Layoff or early retirement: Action steps to make the best of a bad situation

9/29/2019

BY JULIA ANDERSON

PART I: Are they cutting your job? What to do.
Despite a robust economy with low unemployment rates, layoffs are again in the news. In the Portland-Vancouver area where I live job cuts have been announced at Tektronix, Nestles food distribution center, Symantec and Norpac. There has been a rash of grocery store closures as that industry continues to struggle with razor-thin profit margins, the impact of home-delivery services and self-check outs.

When employers look for ways to reduce operating expenses, cutting labor costs is often the only option….painful but in many cases a matter of survival.

Here’s what to do if you think you will be laid off or have been laid off from your job.

Prepare: If you’re working in a place where a layoff are on the horizon prepare by creating an emergency fund to get you through at least six months of household expenses. Credit cards are the last resort.

Quietly start looking for another job. Use your network of friends and family to find job leads. If something clicks, take it.

Get everything that’s due you in the current job, if you receive a layoff notice. Everything includes vacation time in the form of cash, health insurance coverage, life insurance premium payments.

Negotiate a benefits package: The package would include career coaching, resume writing, LinkedIn profile. Online support.

Immediately get a letter from your HR department saying you are being laid off (not fired). Bring this letter to new job interviews. At least get an email saying you’ve been laid off or both.

Immediately arrange continuing health care insurance coverage through COBRA (the Consolidated Omnibus Budget Reconciliation Act that allows an eligible employee and his or her dependents continued benefits of health insurance coverage). You get 18 months of coverage purchased at the rate paid by your employer, which will be much less expensive than buying coverage on the individual open market.

Immediately register with your state unemployment agency to receive jobless benefits while you look for a new job. Start your new job search, right away. To qualify for unemployment benefits, you must be actively contacting three potential employers or more a week.

Have personal business cards made up with your name and contact information. Use LinkedIn to network for employment opportunities. Be prepared to apply for new jobs online.

Good news: The job market is strong right now. Employers are looking for people with work experience, skills and a reliable track record of employment.

Part II: Are you losing your job because of an early retirement buyout? Here’s how to evaluate an offer.

Despite a growing economy, employers in certain industries continue to look for ways to cut costs by laying off workers. In offering early retirement packages or job buyouts, employers are careful to avoid age discrimination pitfalls. There are proven legal ways to do that.

The early retirement package or buyout must be voluntary based on tenure or other neutral criteria. A worker must get at least 21 days to consider the offer. Employees accepting an early retirement or buyout will be asked to sign a carefully drafted “release agreement” explaining their rights under federal law as they walk out the door. That makes it hard to later sue for discrimination.

How do you evaluate an early retirement package if you find yourself in the cross hairs your employer’s cost reduction/buyout program?

There is a lot to consider: Health insurance coverage after you leave the job, how close you are to age 65 when Medicare health insurance coverage kicks in and how and when to take federal Social Security benefits. Does the buyout package, for instance, offer “bridge money” to get you to Social Security?

How does losing this job change your timetable for retirement? What does this do to your investment nest egg? Will you lose 401(k) matching money? Will you need to roll your 401(k) into a rollover Individual Retirement Account? Talk to your tax accountant. Is there another job out there that will get you through to your original retirement goal so that your tax-deferred savings can continue to grow?

The biggest decision comes first. What are the consequences of turning down the buyout offer, dodging the layoff bullet and keeping the job? Only your gut can answer that one. Your employer won’t and legally can’t tell you.

A few positives

A layoff qualifies you for state unemployment benefits if you sign up and look for a new job through your local employment agency. Human resource administrators can explain how this works, what the job search requirements are and how many weeks you might be eligible for unemployment benefits.

Secondly, you can buy health insurance coverage through your former employer’s insurance plan for at least 18 months, thanks to COBRA, a federal law passed by Congress in 1985. Some employers let you stay with the company health insurance plan until you reach 65. Negotiate that.

Some employers might offer “bridging money” to financially bridge the period between early retirement and when you are eligible for Social Security benefits. But who wants to take reduced Social Security benefits at 62 when full benefits only kick in at age 66 or 67?

The biggest negative of taking an early retirement offer is that you no longer will have the job and its income and matching money through the company-sponsored 401(k). If there’s a pension, it will likely be smaller than if you had kept the job longer. That means less money to live on in real retirement. TAke a look at what that future might look like.

Reinventing yourself

Some people reinvent themselves after an early buyout by starting their own business, by finding another job or by working part-time. How long you have to figure that out depends on how much you employer offers in your severance pay. Severance usually consists of your current salary plus addition money for the number of years you’ve worked for the company.

Keep in mind that experts say that the amount of money you need to live on in retirement should by about eight times your income. So, if your household income is $100,000 a year, you will likely need $1 million (or more) in retirement savings to enjoy a modest retirement at a withdrawal rate of 4 percent a year.

Don’t take money from your 401(k) to buy groceries.

Meanwhile, when leaving the job, do NOT make early withdrawals from your 401(k)-retirement savings plan. Hopefully, you've got an emergency fund to get you through at least six months. Avoid piling on credit card debt.
Carefully move the money to a self-directed Individual Retirement Account with an online brokerage or a trusted local firm. Money withdrawn from a company-sponsored 401(k) or IRA is subject to a 10 percent “premature distribution” penalty before age 59 ½. Plus, you will pay federal income tax on the withdrawal. And you won’t be growing that money for your real retirement.

Those who have been through an early retirement buyout will tell you that it is a stressful time with lots of ups and downs. It feels bad to be asked to leave a place where you like the job, like the contribution you make and enjoy the people you work with.

Financial planner Jim Blankenship writing in US News & World Report warns that some companies “make an early retirement package seem more attractive than it really is.” He said that you may want to consult an independent professional adviser who “will work for your best interests” in negotiating a buyout.

Saying yes to a buyout may mean retraining for something new or doing something else that you’ve felt passionate about. Whatever, it will be a roller coaster ride.

Women & Money: Talking with the old and the young about action plans

9/8/2019

By Julia Anderson

I’ve been talking, lately, about women and money to both ends of the spectrum -- both older women, and the young.

On one end, I shared my short Power Point presentation with a group of 15 women over 60. At least two were in their 90s.

Women are not paying enough attention to retirement planning, saving and investing, I told them. And the best thing they could do for a daughter or yet better a 20-something granddaughter is to help them set up a tax-deferred retirement savings account as soon as possible.

After 20 minutes of me rambling on, there were nods of agreement and a few questions – one about the tax implications of Required Minimum Withdrawals from an IRA at age 70 1/2. I told her to seek help from a tax accountant. RMD withdrawals are treated as ordinary income but there may be charitable “giving” strategies directly out of her IRA that could reduce her tax bill.

Four attendees bought my book, “Smart Women, Smart Money, Smart Life,” and said they would be sharing it with their daughters (granddaughters).

My basic points: Women end up with less money saved for retirement but live longer in retirement. Half of American women over age 65 are single, on their own financially. It is imperative that women take an active role in their retirement planning and investing, early. In their 20s!!!

For this presentation, I use my mother, Helen Rose, as the example of the ultimate woman investor…. someone comfortable managing her own portfolio, someone who views investing as easy.

Her philosophy? Buy shares in well-run profitable companies that pay a dividend of about 3 percent. Reinvest the dividend money in more shares of that company. Hold over time (20-30 years) and watch the miracle of compound interest (reinvesting dividend money) create wealth.
My mother, a farm wife, died wealthy.

The other side of my conversation was with a younger (early 40s) step-niece who has recognized the importance of long-term saving for retirement.

She became enthusiastic about my book, "Smart Women, Smart Money, Smart Life," a couple of months ago, then followed up by email on specific questions about how to open an Individual Retirement Account and how to invest the money inside that account for the long haul.

My recommendations: Start an IRA (or a Roth IRA) with an online brokerage firm, make automatic contributions to that account. Invest the money in an S&P 500 stock index fund with low (or zero) management fees. Let the money ride, reinvest the dividends.

Never borrow from this fund. Don’t mess with the investment formula, even if markets slump during an economic downturn.

She and her husband have executed on those recommendations. But she also asked about managing short-term savings. That’s a bigger challenge because banks offer almost no interest on savings accounts or certificates of deposit.

I suggested buying short-term bonds in the 3-month to 9-month variety, but she will still have to save up a chunk of money to make that worthwhile.

For whatever reasons, my message “clicked” with this young working mom who has two young daughters and a professorial husband.

She gets it. Saving for retirement is a big deal, especially if you’re a woman.

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Layoff or early retirement: Action steps to make the best of a bad situation

Women & Money: Talking with the old and the young about action plans

Julia anderson

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