4 Financial Safety Nets Every Millennial Needs When Changing Jobs

Compared to older workers, millennials are more likely to make frequent job changes throughout their career. According to the latest data from the Bureau of Labor Statistics, the median stay at a job is three years for 25- to 34-year-olds compared to 4.6 years for the workforce as a whole. Today, I'm breaking down the most important financial safeguards millennials need to have before making a professional move.

1. A rollover IRA

Millennials for the most part are hyper aware of the need to start saving for retirement early on their career. A 2014 study from the Transamerica Center for Retirement Studies found that 71 percent of millennials who are able to save through a 401(k) or a similar employer-sponsored plan are taking full advantage. The problem is that some 20-somethings are leaving retirement money behind when they switch employers.

If you know that a job change is in your future, you have a few different options for handling your 401(k) balance. The first is to just leave it with your old employer and let it continue to grow. That saves you some of the hassle of moving it out of the plan but it's all too easy to forget about it. You could roll the money into your new employer's 401(k) plan instead, but not every company allows you to do that.

Cashing out the account triggers taxes and penalties which leaves a rollover to an IRA as the most desirable option. Generally as long as the funds are transferred directly from your 401(k) administrator to the brokerage where you open a rollover IRA, you won't have to pay taxes on the money. Rollover IRAs tend to offer a wider range of investment choices and fewer fees versus putting the money into your new employer's plan.
Tip: If you roll money from a pre-tax retirement account into a Roth IRA, the IRS classifies it as a conversion. That means you'd have to report the full amount of the rollover as income on your taxes.

2. An emergency fund

It's hard enough to save money in your 20s when you're dealing with expensive student loan payments but it's in your best interest to eke out a few extra dollars for an emergency fund. This is especially true if you're leaving your old job behind without a new position waiting in the wings.

As a general rule of thumb, three to six months' worth of savings is typically considered sufficient. What size cushion you're comfortable with ultimately comes down to what your expenses are and how far you need the money to stretch. For example, if you still live at home with Mom and Dad, you may be able to get by on less if you're not spending hundreds of dollars a month on rent.

Once you've decided how much money you need to have the next step is to find someplace to put it if you don't have one already. We like high-yield savings accounts based on the convenience they offer and the fact that they pay slightly more in interest compared to a regular savings account. Take a look at MyBankTracker's savings rate comparison tool to see what the latest rates are.

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A money market account is another alternative, as is a certificate of deposit. The catch with keeping your emergency savings in a CD, however, is that you'll have to pay a penalty if you need to pull the money out before it matures. The penalty usually comes to six months' worth of interest so if you need to tap it while you're between jobs, you risk wiping out any earnings on what you've saved.

3. A no-fee rewards credit card

Leery of taking on more debt, millennials are notorious for shying away from credit cards. In fact, a recent survey showed that more than a third of those age 18 to 29 have never had a credit card.

When you're transitioning between jobs, your emergency fund is one of the most important safety nets to have but sometimes you need a back-up for your back-up. That's where a credit card comes in. If you have a large expense that you need to cover or you put your savings in a CD and can't get to it right away, that piece of plastic in your wallet can save the day.

So why do we recommend a no-fee rewards card specifically? Two reasons. First, if you don't normally use credit that often it makes no sense to pay a fee just to have the card. Even if it's just $20 or $30 a year, that's money you're better off putting in the bank or adding to your nest egg instead of handing it over to a credit card company.

The other benefit of having at least one rewards card is that if you do use it, you can snag some savings as your points or miles accumulate. You can convert those rewards to cash, use them towards free travel or even make an extra payment towards your student loans.
Tip: If you don't have a credit card, look for one that has a generous sign-on bonus. These cards let you earn a lot of rewards with very little effort as long as you meet the minimum spending requirement.

4. A high-deductible health insurance plan

If you know you'll be covered under your new employer's health insurance plan, that's one less thing you have to worry about from a financial standpoint. On the other hand, if you're making the move to part-time work or going freelance, you'll be on the hook for getting your own insurance.

When you're in your 20s and relatively healthy, a high-deductible plan makes sense especially if you don't have a lot to spend on coverage. With a high-deductible plan, your premiums are fairly low but the catch is you're responsible for a bigger share of out-of-pocket costs before your insurer pays the difference. There's another benefit, however, since you having the option of saving money in a Health Savings Account (HSA) with this kind of plan.

An HSA is designed to help you save for medical expenses but there's no set time frame for when you have to use the money. That means you can keep adding to the account until you actually need to use it. Withdrawals for medical expenses are always tax-free. If you take the money out for something else, you'd have to pay regular income tax on it along with an additional 20 percent penalty.
Tip: Non-medical expense withdrawals made from an HSA after age 65 are not subject to the additional 20 percent penalty.
Are there any other money must-haves that can make changing jobs easier? If you've made a recent career move, tell us what you did to prepare financially in the comments.