Losing your job can be a tumultuous experience that disrupts your retirement planning and lifestyle. You need to make important financial decisions that can impact your future financial security and to make significant adjustments to your day-to-day finances. AARP can help. Use this checklist for suggestions on immediate steps to take along with longer-term ideas for dealing with this new situation.
Making the Most of Your Employee Benefits
Retirement Savings. Decide where to maintain your 401(k) or other workplace savings.
• Decide whether to leave the money in your existing plan (if allowed) or transfer it to a rollover IRA. If you leave it with your existing plan and get another job, ask your new employer if you can roll it over to their plan.
• Note: Typically, it is better to leave your money in an employer-sponsored plan or roll it into an IRA or new employer plan than cash out. You’ll pay significant taxes with a cash out—regular income taxes and a penalty tax (if you’re under 59 ½) if you do so, greatly decreasing your savings. For more information visit www.aarp.org/money.
Health Insurance Coverage. Decide how you will get health insurance as soon as possible.
• Check if you are eligible for coverage under a spouse’s plan. Consider COBRA (Consolidated Omnibus Budget Reconciliation Act) coverage. COBRA is a federal law that might help you keep your group health insurance longer. COBRA costs have been high because laid-off workers had to pay both their own premium as whell as what the employer paid, plus an administrative cost of 2 percent. Because of new provisions effective March 1, 2009, your cost for this continuing coverage will be lower.
If you didn't sign up for COBRA when you were laid-off, you have 60 days in which to sign up. You will get notice from your employer about how to do so and what the new lower costs to you will be.
If you were laid off after September 1, 2008, and have been paying full COBRA premiums, you cost will be reduced by 65 percent. This new federal subsidy of health insurance cost will last from March 1 to December 31, 2009. You won't get a rebate on any of the premiums that you have paid.
The new COBRA subsidy only applies to workers who were laid off. The benefit goes away for individuals with adjusted gross income over $125,000 and for married couples filing jointly with $250,000 in income.
• Check out other health insurance options. Because group insurance plans usually cost less, see if any other group you belong to—such as a fraternal or professional organization—offers a group health plan.
• Find more information about covering health costs after you lose workplace coverage.
• Find out about HIPAA (Health Insurance Portability and Accountability Act). HIPAA can help protect your right to insurance when you move from one plan to another.
• Check out Medicaid and Medicare. If you are over 65, or under 65 and have a disability, with low income and few resources, you may be eligible for Medicaid. QMB (Qualified Medicare Beneficiary) and SLMB (Special Low Income Medicare Beneficiary) are special programs that help with the costs of Medicare. Check with your local department of social services to see if you are eligible. Of course, if you are over 65, you are eligible for Medicare.
Disability Insurance. Decide whether to maintain disability insurance and continue premiums.
• If you are self-employed check out the National Association of Self-Employed.
Severance pay. Consider putting your severance pay where it will grow so it will last as long possible, while still giving you access to pay bills and living expenses.
• AARP’s Money Matters Tip Sheet Where to Park Your Savings explains your options.