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Plan Well, Retire Well

Saving and investing your money

Think you might be getting laid off? Here are some questions to ask youself.


On Monday, according to the New York Times and others, US companies announced a total of 75,000 layoffs. I'm not sure I know anyone who feels totally secure in their jobs right now.

If your job might be on the line, it would be smart to have an action plan together. It might include things to do now, and actions that would be contingent on actually getting laid off. Here are some of the things that are on my list, in case I or my husband gets the dreaded pink slip:

Do you have a retirement plan at work?

Find out whether you are vested. If your employer contributes to your retirement plan, you may have to work a certain number of years before you're vested - entitled to the company's money. If you aren't vested, how many more months would you need to get there, or to be vested in a higher percent of the company's contributions? If you get a layoff notice and need just a short time to be vested, you might try to negotiate.

Plan how you would handle that account if you get laid off. Will you employer let you leave it there? Would you roll it over to an IRA? If so, decide where you would set up that IRA account and find the paperwork you would need to open the account and transfer the money from your employer plan. Spending this money should be your absolute LAST RESORT. Why? Taxes and penalties for one thing. Sacrificing your future financial security is another. Plus, retirement plans are generally protected from creditors.

Is your health insurance through your employer?

If your employer has 20 or more employees, Federal law will require that they offer you COBRA coverage, meaning that you can pay 102% of the actual cost of your insurance and keep it for up to 18 months after being terminated.

If your spouse's employer also offers health insurance, he or she will likely be able to add you (and your kids, if you had carried them on your insurance) even though it's outside of the open enrollment period. A family member losing health insurance is what's considered a "qualifying event" that allows an employee to add other family members to their coverage. If your spouse also has a medical flexible spending account, this qualifying event may also allow him or her to enroll or to change the contribution amount. Decreasing the contribution would give you more take-home pay. But do the math. If you know you will have medical expenses greater than the contribution amount, the tax savings of paying it from an FSA might be a smart idea. Just remember, your tax rate may go down as a result of your lost wages. But see the section about Unemployment Insurance.

Where is the closest unemployment office?

Filing for unemployment should be one of the first things you do if you get laid off. Find out where to do that NOW, so that you'll be less likely to procrastinate if you get laid off. The sooner you file, the sooner the benefits will start. There is one piece of bad news about unemployment benefits: those payments are taxable income. So your tax bill may not drop as much as you'd hoped.

Can you survive on your unemployment check or your spouse's paycheck?

If you haven't been tracking your expenses, start. First, write down all the regular bills you have: rent or mortgage, car payment, utilities, cell phone, cable or satellite TV, etc. Then start tracking all the other things that take your money: groceries, clothing, haircuts, gasoline for the car, donations, gifts, subscriptions, etc. Estimate how much it costs you to live each month, and compare that with your spouse's income or your unemployment check. You'll have to cut expenses to make up the rest if you don't want to be spending down your assets or going deeper into debt.

How much cash do you have on hand?

If you can't make ends meet without dipping into your savings or selling assets, you need to know how long your cash will last if you can't find a job. What other assets might be turned into cash? There are penalties and barriers to accessing some assets, such as retirement plans and annuities. See our fact sheet for more.

These are hard decisions. Please visit Getting Through Tough Financial Times to find more tools to help you plan and survive this difficult time.

Also, click on my name below to email me and let me know how you're preparing for or dealing with a layoff. We can learn from each other.

Update: Feb. 1, 2009:

This post received an Editor's Choice rating from the Carnival of Personal Finance. View this week's Carnival hosted by Funny About Money. This week's Carnival theme is Buddy, Can Your Spare a Dime?



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