Q: What are some financial must-dos if you have recently been laid off or are concerned about getting laid off?
A: If the “L” word is being tossed around your job as a real possibility, you need to go into financial combat mode like never before. And certainly if you’ve already been laid off, or you know for sure the pink slip is coming, there are some things you should have already done to survive the job loss.
Here are some tips on what to do if you suspect you are going to be laid off, but you don’t know for sure:
- Cut back on your expenses, without delay. If you don’t have a budget, now’s the time to get one in place.
- Stop any aggressive pay-down of debt. For example, just make minimum payments on your credit cards. The point is to preserve your cash. If you later learn your job is safe, then go back to paying down that debt as soon as you can.
- If you don’t have an emergency fund and you’ve cut all the expenses you can, also consider discontinuing retirement contributions, just until you can build up a cash cushion. Once you have at least three months of living expenses, then go back to contributing to your retirement fund.
Here are some tips on what to do if you have already been laid off or you will soon lose your job:
- Again, cut back on your expenses. Often people underestimate how long it will take to find a job. So they don’t cut back on their expenses right away. Once you’ve lost your job, you need to drastically trim your expenses. For example, reduce your cell phone plan to the minimum package. When I’ve done this with individuals, typically they could save about $50 a month, which goes a long way to help pay for groceries or gas.
- Apply for unemployment insurance right away. It can take a few weeks to process your claim. In many cases, you can even apply online or by telephone. And just so you know, the first $2,400 of your unemployment benefits in 2009 would be exempt from federal income taxes.
- Take advantage of any counseling, career seminars or outplacement assistance your former employer may be offering. If your employer isn’t offering assistance, go to CareerOneStop, a career resource Web site sponsored by the Department of Labor. Click on “People and Places,” then go to “One-Stop Career Centers.” Definitely take advantage of the résuméservices. If you’re like me, you may not have updated your résumé in decades.
- If you can, maintain your health insurance. Employers are required by law to offer the option of continuing your health insurance for up to 18 months through the health benefit provisions of COBRA (the Consolidated Omnibus Budget Reconciliation Act of 1986). The problem for many people is that they have to pay the full amount for the coverage plus an administrative charge.
However, the recently passed stimulus plan included help with COBRA payments. Under the law, eligible individuals pay only 35% of the full COBRA premiums under their plans, for up to 9 months. Your former employer will pay the remaining 65% and recoup that money by applying for a credit on their quarterly federal employment tax return.
To qualify for the reduced COBRA payment, you must be involuntarily separated from your job between Sept. 1, 2008 and Dec. 31, 2009. The subsidy phases out for individuals whose modified adjusted gross income exceeds $125,000, or $250,000 for those filing joint returns. Taxpayers with modified adjusted gross income exceeding $145,000, or $290,000 for those filing joint returns, do not qualify for the subsidy.
There’s another catch to this payment break. The premium reduction applies to coverage beginning on or after Feb. 17, 2009, when the law was enacted.
For more information visit the “FAQs For Employees About COBRA Premium Reduction Under ARRA” [the American Recovery and Reinvestment Act of 2009] Web page of the Department of Labor’s site.
- Try to avoid withdrawing money from your 401(k) or other tax-deferred retirement accounts. Unless you are facing being put out on the street, or you have no money for food or utilities, don’t touch this money. Early withdrawals are subject to a 10% penalty if you are not at least 59½. Additionally you have to pay regular income taxes on the money.
- Start looking for a job right away. Make your search your full-time job. If you can’t find a job right away, you may have to take any job to bring in some income. But be strategic about this. Try to take shifts or get hours that will leave you with an opportunity to search for the job you really want.
I know the prospect of losing a job or getting laid off can be traumatic. But don’t let the emotional stress of this situation get in the way of handling your finances.