(originally published March 2009)
The U.S. Department of Labor reports that about 8 percent of Americans were unemployed in the month of February. Here in Indiana, challenges in the manufacturing sector have driven unemployment rates as high as 18 percent in some counties.
While I believe Indiana’s recovery will be strong and lasting thanks to our healthy work ethic and innovative spirit, the current reality is that with many employers responding to the economic downturn, layoffs are often out of an employee’s control. While losing one’s job can be both emotionally and financially draining, there are steps dislocated workers can take to help keep their finances on track during their time of unemployment.
Among the first things a worker should do after a job loss is file for unemployment benefits with the Department of Workforce Development (DWD). If you were laid off or lost your job through no fault of your own, you may qualify for unemployment benefits that cover up to 26 weeks, sometimes more when combined with federal benefits and possible extensions. The DWD also has WorkOne Centers located around the state that help unemployed workers update their resume, practice their interview skills, look for jobs and obtain professional training.
Another important action for dislocated workers is to reevaluate your monthly budget and short-term monetary needs. Assess how you spent your money before and which of your current monthly expenses are fixed versus those you can adjust based on not having your regular income. For example, mortgage and car payments are fixed expenses that you will need to pay each month, but going to the movies is an option you can do without to save money while looking for a new job.
If you do qualify for unemployment benefits, factor that into your adjusted budget and determine how long you can make ends meet with those payments combined with what you already have in savings. In general, try to reduce spending whenever possible and make a plan for the money you do have.
Not having a steady income is one of the biggest things to adjust to after a job loss. The stress of paying monthly bills and trying to stay afloat can tempt some to withdrawal from their 401(k) retirement plan early. Unless you absolutely need the money, avoid cashing out your retirement plan. Because 401(k) plans are tax-deferred, if you withdraw from the account before age 59 1/2, you will have to pay income tax and may incur a penalty tax of up to 10%.
Accessing your retirement plan can seem like an easy way to make ends meet while looking for a new job, but can end up hurting you in the long run. Instead, roll over your retirement funds to an Individual Retirement Account (IRA) to avoid potential taxes and continue saving for your future today.
Finally, in times of financial difficulty, some people turn to an investment adviser or financial planner for guidance with their money and investments. Using a qualified, licensed professional can help you make tough decisions during periods of unemployment. Make sure your investment adviso=er is licensed by using the searchable databases on http://www.indianainvestmentwatch.com/ or by calling my office’s Securities Division at 1-800-223-8791.
For more information, download the free brochure “Job Dislocation: Making Smart Financial Choices after a Job Loss” on http://www.indianainvestmentwatch.com/.
- Download "Job Dislocation" brochure
- Search database for licensed brokers and advisers
- Contact the Securities Division
- Learn more about the Department of Workforce Development