Unexpected job loss means steps must be taken to cope

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Your Money

August 14, 2005|By CAROLYN BIGDA

IMAGINE WALKING into your office, as always, and discovering that your desk has been cleaned out; your department is shuttered and locked; or you have 30 minutes to collect your belongings and leave.

Would you be able to cope with unemployment?

Companies are hiring - unemployment stood at 5 percent in July, down from more than 6 percent two years ago - but the job market is less than robust.

And there's always the risk that your employer will defy statistics: Technology giant Hewlett-Packard Co., for instance, announced last month that it would eliminate about 10 percent of its full-time work force.

Here are four must-do's if you suddenly find yourself without a job:

Get government help.

First, file for unemployment insurance. Benefits are doled out by state agencies and therefore laws will vary depending on your residence. But, in general, the amount you receive - often for up to 26 weeks - is based on your income immediately preceding the date you file a claim.

In addition, your job loss must be through no fault of your own, and you have to be actively seeking employment.

For links to your state's rules, go to http://workforcesecurity. doleta.gov/map.asp.

Unemployment benefits are subject to income tax. In filing your claim, you may want to specify that taxes be deducted from the check. Otherwise, "be prepared to pay extra when you file a return," said Linda Forman, a certified public accountant in Evanston.

Stay insured.

Unless you receive a severance package that extends your health insurance temporarily, your next priority should be to find new coverage. Even if you're in good health, an unexpected medical emergency could lead to thousands of dollars in bills.

If your employer sponsors a group health plan for 20 or more employees, you'll be given the option to extend that coverage under Cobra. The only difference: Your employer will no longer pay any of the premium, which averaged $308 a month for individuals in 2004, the Kaiser Family Foundation says. Instead, you'll have to pay 102 percent (the extra 2 percent covers administrative costs).

As a cheaper alternative, consider high-deductible, individual health insurance. Although these plans might not be as comprehensive as your former insurance, premiums average only $112 a month for singles.

Search for plans through www.ehealthinsurance.com.

Preserve your 401(k).

"Try not to raid your 401(k)," said Nancy Collamer, a career counselor in Greenwich, Conn., who wrote The Layoff Survival Guide (www.layoffsurvivalguide. com, $17.95). "It's very tempting to do if you lose your job, but there are certain penalties."

In fact, you'll pay a 10 percent fee, plus income tax.

Hang on to your savings by transferring your 401(k) to an IRA. Make sure it's a direct rollover, in which your employer writes a check to the IRA trustee. If you receive the money, you have only 60 days to transfer it to a rollover IRA before incurring taxes and fees.

Without your direction, employers can cash out balances less than $1,000 - larger balances could be left in the 401(k).

It may seem ridiculous to think of retirement when you're struggling to pay bills now. But concentrate instead on ways you can reduce your expenses first.

Stay on top of your bills.

Prioritize secured loans, such as a mortgage or car loan. Apply to lower your monthly payment on student loans or defer payments temporarily. Transfer a credit card balance to a zero-percent rate card.

E-mail Carolyn Bigda at yourmoney@tribune.com.

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