Tuesday, September 20, 2011

Making Smart Financial Choices after a Job Loss

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by Amin Huffington
Dreamfedjob - Turning unemployed into employed.
You may not be able to control if or when your company closes a plant or lays off workers—but you can take steps to manage the financial impact of those events. This blog contains tips on how to:
keep your finances on the right track in the event of unemployment; and protect yourself when getting financial advice during a period of job dislocation.


Whatever the reason for your job dislocation, you now face a period when handling your finances correctly will be critical to you and your family. These tips can help you take charge of your financial situation:
Act Quickly to Reduce Spending: With less money coming in, you should take immediate action to reduce spending wherever possible.

Resist the temptation to buy on credit.

Assess Your Short-Term Situation: Figure out how much cash you have readily available or can get on short notice, how much you owe—mortgage, rent, credit cards, car loans—and the monthly payments associated with those and other debts. Establish how long you can make ends meet on the financial resources that you already have in hand.

Ask About Dislocated Worker Services: Your employer may work with state and local officials to provide services such as job placement, retraining or resume writing. Maximize your opportunity to get a new position as quickly as possible by taking advantage of these services—make finding a new job your full-time job. If you belong to a labor union, also ask your union what it can do to assist you.

Inquire About Unemployment Insurance: A representative of the state’s unemployment insurance office will likely be at your workplace to offer guidance and assistance in filling out the necessary applications. Ask the representative if you qualify and find out how the insurance may be affected if you get other payments from the company. Knowing how much you can claim and how long you can expect to receive unemployment benefits will help you handle your finances.

Remember that when you file for unemployment insurance, state regulations generally require that you also register with the state’s employment service so you can start searching for a job immediately. Check with your state to see whether any exceptions apply.

Avoid Taking Out Loans Against Your 401(k): Loans put a drag on your retirement savings by reducing the amounts invested on your behalf. In the event of a layoff, 401(k) rules generally require that employees pay back loans within 90 days of leaving or face both income taxes and a hefty 10 percent penalty tax on the withdrawal.

Beware of Investments that Promise Too Much:  The announcement of your plant’s closing or mass layoff may have received national or local press coverage. If all of a sudden you find that you are receiving unsolicited offers for the investment of a lifetime, beware. If it sounds too good to be true, you know it probably is.

Always Do a Background Check Before Hiring an Investment Professional: Smart Thinking. The right investment professional can work with you to make good choices during periods of job dislocation. Legitimate investment professionals must be properly licensed. You can check the credentials of any person offering you investment opportunities.

This is how you check to protect yourself:
 
  • For an investment adviser, use the SEC’s Investment Adviser Public Disclosure Web site at http://www.adviserinfo.sec.gov/ or call toll-free (800) SEC-0330.
  • For an insurance agent, check with your state insurance department. You will find contact information through the National Association of Insurance Commissioners (NAIC) at http://www.naic.org/ or call toll-free (866) 470-NAIC.
  • For all brokers and advisers, be sure to call your state securities regulator. Contact the North American Securities Administrators Association at http://www.nasaa.org/ or call (202) 737-0900 for the state’s number.

Beware of Job Search Ads that Promise Too Much: Resist the temptation to rely on job search ads or services that promise easy results. You should not have to pay to get a job, disclose personal or financial information in a job application, or use electronic money transfers via your bank or credit card accounts to do your job. These are all red flags that the job may involve illegal activity or someone may be trying to steal your identity.

Long-Term Job Dislocation— Smart Choices in Difficult Times

The prospect of an extended period of unemployment will require some difficult decisions that could affect your long-term financial health. Managing severance pay, choosing the form of payment from benefit plans, and preserving your retirement funds if you are still years away from retirement age are high in that list. Keep in mind the following tips when deciding what to do:

Get Financial Advice: Your company or union may offer guidance regarding the financial decisions you face. Your state or local employment agencies may also provide information. Ask questions as early as possible to help determine what is right for you. Consider working with a credit counselor or investment professional. They can help you develop a plan to see you through your unemployment period and beyond.

This is What You Do to Protect Yourself From Job Search Scams:

Conserve Funds Meant for Your Retirement if You Can: Tap into your retirement funds to make ends meet only as a last resort. If you have a choice, choose to keep those funds invested and working for you until you actually retire.
Understand the Tax Bite: Income taxes apply when you tap into retirement funds prior to age 59½. The plan administrator is required to withhold 20 percent of the amount you cash out to ensure that you will pay the taxes that apply. An additional 10 percent penalty tax may apply if you are under 59½ years of age. To avoid income tax and a tax penalty, you must roll over your funds to an Individual Retirement Account (IRA) or other qualified retirement plan within 60 days of receiving the retirement funds.
 
Use Direct Rollovers to Avoid Potential Taxes: If you elect to roll over retirement funds, you may avoid tax complications and the risk that you will not complete a rollover within the required 60 days of receiving those funds. Choose a direct rollover by having the plan administrator transfer the rollover amount directly to an IRA or other qualified retirement plan.
 
Spend and Invest Lump Sums Wisely: Receiving a lump sum may tempt you to spend it on that one thing you have been wanting all your life. Do yourself a favor and wait. If you face a long unemployment period, these may be the only funds you will have to make ends meet. Even if that is not the case, give yourself time. Consider short- and long-term needs before you decide what to do. If you decide to invest the lump sum, take your time to consider what you are going to invest in, when you are going to make the investment and how much of the lump sum you want to invest in different types of investments such as stocks, bonds, or non-financial assets.
 
You become ineligible to receive unemployment benefits as of the date you return to work or start a new job, not on the date you receive the first paycheck for that job. State unemployment insurance (UI) agencies regularly match claimants receiving UI payments against wage records and the National Directory of New Hire data to determine if an individual was working and collecting benefits for the same week(s). The US Department of Labor estimates that over $6.4 billion in benefit overpayments were made in 2009 because claimants waited to get that first check before reporting that they had returned to work or started a new job.
Remember: Report to your state unemployment office the date when you begin to work, either full time or part time. Do not wait to get your first paycheck to notify the state.

Collecting Unemployment Benefits While Working is Illegal! Report the Date When You Start to Work.  Good luck!

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