Career switching has become more common as people work longer to save enough to retire.
Making a move to a new career later in life can help you stay in the workforce longer.
The likelihood of still working at age 65 was 9.1 percentage points higher for people who had changed jobs in their 50s, according to a recent analysis by the Center for Retirement Research at Boston College. (See table below.)
The problem for many career switchers is that they can usually expect a pay cut when starting out in a new field. And the lower salary can diminish what they can save for retirement.
"I actually recommend career switchers not to worry about the short-term lack of retirement savings. The more important thing is the long-term career trajectory," said Hui-chin Chen, a certified financial planner and co-owner of Pavlov Financial Planning in Arlington, Virginia.
If you are thinking about switching careers, here are three steps you should take:
Know your worth
Careers switchers often make the mistake of not adjusting their market value accordingly and not appropriately anchoring their new numbers in compensation conversations with their potential employers, said Rachel Kim, a senior manager of the career advisory board at online lender SoFi.
"Your professional market value is not a fixed number – it is one that has to be adjusted not only with your education, experience and expertise, but also with the context of the market that you're working in and the company you're working for," Kim said.
Career websites, such as Glassdoor, LinkedIn and PayScale, offer free online tools that can help you estimate what your pay will be if you change roles.
Boost your value to potential employers by highlighting your transferable skills, such as communications, teamwork and leadership, that apply across all fields and roles, said Blair Decembrele, a career expert at LinkedIn.
"With 59 percent of U.S. hiring managers struggling to find enough candidates with soft skills – capabilities such as interpersonal management and critical thinking – it's important to showcase everything you're bringing to the table," Decembrele said.
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Run the numbers
Once you have a ballpark salary, figure out how that pay fits into your financial plan.
"The issue here is how the career switcher plans to deal with their new, lower income," said David Mendels, a CFP and director of financial planning at Creative Financial Concepts in New York City. "Are they planning to adjust their expenses downwards accordingly? Or do they intend to attempt to maintain their previous lifestyle on their now lower income?"
It's not just your paycheck and expenses that should adjust with your encore career. Understand how the income in your new gig will affect your Social Security benefits, which are based on your highest 35 years of earnings. Use these free calculators to determine how your salary will change your Social Security payouts.
Remember your 401(k)
Keep socking away money in workplace retirement plans if your new employer has one.
"You want to know what retirement benefits are offered, and how they differ from what you currently have before you sign on the dotted line," said MaryJo Fitzgerald, Glassdoor's community expert.
Find out if your new employer provides matching contributions to its workplace retirement plan. The average employer-matching contribution at a large company 401(k) plan is 50 cents on the dollar on the first 6 percent of pay, according to Vanguard.
One in 4 employees misses out on receiving the full company match by not saving enough — leaving an average of $1,336 on the table each year, according to investment advisory firm Financial Engines.
The consistency of your retirement plan contributions counts for a lot. Investors who have been in their company's 401(k) plan for 15 years straight saw their average balance grow by an annualized 14 percent, according to a recent analysis by Fidelity Investments.
If you don't have a retirement plan at your new employer, you can keep your contribution streak going by opening an IRA and putting in money regularly.
