Look Before You Bail Out of the Working World

Laura is lucky. She has a great boss. A wonderful job. A good income. A working husband. And all the amenities afforded successful two-income families: nice cars, a nice house in a nice neighborhood and lots of gadgets and gizmos that make life comfortable.

There’s only one problem. She wants to quit her job.

Like millions of other parents, Laura is exhausted from combining small children with full-time work.

“I feel like I’m pulled so tight that I’m really trying to figure out whether I can afford to quit my job,� she says. “I want to do a good job at work and I want to be a good mom--and I think I am. Meantime, I’m in there at midnight typing up a report and checking my e-mail. I’m getting it all done--it’s just so difficult.�

Trying to decide whether to scale back to one income from two is complicated, financial planners say, because only part of the impact is easily calculable. But whether voluntarily or in reaction to a layoff, more couples are living with the changes.

“I’ve had two couples who decided to move into smaller homes to make it work,� says Elaine Bedel, an Indianapolis-based financial planner. “Most people can do it if they are willing to make the necessary sacrifices.�

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How do you do it?

You determine how much your family income will drop when you eliminate one job. Then you subtract what you save on work-related expenses, including day care and taxes. Then you contemplate a host of intangible items, such as the effect of a career interruption on your promotion prospects and your retirement planning.

The tangible items, such as what quitting will cost in salary and benefits, are fairly easy to calculate. You jot numbers on a graph indicating roughly how much you’ll lose in salary and how much you’ll save in work-related costs, such as transportation, parking, work clothes, dry cleaning and day care. When calculating the loss of salary, however, you should also include the value of company-paid benefits, such as matching contributions to your 401(k) plan. And you should include your cost of replacing any needed benefits.

For example, if you were covering your family under your health insurance plan at work at a net cost to you of $100 a month, and you could switch to your spouse’s health insurance plan at $120 a month, you need to note only the difference--$20--for the purpose of this calculation.

The hard part is determining the impact of intangibles, says Kathleen A. Stepp, a financial planner in Overland Park, Kan.

For instance, when you are not planning to leave the working world forever--just for a few years to care for small children, say--you need to consider how the break will affect your career path, Stepp says.

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With some jobs and some industries, the impact could be minor.

In other cases, stepping out for a few years could put you back on the bottom rung of the career ladder--lower than you were before the break and far lower than you would have been if you had stayed put. Sometimes part-time work is a better solution. On the other hand, it’s possible that harried parents who don’t take a break could burn out faster, retire earlier or find themselves less successful simply because they were answering to too many masters. And some people give priority to the benefits such a break can have on children.

In addition, your retirement prospects change if you take time off work. Company-paid defined-benefit plans are based on years of work and salary, and so are Social Security benefits. Clearly, fewer years of work mean you get somewhat less. However, precisely how much you’d lose by taking time off is hard to calculate without knowing exactly how long you’d be gone and how your career path would be affected.

Then, too, some people who return to a company within a set period are able to reclaim past years for purposes of their retirement plans. That can be a significant benefit that drastically reduces the negative impact of taking time off.

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The precise impact of these intangibles is impossible to accurately predict. However, you’d be foolish to ignore them completely, Stepp notes. Instead, you’ve got to estimate an impact--giving some thought to a whole range of possibilities. Even if your estimate is off, it’s better than acting as if there would be no impact at all.

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Kathy M. Kristof welcomes your comments and suggestions for columns but regrets that she cannot respond individually to letters and phone calls. Write to Personal Finance, Los Angeles Times, Times Mirror Square, Los Angeles, CA 90053, or message [email protected] on the Internet.