A look at jobs data from The Great Recession suggests — and client experiences corroborate — that there’s a new normal out there, and it reads like some sort of Bizarro Candid Camera episode. i.e. Don’t be surprised if sometime, somewhere, someplace when you least expect it, someone steps up to you and says, “Sorry, your job has gone the way of the dinosaur,” prompting an unplanned, possibly extended career transition with the potential to undo a lifetime of hard-won financial security.

Not pretty. But accepting this shift in the employment landscape is the first important step in making the career and financial choices that better prepare you for this “just in case” scenario. Check out this NY Times article to find out why that’s been even more true for baby boomers: Longer Unemployment for those 45 and Older.  (Anybody remember when experience was a plus for job seekers?)

Fortunately, some of those who’ve been on the job search front lines during this recession are sharing what they’ve learned about how to survive — maybe even thrive — in this Bizarro World. Click here to listen to an excellent New Hampshire Public Radio segment featuring none other than Tammy Hildreth, guest blogger, co-founder of Network for Work (TM) professional networking group, and winner of our recent giveaway of The Money Book for Freelancers, Part-Timers, and the Self-Employed.

Image by Ltshears

There have been several modifications to the COBRA premium subsidy program since it was enacted as part of the stimulus package about a year ago, so a person could certainly be forgiven for not being 100% clear about his or her eligibility.  Yet there are so many dollars at stake, it’s critically important for those who might qualify to have their facts straight.  No doubt in response to a barrage of questions, the Department of Labor has recently put together this new FAQ to clarify all the ifs, ands, and buts. 

Many thanks to my Garrett Planning Network colleague Deidra Fulton of Plano, TX-based Fulton Financial Planning, Inc., for calling this to my attention!

My absolute favorite point and, IMHO, the key to getting back on track: “Your newly frugal—or at least simplified—lifestyle is the most valuable asset you accumulated during those long months out of work. And you earned it the hard way, too. Don’t throw it away lightly.” Check out the rest of the article!

OK, but no rest for the weary…  Now it’s time to get serious and take advantage of your newfound security to be better prepared in case it happens again.  And with what appears to be a permanent shift away from the unspoken employer/employee contract of old, your safest bet is to assume that it — a period of un- or underemployment — can happen again at any time, and plan accordingly.  Here’s what I’d recommend:

1. Reevaluate cash flow and income taxes, i.e. understand what your true new take-home is, so that you can make good choices about spending levels and how to allocate the new income. (The newly reemployed may feel like recent college grads or ex-cons, just freed up from a long period of austerity measures and eager for a little retail therapy, and wishful-think themselves into overspending. Certainly, a little splurge is probably in order, but be careful not to further derail things.)

2. Now that you’re employed and probably eligible again, look at refinancing your mortgage (rates are still low) – maybe consolidating some other debt — & at least secure a Home Equity Line of Credit (again, to open up your options should unemployment happen again.)

3. Check your credit report. If it’s not where it should be so that you qualify for the best rates on loans, begin taking steps to fix that.  (Liz Pulliam Weston is the expert on how to do that.)

4. Be sure to evaluate employee benefits at the new job: 401k match? Health insurance better than spouse’s? Cafeteria plan? Employer Stock Purchase Plan? Life insurance benefit worth taking advantage of? Any other “free money”??

5. Even if you are earning so much that you’re sure to be ineligible for college financial aid for any kids going to school, fill out the college financial aid form (FAFSA). Otherwise, you’re out of luck for a financial aid reevaluation if your situation changes for the worse.

6. Once you have a grasp of cash flow, you’ll be in a position to decide how much to devote to a) paying down debt,  b) rebuilding emergency reserves,  c) restarting saving toward goals such as retirement. In general, don’t max out your 401k if either a) or b) is a trouble area. But do at least get any 401k match. Don’t prepay a mortgage with a lower interest rate if you’ve got credit card debt at 27% or an inadequate emergency fund (< 6 months living expenses).

7. Once you understand your income tax situation, you can decide how to set your withholding to avoid ending up with a big bill (& maybe penalties) or refund next April. If your new cash flow permits, you may want to play some catch-up for retirement by making a 2009 IRA (Roth or traditional) contribution before April, or having a self-employed spouse direct more to his/her SEP or Solo 401k. BUT not until you have a foundation (emergency fund, “bad” debt paid off, cash flow under control) firmly in place!

In the not-too-distant past, this was hardly even an issue because 1) employer-sponsored life insurance could usually be converted to a policy you could take with you, and 2) employment gaps were typically few, far between, and relatively short.  Unless you’ve been living under a rock, you know that the latter is no longer true.  

But for the first time, at the Dynamic Networking Group meeting, I heard from a group member about an employer-sponsored policy that was not portable.   Theoretically, this was always possible, that such policies were out there;  I’d just never run across one.  Now I don’t mean to attach too much significance to one instance of this, or suggest that it’s a trend.  However, in thinking about the damage that could be done to a family’s security by overlooking this, I’m adding it to my checklist of items permanent employees will want to start paying more attention to in our new, pink slip-happy world, and I recommend you do the same.

I think this quote sums up the experience perfectly.

Who dares to teach must never cease to learn. — John Cotton Dana

Despite the bad weather, turkey hangover, and Pats/Saints game (so much for that!), group members showed up energized and full of great ideas to share, resulting in a lively, informative discussion for everyone attending.   I enjoyed seeing familiar faces and meeting new, but I also picked up several valuable pieces of information likely to be of interest to readers of the blog.

First up… an issue on everyone’s minds these days: health insurance or, more specifically for this crowd, the COBRA subsidy enacted as part of this year’s stimulus package. One attendee in particular has been following this subject very closely (via useful Web sites nelp.org and unemployedworkers.org), and he graciously shared with us what he’s learned about the details of the program.

• There is an expiration date on the program, and it is rapidly approaching: December 31, 2009. However, it’s NOT that benefits to anyone who has been receiving them stop on that date; once benefits have begun, they can last up to 9 months. Rather, the deadline has to do with establishing initial eligibility for the program, i.e. no one terminated from employment after December 31 is eligible to participate in the program (details)… as it now stands.
• Having said that, there is talk in Congress of extending this program, but nothing’s definite yet.  (*** 1/2/10 Update — Good news!  The COBRA Subsidy has been extended.  ***)

In addition to health insurance, I also came away from the talk with some fresh points on life insurance, pension plans, and unemployment benefits for the self-employed.  Look for those to show up on the blog over the next few posts.

p.s. A big shout-out also goes to Todd Fothergill, Managing Director of Strategies for College, Inc. college planning services, for loaning us a projector!

This is exactly the kind of financial planning I recommend prospective career changers do before making a transition. Doing an analysis like this is even more important if your transition is likely to result in a lower annual income for life, as for the woman profiled in the article and the client I discussed in this recent post (4th bullet).

That’s because:

1. it can determine the viability of the proposed change with much less risk than a “jump and grow wings on the way down” strategy;
2. it can pinpoint any gaps (e.g. here, the need to earn $12,000 a year and increase portfolio diversification) and opportunities (here, a Roth IRA conversion) ahead of time.

Having this information and acting on it — making the most of her money through this time of change — could well mean the difference between a career change that sticks and an unwelcome return to the salt mines.

As most of you have probably heard a thousand times lately, job growth typically lags in any economic recovery. Unfortunately, this time is no exception, and recent job stats suggest that, despite some optimistic signs of recovery, this topic remains relevant. So if you’ve recently lost your job or are worried you could be next, and you’re within striking distance of Manchester, NH, please join us! Click here to learn more.

Photo by David St. Germain

Ch-ch-ch-ch-changes… Every year, trees do it beautifully. For them, change comes at little or no cost. The same is true for some lucky career changers, who happen to want a change that doesn’t require a major investment in additional education or business start-up costs, a big pay cut, a period of under- or unemployment, or an expensive relocation.

But for others, the numbers can really add up. This isn’t necessarily a dealbreaker since, for most, it’s not all about the money. But as discussed in the previous post, you’re better off doing the math before your leap than finding out later — after you’re broke — that you fall into the latter category. Here are a few examples:

• Total ~$0 – After 20 years in the military, a mid-level manager wants to try his hand in the private sector. His modest living expenses are less than he’ll receive in military pension income if he retires today, and health insurance is covered. Even if it takes him a while to find his dream role, he won’t have to lay out any cash in order to make this change.
• Total ~$20,000 – A tech writer at a large firm wants to become a contractor instead of a full-time employee to gain flexibility in the hours she works. She gets health insurance through her spouse’s employer and, although self-employment taxes will hurt cash flow, she sees a lot of opportunities for ramping down living expenses. Still, she estimates it may take a year or so for her income to reach target levels, so the family expects to see a shortfall in combined household income vs. expenses.
• Total ~$120,000 over 5 years for a software marketing manager who wants to start her own financial planning practice – This includes the cost of the CFP® education, participation in related professional organizations, business start-up costs, plus enough to cover the gap in skinnied down living expenses for the 3 – 5 years it usually takes a business to get up and running.
• ~$70,000 each year post-change – An executive at a high-tech firm — the family’s sole breadwinner — wants to leave corporate and become a public school teacher, a job at which his income is expected to be dramatically lower. He thinks it might take up to 6 months to find a job, so his costs to transition include living expenses plus private health insurance for the family for that period, about $70,000. Currently, the family spends about $70,000 more a year than the anticipated future income from the teaching job, so in order to pull this change off without going broke, they will need a portfolio that can support annual withdrawals of that size — or a plan to reduce expenses. (Hint: This is an especially good candidate for a detailed career change financial plan.)

That range of examples should give you some idea as to how to calculate what you’ll need for your Escape Fund — my term for the cash stash required to get you safely to the other side of your transition. (NOTE: This is not the same as an Emergency Fund, the cash reserve fund recommended for everyone regardless of career plans.)

The astute observer may also be wondering about the less obvious costs — opportunity costs and/or longer term impacts — that a career changer may incur. These costs, as well as the benefits, absolutely should also factor into your career change financial plan, so be sure to watch this space for discussion on those topics in future posts.