How to Prepare for Tough Times

empty wallet

posted May 3, 2020 in Blogs

During the current time of uncertainty among our country, many are experiencing extreme hardship and tough times. While you may be worrying more about losing your job when the economy is in a slump, people can be laid off any time. When companies merge or are acquired, the work force may be downsized. Or business may just be slow.

If this happens to you, do you know how you'd manage financially? It's smart to think about the bills that need to be paid and whether you have established an emergency fund that can help see you through several months an unstable economy or through the task of job searching.

A Few Words to the Wise

If you are participating in a retirement savings plan, 401k or similar, you will be asked how you would like your plan assets handled. You own the current value of your account that stems from your personal contributions and any earnings on those contributions. Your employer's vesting schedule determines if you own the contributions your employer has made to your plan.

You may be able to leave the assets in the plan, at least for the time being, and you always have the right to move them into an IRA.

The alternative that may make the least sense is taking a distribution in cash rather than rolling over to an IRA. You'll owe income tax plus a potential 10% of the total if you're younger than 59½ and don't qualify for an early withdrawal. And, if you spend the money, your retirement savings will be gone.

Collecting Unemployment

If you're laid off, you may be eligible to collect unemployment insurance. You apply at the local office of your state's unemployment agency. Rules vary from state to state, as does the income you're eligible for. Your benefit, which is taxable income, lasts until you either find a new job or the insurance expires. The term is usually 26 weeks, though it may be extended in times of large-scale unemployment.

Negotiating a Severance

Unless you have an employment contract, your employer isn't required to pay severance, or termination pay, though some employers decide to do so. You will want to check with your human resources department about company policy if your supervisor doesn't raise the topic with you.

One complicating factor is that there is no uniform standard for what severance should be. Some companies offer one week of pay for each year of service, while others provide a flat four weeks of pay, though some offer more in certain circumstances. Similarly, there's no requirement that all employees be treated equally. You will want to be prepared to negotiate what you think is a fair settlement for your specific situation. It will probably benefit you to do some research online prior to your discussion so you can be equipped with knowledge on the subject. One great source to use is your states unemployment agency website, as many offer severance calculators.

When you accept a severance package, many employers require you to sign a legal document releasing the employer from any claims you may have. You should fully understand the implications of signing the release, so you may want to review it with a legal advisor.

Early Retirement

Early retirement may be less traumatic than being laid off, but it will require some immediate decisions. If you're part of a pension plan, you may have to choose how your retirement income will be paid. If you don't need the money, you may ask to postpone income until you reach regular retirement age. However, that's not always an alternative.

If you participate in a 401(k) or other retirement savings plan, you'll want to investigate whether to start taking income or roll over your account balance into an IRA. It's wise to discuss the alternatives with your employer's human resources staff and ask your financial advisor to recommend a retirement specialist.

You also need to investigate health insurance coverage. Your employer may provide benefits until you're eligible for Medicare, or you may be eligible for continuing coverage under the Consolidated Omnibus Budget Reconciliation Act (COBRA) under the same terms as people who have been laid off. The one thing you don't want to do is let coverage lapse.

The good news is that retiring doesn't have to be the end of your working life, unless you want it to be. Unless you're a state employee who wants to work for another agency covered by the same retirement plan, there are usually no restrictions against earning a salary while you are drawing a pension. A new job may also be the solution to the health insurance dilemma—and it may be the perfect opportunity to try a new career.

Staying Insured

It's essential to ensure that you have health insurance for yourself and your dependents. If you've been insured through your employer's plan, you may be eligible for COBRA for up to 18 months, but it's not cheap. You will pay the full premium your employer pays, plus up to 2% in administrative fees. But some states may require more generous coverage.

If you're married or in a long-term relationship, your spouse or partner may be able to cover you. Most employers offer family plans and some provide coverage for domestic partners. In all likelihood, this will be the least costly option.

Making the Transition

You may also want to request:

  • Use of your office space, computer, and phone line for a period of time while you search for another job
  • Extension of your health-insurance benefits for as long as possible
  • Prorated bonus for the months you've worked
  • A faster vesting period for stock options so you can exercise them
  • Cash out of any unused vacation and sick days

While unemployment isn’t on anyone’s wish list, it’s important to equip yourself with the knowledge in order to be prepared should the dreaded day arise. In any situation, Greater Iowa is here to help in any way we can. Our staff is always willing to talk through your financial options with you and our Greater Iowa Financial Advisor is available to answer any questions you may have. To learn more about our Investment Services, visit

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