According to internal documents obtained by the online magazine Motherboard, AT&T is preparing for a significant round of layoffs in the coming months. I hope the company can retain as many jobs as possible and provide employees that are impacted with enough time and resources for an easy transition. Unfortunately, companies rarely give employees much advance notice. So, what should you do if you find yourself suddenly laid off?
Unless you can retire comfortably, your primary concern is likely how you’re going to make it through until finding another job. Though it may be temporary, you don’t want to disregard the effect being out of work can have on your money. Here are some steps you can take to keep your finances in order. They will help prevent a short-term job loss from creating serious long-term financial problems.
Sign up for unemployment
I suggest the first step you take is to get in touch with your state’s unemployment office. Although unemployment income is likely a fraction of what you were earning, it’s still income. This cash flow can help make sure that your essential household expenses are covered.
Keep in mind that unemployment rules vary by state. Some states may not pay unemployment benefits if you receive a severance, SIPP or surplus payment. In addition, some states may reduce your unemployment benefit by the AT&T pension amount you are entitled to – even though you may not be receiving your pension.
Check your states unemployment rules for more information. There have been situations where unemployment has been paid, only to have been taken back later.
Get a plan
A sudden period of unemployment probably means some significant changes in your lifestyle, at least in the short run. With the uncertainty of when you’ll start working again, it can make for a confusing and stressful time. Talk with a financial adviser and put together a written plan that helps you navigate your options. It can provide some much-needed reassurance that you’re making the right decisions to lessen the impact of unemployment. A sound plan will factor into my next suggestions.
Consider your severance, SIPP and surplus payment options
If you are receiving a severance, SIPP or surplus payment, these often have several different payout options. You should consider carefully the tax and cash flow implications of each one. Talk with a financial adviser who understands AT&T’s benefits and can evaluate your situation to make sure you are selecting the right option.
Avoid major financial commitments and credit
If there are major expenses (ex., buying a boat) you are considering but haven’t yet committed to, think about putting those on hold. Getting through a period of unemployment is all about properly managing your cash flow, and your cash flow is going to take a hit. Big purchases or other financial commitments often require a significant outlay of your savings or debt.
Your savings need to last until you get a new job and new debt payments will squeeze your cash flow. Resist the urge to use credit cards on anything that isn’t an absolute necessity. Credit card debt takes minutes to accumulate but years to eliminate.
Hopefully, your period of unemployment is only for a short time. But, it could last for months and, in some extreme cases, even years. Therefore, you have to stay on top of your budget. Review your monthly expenses and identify any you can reduce or eliminate. You’ll need to get accustomed to living on a lower income for the time being. So, make sure that your expenses fit into your new income to keep you from going into debt.
Don’t touch your AT&T 401(k) and other retirement accounts
The money you have been saving for retirement should stay in your retirement accounts. It can be really tempting to dip into your retirement savings to ease the pain of a layoff. Unless you are ready to retire, don’t do it.
Withdrawing money from your retirement accounts prior to your planned retirement date could mean having to work longer or scaling back your lifestyle during your retirement years. There are also tax consequences and potential early withdrawal penalties if you take money out before age 59 ½.
From an investment and planning perspective, you don’t need to do anything quickly. There may be some benefits to rolling over your AT&T 401(K) to an IRA. With so many personal factors involved, it’s best to talk through the advantages and disadvantages with a financial adviser.
Review your AT&T pension
If you have worked long enough at AT&T, you are likely entitled to a pension benefit with several different payout options. Is it better to select a monthly pension or lump sum? Should you start your pension now or wait until later?
These are fantastic questions and the answers really depend on where you are in your career and when you plan to retire. Not to mention personal factors, such as your marital status and other sources of retirement income.
A qualified financial adviser with knowledge of the AT&T pension plan can help you determine the best option based on your long-term financial goals. As with your AT&T 401(k), you don’t need to make any fast decisions. Take the time to carefully consider your options.
Maintaining health insurance coverage is critical. Consider that medical bills are the biggest cause of bankruptcy in the United States. Even without a job, you may still have options available to you for health insurance. If you are married, does your spouse have employer coverage? What about COBRA? The Affordable Care Act Exchange?
You should look at more than just the premium when evaluating health insurance. Examine the quality of coverage, deductibles, co-pays and out-of-pocket expenses. If you have a choice, make sure to pick a plan that gives you the coverage you need first and then shop on price.
Michael Hohf is a CERTIFIED FINANCIAL PLANNER™ who provides comprehensive wealth management solutions, such as retirement planning and investment advice, to help clients work toward achieving their financial goals. He is also one of Dave Ramsey's designated SmartVestor investing professionals.
You can learn more about your benefit options by downloading our “go-to guide” on AT&T retirement topics: The AT&T Employee’s Guide to Retirement. (CLICK THE BUTTON BELOW.) This interactive guide covers all AT&T benefits, with the goal of helping you make more informed retirement planning decisions.