Layoffs: Ready For A Rainy Day?
If you think that you are about to be laid off, CBS 'This Morning' Contributors Ken and Daria Dolan have some advice for you, along with information about steps you can take to make the financial transition easier.
- Always be ready for the unexpected. We all know somebody who was laid off, but for weeks or months in advance denied the obvious clues of what was going to eventually happen. If you have a strong hunch that your job may be eliminated, prepare for it.
- State unemployment benefits is the base income that will help you make ends meet. But it is not a substantial amount of money, even for the average person. And most people don't know that it is taxable. What usually happens is that the person gets them and doesn't take into account that he'll have to pay taxes on them at tax time. If he's still unemployed come April 15, he has an IRS problem in addition to unemployment and debt. (Now some states are beginning to withhold taxes for you.)
- Check out how much you have saved and invested. You should have 3-6 months of income for an emergency such as this.
- Evaluate your investments. Are you taking too many risks with your "emergency capital," money that you might need to support you and your family after a layoff? Check the liquidity of your investments to be sure that you can get your hands on money if you need it.
Are there any fees or penalities that kick in if you do withdraw funds from your investments before a certain date? Your "emergency capital" should be in investments that are liquid, not risky and income-oriented. Some examples of income-oriented investments are money market mutual funds (which pay more than bank money market accounts), Certificates of Deposit, and Treasury notes. If you have enough funds, one good strategy is to put half of your "emergency capital" into a short-term account and half in a 3-month CD or Treasury. If after three months you are still laid off, then you still have some funds still available that are bringing in greater interest rates.
- Leave your 401K alone as long as possible because you will have to pay tax on any money you withdraw and, if you are young, you will have to pay a penalty. Statistically, people who change jobs and remove 401K's don't tend to roll them into retirement plans. As a result, they pay taxes and penalties and have a much smaller kitty.
- If you realize that you don't have 3-6 months worth of income and a layoff is imminent, you can open a home equity line of credit. You don't have to pay for it until you need it. It is a lot easier to get approved for one when you're working than after you have been laid off. Hopefully, you won't have to tap into this line of credit, but it's there if you need it. This is not something everyone facing layoff should run out and do. But if you have a line of credit and don't have enough savings, then judiciously tap into iand you will only be charged interest on what you take out.
- Check your company's "layoff" benefits. If you are covered by COBRA (the Consolidated Omnibus Budget Reconciliation Act of 1985), your employer must provide you with the same level of coverage for 18 months. But you pay the premiums for the coverage, although at a lower group rate. COBRA even applies if you are re-hired by a company with an inferior health plan.
- Keep networking while you're gainfully employed. You will need contacts if you get your pink slip, and your call will be better received if it does not come "out of the blue" when you hit a bad patch.
By planning before layoff, you also have the time to check out your investments and make necessary changes before you need the money. Even if you think that you are very secure, it never hurts to run over finances, say the Dolans. You should check them regularly.
