Prepare To Lose Your Job

Ray Martin Has Advice That Could Help Set You Up To Weather The Storm, Just In Case

(CBS)  The economy in introuble and the unemployment rate is at its highest point in five years.

In this environment, Early Show resident financial expert Ray Martin encourages everyone to be prepared to be laid off, or even for his or her company to fail.

Even if you're not worried about your job, you should be prepared for the economy to get worse before it gets better and the impact that could have on your pocketbook, Martin advises.

On The Early Show Thursday, Martin laid out his "defensive playbook" for surviving a bad economy:

CASH CUSHION

Some people are worried about losing their jobs. Others are worried about paying rising heating bills, on top of high food and gas prices.

"We bore everybody to tears talking about emergency funds," Martin says, "but this is exactly what we're talking about. You need an emergency fund at times like this."

If you don't already have three-to-six months' worth of expenses tucked safely away, you need to focus all of your financial energies on making that happen NOW.

To-do:

--Decrease your 401(k) plan contributions to the minimum required to collect your employer's company match (typically six percent of your pre-tax pay). The increase in net pay should be used to build up your emergency fund.

--Eliminate all unnecessary payroll deductions, such as savings bonds or charitable contributions. Use this cash to bolster your savings.

--Reduce your income tax withholding from your pay, especially if you typically receive a tax refund. Over 70 percent of all tax filers -- about 95 million Americans -- receive a tax refund each year. The average refund is more than $2,500. A large tax refund may feel good, but larger take-home paychecks NOW will help you to build your cash cushion more quickly.

PROTECT YOUR PORFOLIO

If you have an outstanding loan from your 401(k), make a plan to pay it off as soon as possible. If you lose your job, most plans require you to repay it within 30 days of termination. Otherwise, they treat the loan amount as a taxable distribution. That creates a tax and penalty ambush for an unsuspecting and unfortunate worker, because income taxes and early withdrawal penalties will be assessed on the amount of your loan if you are under age 59-1/2. If possible, try to pay off these loans from other sources.

Obviously, if you are laid off or your company goes bankrupt, you'll lose further employer contributions to your retirement funds. However, you won't lose the money in those accounts: Federal laws protect your savings.

One caveat: If you have a large portion of your retirement savings in company stock and your company fails, you're set up to lose a lot of cash, and the government does not protect your lack of financial planning. Employed or not, now more than ever, you want to spread your risk out among stocks, bonds and cash.

Finally, because you likely won't be making retirement contributions if you're laid off, it's more important than ever to continue contributing while you can. Don't let the bad economy scare you into stopping your savings plan altogether while you're still employed.

To-do:

--Diversify, diversify, diversify

--Pay off any 401(k) loans

INSURANCE

A big concern for workers facing unemployment is what happens to their health insurance.

If you're married, an easy solution is to become covered under your working spouse's plan.

If that isn't an option for you, see if you're eligible for continued coverage under COBRA (short for a federal law called the Consolidated Omnibus Budget Reconciliation Act). It enables you to buy individual health coverage at your former company's group rate for up to 18 months after you're laid off, assuming your company has more than 20 employees.

If your company files for Chapter 11 bankruptcy, meaning it's going to restructure and stay in business, your coverage may remain unchanged. If you're laid off as a result of the bankruptcy, you're still eligable for COBRA.

To-do:

--If you are employed in the financial field or another "risky" area, switch to your spouse's insurance plan now. Since most companies are in the middle of their annual open enrollment period, now is an easy time to do it.

--Contact your human resources department and ask if your insurance will be continued or terminated. Find out NOW, so you know what to expect and how to proceed if you lose your job.

Life insurance is another concern. If you lose you're job, you'll also lose the life insurance supplied by your employer. Here's the GOOD news: You may be able to get cheaper term insurance on your own. Companies guarantee employees' life insurance so, no matter your sex, your age, or your health, you'll have coverage, and you'll pay the same as your colleagues. Thus, this "group rate" is a combination of expensive and less-expensive life insurance (expensive insurance to cover older, less healthy employees; less expensive insurance to cover everyone else).

To-do:

--Check into buying your own term life insurance online; you'll likely get a cheaper rate, especially if you're young and healthy.

[justin2308-2009]

this crazy mess was created by greedy mortgage brokers, salesperson/brokers etc... why should the people who work hard have to bail out these people? these people are GREEDY and didn''t think for once about their greediness. Also the people who got these mortgages were suckered into a ridiculous mortgage that the interest rates skyrocketed. I have a fixed rate and declined any other type of program. You cannot trust anyone or the market. The fixed rate was the only way to go. The government gets these homes and want to turn it around to get a profit, How with the way things are? who can afford these crazy home prices? the only way I see it if these homes prices go down, the interest rate is fixed and the people can get it at a lower interest rate, otherwise this bail out would be a disaster.

[interactiveb]

My husband was laid of in March. He took it as an opportunity to start his own business and we have put 10k into savings since then. We pay HALF of what we did for health insurance through his company (we have a higher deductible, but with savings you can take that risk). We BUDGET, SAVE and spend LESS than we make. I do things like make my own laundry soap (go to www.savemoneytoday.net for the recipe) and we pay cash for our cars! You can be proactive!

[nicholasma]

NO! No bailout, I never got the chance to own a 500,000.00 house and bull *** my way to that kind of loan!

Please tell me... 700 b in bad loans this years means what ??? in 4 years their still bad loans !! let then eat there loans. Dot tell me to eat cake!

[praiseallah1]

Don''t Let Bush bailout Wall Street with $700 Billion in Tax Payer money!

Email your States Senators, Congressperson, House Representatives and DEMAND that they vote NO on any Bailout because this money will just be used to pay off Wall Streets debt that they created themselves through their own greed by marketing bundled bad mortgage loans!

We have also sent sorning emails to George Bush, Nancy Pelosi, Harry Reid, Chris Dodd, Barney Frank, McCain, Obama saying we will vote them OUT of Office.

Watch this video which show which lawmakers are responsible for the sub-prime mortgage mess at http://wallstreetmarketnews.blogspot.com/2008/09/who-is-to-blame-for-wall-streets-700.html

[yelobutterfl]

So the question is: If we are switching to HD televisions now. How are communities/government working with people to help save the environment from all the TVs that are being thrown away due to people buying new ones. It seems to me that we want to help the earth but that topic has not been discussed at all. Should we not look at some way in recycling these TVs in order to not fill landfills more in the next couple years?

[westshoe]

My husband already lost his job this month because his job was moved to Chinna. We had some warning so we have no big bills. I wish he had done the 401k, but didn''t. I can''t work so we have pulled back to the bone for now until he can get a new job. Anything we have in saving I don''t want to touch. I think Ray Martin would be happy with want I have done, I hope.

[babooph]

What about our poor rich-with the middle class wiped out -who will give the feds $ for their massive tax cut on their trust funds??

[oneworldusa]

One more point: ''Decrease your 401k contributions to the minimum to get the full company match.'' Um. Most Americans aren''t saving that much anyway.

[oneworldusa]

I would say that people need more like 6-12 months of living expenses in an emergency fund, at all times and especially now.

[missglo]

Its strange, when Wall Street lay off employee''s. It becomes a big problem. But when it happen to average American''s jobs went to China. Not a word was said. Its hard for me to pity them. We had to find our own way out.

[hypnotoad72]

"--Check into buying your own term life insurance online; you''ll likely get a cheaper rate, especially if you''re young and healthy."

That''s like age discrimination, right? :)

[rational_1]

To-do: buy a big tube of KY so when you get reamed by the financial industry it won''t hurt as much.

To-do: start learning Cantonese or Mandarin so you''ll be able to understand your new boss.

To-do: enquire why both the Dems and Repubs made this mess of the financial markets when they repealed the Glass-Steagal Act?

To-do: realize that a federal government that has already accumulated untold trillions in Medicare and Social Security commitments and spends hundreds of billions on a war in a manner outside the regular budget probably has no business scolding private businesses about their shoddy financial practices.

To-do: on second thought, better make that a case of KY. The Feds are going to be reaming you after the financial markets are through with you.

[ejcspau]

You said it perfectly misands. God Help Us!

[misands]

The country will continue to spiral downhill no matter what transpires out of this risky bailout plan, and the American standard of living will continue to sink for the majority of people. As our way of life continues to erode, it is a matter of time until Americans turn on each other as they hate each other so. Democrats and Republicans are no longer united as countrymen, and the hate between the two continues to fester like a cancer. This in turn will create more instability and a continued fall in our lifestyles. As America cumbles, out of the ashes will rise the new world superpower - China.
Greed and ignorance will be the name of the disease that displaced America as the world''''''''s power. So brace yourselves for we have a long and rough ride ahead.