Getting laid-off can demand immediate lifestyle changes


February 02, 2003|By EILEEN AMBROSE

BRUCE RURKA'S employer had a few rounds of layoffs in the past couple of years, yet it still came as a shock in November to find himself a casualty of the company's further belt-tightening.

"I was anticipating layoffs, but I wasn't anticipating myself being laid off," said Rurka, 31, who was a senior project manager with EMC Corp. in Columbia for 2 1/2 years. "It was very humbling."

He has a lot of company. The nation's unemployment rate is at 6 percent, an eight-year high. It's also taking longer for laid-off workers to find a job, and shrinking severance packages often run out before new work is found, employment experts say.

For many, a job loss can be a huge jolt that requires immediate financial and lifestyle changes, not only during a lengthy job search but even afterward if new wages are lower than before.

Rurka, for instance, said he had been earning $60,000 a year when he was recruited to work at EMC, where a hefty raise, quarterly bonuses, a car allowance and other perks pushed his compensation into six figures. His spending went up, too.

"When you are that young and all that money is thrown at you, it's tough to step back and have the self-control," Rurka said.

He and his wife, Jessica, bought a 55-inch screen television, two sports cars and a truck.

"The truck got 12 miles to the gallon. It didn't really matter. My company paid for my gas," he said.

But a year ago, sensing the company's cost-cutting wasn't over, the Rurkas paid off credit-card debt and a small loan, and squirreled away 3 1/2 months' worth of living expenses.

"Hindsight being 20/20, we should have done more than we did," Rurka said.

Since the layoff, the couple has traded in the truck for a less expensive car, and getting together with friends no longer includes dinner and a movie.

"We use coupons now," Rurka said.

Severance runs out this week, and the Rurkas will live on savings, unemployment benefits and Jessica's salary as an accountant, which is about half of her husband's old pay.

Experts advise setting aside up to six months' worth of living expenses for just this sort of emergency, though the amount can be higher or lower depending on debt and if there's another household income.

Lisa Allender of Baltimore County lost her sales job in August and says the weak economy has made it tougher to find a comparable post. But years of living within a budget, paying credit-card bills off monthly and building savings to cover more than six months' worth of expenses has given her time to look for the right job, the 41-year-old said.

"I'm not lucky," she said. "I always have money if something comes up unexpected."

And when she does find a job, she said she won't be taking any major vacations while she builds up her savings again.

Other steps experts recommend if you have lost your job:

File immediately for unemployment benefits. States generally offer 26 weeks of benefits. The federal government recently extended benefits by 13 weeks to those who had used up state benefits.

Assess your financial situation. What will be your sources of income? What savings can you readily tap without penalty?

"Take stock of your employer's benefits. Do they offer severance? What about health insurance?" said Steve Thalheimer, a Silver Spring financial planner.

Workers generally can continue under their employers' health insurance for up to 18 months, although they will have to pick up employers' share of the premium plus administrative costs. It's tempting for cash-strapped individuals to dump health insurance, but coverage is a necessity.

Some employers' insurance has lots of bells and whistles, and workers may find it cheaper to buy a basic policy on their own, said Laura Schoenborn, a Milwaukee financial planner. Insurance also may be cheaper if you can join a partner's plan.

Look at expenses that can be cut, such as cable television, club memberships, vacations, multiple phone lines. Cut the cost of auto insurance by raising the deductible, provided you have the savings to cover the deductible, Schoenborn said.

"If they have a child in college, file an amended financial form immediately. They might qualify for financial aid exactly at the time they need it," said Joanne Hamilton, an educator with the Maryland Cooperative ExtenSion in Anne Arundel County.

Contact creditors if you will have trouble paying bills to negotiate a lower payment.

Work part time.

Don't dip into a 401(k) or individual retirement account, which would trigger penalties and taxes for early withdrawals.

"People are very cavalier about it. `I can always hit my IRA.' Why would you? That's what you are going to live on for the rest of your life," said Ed Slott, an IRA expert in New York.

If necessary, though, you can withdraw the principal from a Roth IRA free of tax and penalty. Also, those who have received unemployment benefits for at least 12 consecutive weeks can take money penalty-free from a traditional IRA to buy health insurance, although they would still owe income taxes on withdrawals, Slott said.

To suggest a topic, contact Eileen Ambrose at 410-332-6984 or by e-mail at eileen.ambrose

Baltimore Sun Articles
Please note the green-lined linked article text has been applied commercially without any involvement from our newsroom editors, reporters or any other editorial staff.