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.
Other Compensation. Collect any unpaid vacation leave, bonuses, commissions, or outstanding expense reimbursements.
• You may be able to use any accrued vacation time to extend your termination date. This could give you some extra time to be covered by your employer’s health insurance.
Unemployment Benefits. Register for unemployment even if you don’t expect to be out of work for long.
• The sooner you apply, the sooner you‘ll have some extra money to slow the drain on your savings.
• Your benefit is based on a percentage of your wages up to your state’s maximum amount— about $350 per week.
Getting Your Finances in Order
Spending Plan. Create an income and spending plan.
• List all sources of income so you know where you stand.
• Divide your expenses into what you have to spend each month (rent, utilities, food, and gas) and what you can do without.
Debt. Hold off on adding more debt to your credit cards. It’s better to cut expenses as much as you can than to live on your credit cards.
• Pay your bills on time to avoid late charges that just add to your debt burden and can boost your interest rate. Also pay more than the minimum payment.
• Read the Money Matters Tip Sheet “Improving Your Credit” for tips on how to do this.
• Let your credit card, mortgage and car loan companies know of your circumstances. Find out if your creditors offer grace periods that allow you to defer payments until later.
• Check to see if you have paid for credit insurance that will help with payments when you lose your job.
• Know what to do and where to turn if you are having a hard time making your mortgage payment.
Savings. Tap savings strategically.
• Plan out which funds you’ll use first. Pull from the account that earns the lowest interest first.
• Keep in mind that early withdrawals from certificates of deposit and retirement accounts trigger penalties.
• If you have an emergency fund, now’s the time to consider using it.
Investments. Now is a key time to check in with a financial professional to make sure your investment choices are appropriate for your current needs.
Taxes. Adjust your spouse’s tax withholding so you get a little extra cash now instead of a refund later. The W-4 is available at www.irs.gov.
New for the 2009 tax season, you should contact the IRS if you are:
Facing an unusual hardship situation such as job loss. They may be able to adjust payments for back taxes, help you avoid defaulting on payment agreements or possibly defer collection action.
Having problems with an existing Installment Agreement. They may allow a skipped payment or a reduced monthly payment amount without automatically suspending the Installment Agreement.
Unable to meet the periodic payment terms of an accepted Offer in Compromise (an agreement between a taxpayer and the IRS that settles the taxpayer’s tax debt for less than the full amount owed or OIC).
Requesting a levy release due to hardship. The IRS has eased requirements on taxpayers who request expedited levy(seizure of property to satisfy warrants for the collection of taxes) releases for hardship reasons. You should be prepared to provide the IRS with the fax number of the bank or employer processing the levy.
Having financial problems and discover you can’t pay when you file your 2008 tax returns.
Visit www.irs.gov for additional information.
Get free tax counseling from AARP Foundation’s Tax-Aide.
Getting Extra Help
Social Services. Contact local social services or religious organizations. Many have funds for short-term needs.
Public Benefits. The AARP Quicklink benefit finder will help you find out which public benefits you are eligible for. You can also use the state benefit fact sheets.
Social Security. Order your Social Security statement to check for any errors in your earnings record.
Scam alerts. Watch out for enticing offers that promise easy money for work you do at home.
Finding a New Job
Placement Programs. Contact your own Human Relations department to see if you are eligible for any out-placement programs or skills retraining.
Departments of Labor. Contact your state and federal departments of labor for any programs or benefits that may be available. The U.S. Department of Labor has contact information for your local departments.
AARP Resources. There is much to learn from AARP about how to successfully find a new job.
• AARP.org Work
• AARP WorkSearch
• Online community: The Water Cooler
• Find a Job on AARP.org
AARP Foundation's Senior Community Service Employment Program (SCSEP) helps job seekers improve their skills, obtain training, and find a job. If you're 55 or over and meet the income guidelines, SCSEP can help you enter-or re-enter-the job market.
This and other tip sheets provide general financial information; it is not meant to substitute for, or to supersede, professional or legal advice.