Behavioral Finance

Reading Time: 6 minutes

People Change Jobs Frequently

The best data the Bureau of Labor Statistics has on how many jobs people hold in a lifetime is a longterm study that has followed baby boomers through most of their careers. On average, people hold 11.7 jobs between ages 18 and 48. You may have lost your job already, or it’s something you’re concerned about. Either way, the keys to surviving a job loss financially are to plan ahead, take stock of your income, and cut your expenses.

Plan ahead

If you haven’t been laid off, it’s a good idea to plan ahead for that possibility. It’s hard to know how long you’ll be out of work, so to be on the safe side, prepare for at least six months of unemployment. You might find a job much sooner, but you don’t want to be forced to take the first opportunity that comes along, especially if it isn’t suitable.

Come up with a financial plan for unemployment, and design your plan with some flexibility to allow for adjustments if your situation changes. Circumstances can vary based on how long you’re out of work, and whether unanticipated expenses arise while you’re unemployed.

Prepare a survival budget

A big part of your unemployment plan is a survival budget. Start with a list of all your income and expenses. You might already have a budget that you can use as a base, but your survival budget should be a bare-bones version of your regular budget. Include only expenses that are necessary. The goal of your survival budget is to have a good idea of what income you need to actually survive.

Your plan also should include an emergency fund that’s equal to at least six months of living expenses from which you can draw to supplement other sources of income. If you haven’t set up an emergency fund, you may still have time to do so. You’ll be amazed how fast you can deplete your regular savings if your unemployment lasts more than a couple of weeks.

If you lose your job, find some income

Start by checking with your former employer. Are you eligible for severance pay? Whether it’s available depends on your employer’s policy, but if you’re offered severance pay, you might have the option of taking it in a lump sum or as a continuation of salary for a fixed period of time. Taking severance pay in a lump sum gives you control over your money, but you may lose some employee benefits such as group health insurance. If you take your severance as a continuation of salary, you may be able to keep your benefits, but you’ll be dependent on your former employer’s ability to make payments to you.

But don’t stop there. Check with your local unemployment office to find out if you’re eligible for unemployment benefits. You can receive at least 26 weeks of benefits (more in some cases). Generally, to qualify for unemployment benefits you must have been laid off. You may even qualify if you’ve been fired, so long as it’s not for misconduct. You probably won’t qualify if you quit your job, however.

Reduce your expenses

If you’re unemployed, you may find that your income won’t support your current expenses. Aside from reducing your debt by selling big-ticket items like your car or house, there are other things you can do to minimize your living expenses.

One of your first considerations should be to identify and discontinue discretionary expenses. Such items as magazine subscriptions, health club memberships, extra phone services, credit cards you don’t use that have an annual fee, dining out regularly, and extra pay services on your cable television are examples of some of the expenses you can trim from your budget. You also may have to put off that planned vacation until you’re back on your “working” feet.

Talk with your creditors

Another way to cut your expenses is to try negotiating with your creditors to lower interest rates on your credit cards, defer a payment or two on your car loan, or reduce your monthly payments temporarily. You also may be able to lower your home mortgage monthly payments by refinancing to a lower rate (if you can qualify in spite of your job loss), or by negotiating a longer repayment period. You’ll have to admit that you’re facing some financial difficulty due to your job loss, but if your credit is good, now’s the time to make the calls–not when you fall behind in your payments.

Along those same lines, check with your mortgage company or credit card companies or look at your billing statements to find out if you have credit insurance. Credit insurance will make your bill payments when you’re unemployed. However, you may have to wait a while before receiving benefits.

While technically not an expense, you can also decrease your spending by reducing your contributions to retirement or education funds. However, the less you contribute now, the less you’ll have for retirement or college, so this option should be a last resort. But you might be able to make up for the reduction in contributions by increasing payments to those funds when you’re back on your feet financially.

Increase your income

You’ve cut your expenses and spending as much as possible, but you still don’t have enough income. Here are some ideas that might help you meet your expenses while unemployed.

Consider a part-time or temporary job. This will provide another source of supplementary income while you search for your next full-time job. And your part-time job could turn out to be your next full-time job–or at least it might lead to another opportunity with another potential employer. Also, your spouse or partner may be able to get a job if he or she is not already working, or pick up more hours at a present job.

If you’re really strapped

Your home is another source of savings you may be able to tap into. If you have enough equity in your home, sometimes you can obtain a home equity line of credit even if you’ve lost your job. You’ll only pay interest on the portion you use. But you’ll still have to make a monthly payment, so make sure you’re able to afford the new loan payments before you put your house on the line.

If you’re still strapped for cash, consider withdrawing from your tax-deferred retirement accounts, such as your IRA or employer-sponsored retirement Any money you withdraw from these types of accounts likely will be taxed as ordinary income for the year in which you make the withdrawal. Also, you may have to pay a 10% penalty tax for early withdrawal if you’re under age 59½ unless an exception to the penalty applies.

Tip: If you’re considering taking funds from your IRA or retirement plan, we may be able to guide you regarding the specific tax treatment of your withdrawal, because not all of it will necessarily be taxable. For example, if part of the withdrawal from your traditional IRA or employer’s retirement plan represents nondeductible contributions, you may not be taxed on that portion of the withdrawal.

If all else fails

If money really starts getting tight, be prepared to take more drastic steps. You might consider moving from your home and renting it temporarily. Obviously you’d have to find cheaper alternative housing, but the rental income from your home may be enough to cover your rental expenses while your tenants pay for most of the home costs, such as utilities and even real estate taxes. However, any decision you make in this area should be made with careful consideration, and only after evaluating how much you can actually get out of the deal.

As a last resort, you may have to consider selling bigger items like your car or even your home. Since these larger possessions usually carry a debt, by selling them you’re not only generating some cash, but you’re decreasing your expenses by ridding yourself of the debt attached to the item sold.

All is not lost

A job loss is not the end of the world, even though it may feel that way. Mapping out your priorities and drafting a bare-bones budget can help you come up with your own financial strategy for job loss survival. At Intelligent Investing, we serve many professionals and executives through job loss, job changes, and transitioning into retirement. We’d be happy to have a complimentary call with you to see if we can serve you and your family.

You may also have an orphaned 401k or 403b that you’ve left behind at your former employer. We’d be happy to share our thoughts on your multiple options and how best to utilize those retirement plans. In the meantime, you can check out our rollover page on this very topic.

Source: Some of the material used comes from Broadridge Investor Communication Solutions, Inc.

Reading Time: 6 minutes

You may be a dedicated employee who has worked for the same employer for many years, yet you still may be susceptible to getting laid off. Sometimes getting laid off is inevitable, but rarely does a company lay off all of its workers. Usually, it retains those who are most valuable and offer the greatest benefit, sometimes at the least cost. Fortunately, there may be some things you can do to make the decision to lay you off a little harder.

A Side Note Before Reading the Article

Before you read further, you should take some time to decide whether you want to stay at your employment if given a choice. Keep in mind that the grass usually looks greener on the other side of the fence. If you’re married, ask your spouse how they feel towards your current employment. Are you stressed every night you come home and take out your frustrations on your kids? Are you finding fulfillment in what you do? Work can be hard, and not every day is a honeymoon. However, if you find yourself frustrated most days, and you’ve done everything on your part to not be part of the problem, but the solution, then it may be time to pursue another direction. It is a personal and weighty decision, and I would recommend seeking counsel from close friends and family before putting in your two-week notice. Remember, it may be better to water the grass on your side of the fence before hopping over to see how green it is on the other side. Sometimes your employment is out of your control, and this article is geared towards those who enjoy their current job and don’t want to be laid off if they can help it.

Signs of an Impending Layoff

It may not be obvious, but often there are signs that layoffs are looming. Try looking at your employer from the outside. Often, larger companies must file financial reports with the state and federal government securities offices. You may be able to glean some information on the financial health of your employer from these reports. For example, if the company has publicly traded stock, see if its price has dropped recently, especially compared to the stock of similar companies that have not experienced the same downward trend. Are there rumors in the press or within the industry that your employer is involved in a sale or merger?

More often than not, the most telling source of information is what you hear and observe from within the company. What’s the talk around the water cooler or in the lunchroom? Have any key employees left the company recently? Have key management positions changed? Has your department undergone recent budget cuts? Are the bosses meeting behind closed doors more frequently than usual? Has the company proposed or implemented cuts in employee benefits, such as a reduction in employer contributions to employee health insurance or retirement plans? Have you recently received any negative feedback on your job performance or on the performance of your department? 

Before Protecting Your Job, Protect Yourself

In conjunction with trying to keep your job, be prepared to lose it. Think about who you might rely on for a good reference. Document your accomplishments, goals attained, and any ideas you promoted. Have your resume updated and ready. Keep your LinkedIn profile up to date.

In addition, read your employee manual or other documentation to find out about severance policies, health and life insurance coverage, and retirement plans in which you participate. Is there a severance package; if so, do you qualify? Can you remain covered by your employer-sponsored health insurance? If you have company-provided life insurance, what happens to it if you get laid off? Are you vested in your retirement benefits? Can you roll over your defined benefit or pension plan to another employer’s plan or to an IRA? Are you eligible for unemployment payments; if so, at what rate and for how long? You should have answers to these questions and review this information periodically.

Make Yourself Relevant on the Job

Take a step back and evaluate your job performance. Honestly and objectively examine how well you do your job. Can you find ways where you could improve your output? Can you improve your skills on the job? What can you do better or faster?

One surefire way to separate yourself from the majority of your coworkers is to focus on work while you’re on the job. It sounds simple, but it’s easy to get distracted by activities unrelated to work. So instead of engaging in online shopping, gaming, and personal e-mails, try increasing your productivity by focusing your time on getting your assignments done. Especially if your employer is experiencing some difficulties, don’t get distracted by gossip and long lunches. Rather, try to do more to improve your performance.

Tip: Don’t be afraid of “showing up” your coworkers. Remember, if a layoff is inevitable, you’re trying to stand out from other employees, not blend in with them. By the same token, try to be helpful and maintain a good working relationship with your coworkers.

Another way to stand out is by continuing your education. Demonstrate that you’re trying to enhance your job skills by taking advanced courses, even if your employer isn’t paying for them. But if your company offers tuition assistance or programs to defray education costs, take advantage of those opportunities.

Standing out also means making yourself as visible within the company as possible. Attend staff meetings and company events, even if they’re not mandatory. Arrive on time and be prepared. Participate during staff meetings, even if it’s to express support for someone else’s idea or proposal.

You’ll also get noticed if you volunteer for tasks and projects whenever you can. Let your boss know you’re willing to assume more responsibilities and spend more time at your job. If your boss offers you extra tasks and responsibilities, seize that opportunity to separate yourself from the rest of the pack. And if there are no new assignments, come up with a project on your own. Make your boss look good. The more you know, the harder it will be to replace you.

And don’t shy away from discretely communicating your accomplishments. Update your boss on the progress you’re making with a new task or project.

If you interviewed for your job, you probably dressed in a manner befitting the position to which you were applying. Thereafter, your attire may have become more casual. While overdressing isn’t recommended, consider sprucing up your wardrobe with some new work clothes. Look well-groomed and ready to work. Sometimes a change in your work attire gives your bosses the perception of a new, reenergized employee.

Another way to keep your job is by working in a department that’s performing well. Depending on the size of your company, there may be some areas that are underperforming, while other sections are surging. Find out which departments are holding their own and which sections are lagging. If you’re in an area that’s performing up to par or better, now may not be the ideal time to ask for a change. But if you happen to work in an underperforming sector, try to be part of the solution and not the problem. Don’t complain about what’s not working; rather, try to figure out what you can do to enhance your department’s performance. In addition, offer to spend time working with growth segments–even if on a voluntary basis. If jobs open up in a department that’s prospering, consider making an internal move to that area if a position becomes available.

Finally, despite all your best efforts, if your boss tells you your job is on the chopping block, you may be able to keep your position by offering to take a pay cut or a reduction in hours. If the company really values your performance, it may be able to justify keeping you on at a reduced cost, allowing you to hang on until the company is in a better position to increase your pay or hours. Meanwhile, you can continue to work as you map out your strategy for a different job either with your current employer or with a new company.

If you get laid off anyway

Were your efforts to keep your job worth it? Probably yes. If nothing else, you’re more marketable now, with greater skills, accomplishments, and maybe even more training and education. Your job performance should garner you some favorable recommendations and reference letters from your former employer to help you land that next job. And who knows, you might even be rehired by your former employer.

If you do find yourself unemployed, be sure to consider whether it is worth rolling over your 401k or 403b. Check out our blog on the topic. Being laid off can be an emotional and scary time. Intelligent Investing was built to help you control your emotions of fear and greed. We’d be happy to take you out for a cup of coffee or lunch to discuss your situation and see if we may be able to help. 

Source: Some of the material used comes from Broadridge Investor Communication Solutions, Inc.

Reading Time: 5 minutes

Unfortunately, the coronavirus isn’t simply a threat to our physical well-being, it’s also a direct threat to our pocketbooks. And it’s not just working-age Americans who could suffer the consequences. Seniors readying to retire could be forced into unwanted decisions as a direct result of coronavirus mitigation measures.

The closure of nonessential businesses has put many people out of work in a very short period of time. over 10 million people have filed jobless claims, and with more job losses to come and little certainty as to when economic activity will return to normal, unemployed workers will need income. For some, the answer will be unemployment benefits. As part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, $260 billion was apportioned to bolster the unemployment program and boost weekly payouts by $600 for the next four months. 

Unfortunately, some may not have the luxury of choosing when to retire, and many will be forced to retire early. For others who were planning on retiring in the next year or two, they may need to delay retirement. This article is to help those who may be thinking about retiring, as well as for those who will be or have been forced to retire early.

Deciding when to retire may not be one decision but a series of decisions and calculations. For example, you’ll need to estimate not only your anticipated expenses, but also what sources of retirement income you’ll have and how long you’ll need your retirement savings to last. You’ll need to take into account your life expectancy and health as well as when you want to start receiving Social Security or pension benefits, and when you’ll start to tap your retirement savings. Each of these factors may affect the others as part of an overall retirement income plan.

Thinking about early retirement?

Retiring early means fewer earning years and less accumulated savings. Also, the earlier you retire, the more years you’ll need your retirement savings to produce income. And your retirement could last quite a while. According to a National Vital Statistics Report, people today can expect to live more than 30 years longer than they did a century ago.

Not only will you need your retirement savings to last longer, but inflation will have more time to eat away at your purchasing power. If inflation is 3% a year — its historical average since 1914 — it will cut the purchasing power of a fixed annual income in half in roughly 23 years. Factoring inflation into the retirement equation, you’ll probably need your retirement income to increase each year just to cover the same expenses. Be sure to take this into account when considering how long you expect (or can afford) to be in retirement.

Current Life Expectancy Estimates

Source: NCHS Data Brief, Number 328, November 2018

There are other considerations as well. For example, if you expect to receive pension payments, early retirement may adversely affect them. Why? Because the greatest accrual of benefits generally occurs during your final years of employment, when your earning power is presumably highest. Early retirement could reduce your Social Security benefits too.

Also, don’t forget that if you hope to retire before you turn 59½ and plan to start using your 401(k) or IRA savings right away, you’ll generally pay a 10% early withdrawal penalty plus any regular income tax due (with some exceptions, including disability payments and distributions from employer plans such as 401(k)s after you reach age 55 and terminate employment) Due to the Coronavirus and recent legislation, the early withdrawal penalty may not apply, so be sure to check with your CPA.

Finally, you’re not eligible for Medicare until you turn 65. Unless you’ll be eligible for retiree health benefits through your employer or take a job that offers health insurance, you’ll need to calculate the cost of paying for insurance or health care out-of-pocket, at least until you can receive Medicare coverage.

Delaying retirement

Postponing retirement lets you continue to add to your retirement savings. That’s especially advantageous if you’re saving in tax-deferred accounts, and if you’re receiving employer contributions. For example, if you retire at age 65 instead of age 55, and manage to save an additional $20,000 per year at an 8% rate of return during that time, you can add an extra $312,909 to your retirement fund. (This is a hypothetical example and is not intended to reflect the actual performance of any specific investment.)

Even if you’re no longer adding to your retirement savings, delaying retirement postpones the date that you’ll need to start withdrawing from them. That could enhance your nest egg’s ability to last throughout your lifetime.

Postponing full retirement also gives you more transition time. If you hope to trade a full-time job for running your own small business or launching a new career after you “retire,” you might be able to lay the groundwork for a new life by taking classes at night or trying out your new role part-time. Testing your plans while you’re still employed can help you anticipate the challenges of your post-retirement role. Doing a reality check before relying on a new endeavor for retirement income can help you see how much income you can realistically expect from it. Also, you’ll learn whether it’s something you really want to do before you spend what might be a significant portion of your retirement savings on it.

Phased retirement: the best of both worlds

Some employers have begun to offer phased retirement programs, which allow you to receive all or part of your pension benefit once you’ve reached retirement age, while you continue to work part-time for the same employer.

Phased retirement programs are getting more attention as the baby boomer generation ages. In the past, pension law for private sector employers encouraged workers to retire early. Traditional pension plans generally weren’t allowed to pay benefits until an employee either stopped working completely or reached the plan’s normal retirement age (typically age 65). This frequently encouraged employees who wanted a reduced workload but hadn’t yet reached normal retirement age to take early retirement and go to work elsewhere (often for a competitor), allowing them to collect both a pension from the prior employer and a salary from the new employer.

However, pension plans now are allowed to pay benefits when an employee reaches age 62, even if the employee is still working and hasn’t yet reached the plan’s normal retirement age. Phased retirement can benefit both prospective retirees, who can enjoy a more flexible work schedule and a smoother transition into full retirement; and employers, who are able to retain an experienced worker. Employers aren’t required to offer a phased retirement program, but if yours does, it’s worth at least a review to see how it might affect your plans.

Check your assumptions

The sooner you start to plan the timing of your retirement, the more time you’ll have to make adjustments that can help ensure those years are everything you hope for. If you’ve already made some tentative assumptions or choices, you may need to revisit them, especially if you’re considering taking retirement in stages. And as you move into retirement, you’ll want to monitor your retirement income plan to ensure that your initial assumptions are still valid, that new laws and regulations haven’t affected your situation, and that your savings and investments are performing as you need them to.

Forced Into Retirement?

If you have been forced into retirement from your employer, please understand that you have many options and decisions to make. Unfortunately, most pre-retirees are not equipped to handle the situation on their own–both from a financial knowledge base or from an emotional standpoint. As we have done for our current clients, we would be honored to help you sort through your various options: from Social Security benefits decisions to 401k or 403b rollover options. Please consider giving us a call or scheduling a meeting at your convenience by clicking the button below.

Source: Some of the material used comes from Broadridge Investor Communication Solutions, Inc.