarily leaving the workforce, even on a temporary basis.
If you choose to quit simply because you’ve had enough and want a career break, you stand to lose far more than just your regular wage. Studies of mothers leaving work to raise children show that taking even short periods off can put a dent in lifetime earnings. A 2018 paper calculated the life-cycle career cost of children to be equivalent to 35% of a woman’s total earnings.
Your workplace pension will likely take a hit, too. If you earn 50,000 pounds a year, even the basic level of auto-enrollment pension contributions would add more than 3,500 pounds a year to your pot. For a 30-year-old facing another 40 years of work, losing a single year of contributions would compound to 24,639 pounds, even with a relatively modest nominal 5% annual return.
If retirement seems far away, consider what you’ll live on while recharging your batteries. Perhaps you have the recommended six months of spending as an emergency cash reserve. Great if you have that to draw from, but it’s worth thinking about how and when you’ll replenish those funds. Inflation is rapidly eroding the spending power of savings: The U.K. Retail Price Index currently stands at 7.1%, which would double the cost of living in less than a decade. U.S. inflation hit a 39-year high of 7% in 2021. Even wages aren’t keeping pace with that.
Quitting is also likely to impact benefits you can receive. In the U.K., you may become eligible to claim Universal Credit, the catch-all low income/jobless benefit, which starts at 257.33 pounds a month for a single person under 25. But payments can be reduced if the Department for Work and Pensions determines you didn’t have a good reason for resigning. And you’re ineligible for the benefit if you have more than 16,000 pounds in savings. In the U.S., you’re generally not eligible for unemployment payments if you voluntarily leave your job. Maintaining your health care can become a concern.
A loss of income along with these other costs should alter your attitude to risk. One of the principles of investing is that the longer-term your outlook is, the more appropriate it is to invest in riskier assets, such as the stock market, that over time usually result in significantly higher returns. But without a job, you’re much more vulnerable to even short-term market shocks. So it’s wise to keep more of your wealth in safer, lower-yielding assets. This adds an opportunity cost to the compounding impact of missed contributions.
Of course, you may still decide taking time off work is worth it. Burnout is real. And there are ways to make up for some of the financial losses. In the U.K., for instance, even if you’re ineligible for Universal Credit, you might still be able to claim National Insurance credits if you apply. If you own a house, you can switch to an offset mortgage, where overpayments build up in a linked savings account and can be withdrawn if necessary.
Yet it’s worth bearing in mind that the job market might look different when you decide to dive back in. The experience of women re-entering the workforce after a child-rearing break is telling: According to a 2019 report commissioned by the U.K. government, mothers who left employment completely were three times more likely to return to a lower-paid or lower-responsibility role than those who did not take a break.
Even if you’re planning just a short leave, you have a lot to think about. The true cost of an interruption could be higher than you imagine. Make sure it’s something you can afford.
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This is based on the estimate from pension provider Aegon that the value of the full 35 years of state pension is 336,500 pounds.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Stuart Trow is a credit strategist, pensions blogger, radio show host and member of numerous retirement, finance and audit committees.
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