I am sure you’ve heard by now the disappointing news regarding layoffs at General Motors. Nearly 1,500 white-collar workers in our area will be permanently laid-off by General Motors. In addition, unfortunately, I believe that there will be additional layoffs in the not-so-distant future. You can argue all you want whether General Motors was justified or not. I, on the other hand, want to focus on the reality of the situation and what you need to do if you’re affected by the General Motors layoff or, in fact, any layoff.
For those affected by the layoff, my belief is that the time is now to take hold of your situation and start taking the needed steps to protect yourself. In that regard, one of the first things those affected need to do is decide whether they have the resources to retire, or if they need to get another job. I suspect that the great majority of people affected by this layoff will have to seek other employment.
For those of you who do need to seek other employment, the first thing you need to do is to take hold of your finances, particularly your expenses. Now is the time to start cutting back. One of the mistakes many people make is they wait until their severance ends before they begin to cut back. That is a mistake; you need to do it now. You need to look at your expenses and cut back on anything that is not a necessity. You need to be frugal until you begin earning money again. Of course, those with an emergency fund in place won’t have to be as frugal because they have already planned for a rainy day. The layoff announcement is an example of what a lifesaver an emergency fund can be.
At the same time you begin to cut back your expenses, you also need to begin the process of looking for new employment. Even though we are in a very good job market where employers are having a hard time finding qualified employees, it is still going to take you time to find the right job for yourself. It’s not unusual for someone who lost their job not to be gainfully employed for six months, even in this good market. Therefore, the sooner you start updating your resume and using social media to begin your job search, the better it will be for you. Remember, particularly for those of you who have not had to look for a job in the last number of years, the process has changed dramatically. Therefore, it’s important that you update yourself as to the new ways to search for employment.
As far as I’m concerned, cutting back on your expenses and beginning your job search are two things that you need to do as soon as possible. There is no reason or benefit for you to delay. The sooner you start the better it will be for you.
It is also important, although you do not have to do this immediately, to begin looking at how your healthcare will be affected by your layoff. If you find that you will be losing your healthcare you also need to begin the search for new coverage. Of course, keep in mind that you can always continue your healthcare through GM by utilizing COBRA. COBRA will buy you some time; however, it’s expensive.
One thing you don’t have to do now, and I recommend that you don’t, is decide what you want to do with your 401(k) plan at General Motors. I have no doubt that the annuity salespeople and others will be out in force encouraging you to move your money from the General Motors plan into one of their products. My view is you don’t have to do anything now and there are much more important things such as cutting back on your expenses and starting your job search than moving your 401(k) plan. Remember, you do not have to move your 401(k) plan. You can continue to keep your plan at General Motors. Although, I generally recommend when you leave your job you move your 401(k) into an IRA to give yourself greater flexibility, I do not believe it is something that needs to be done immediately.
I do want to remind you that your 401(k) plan and your IRA are for your retirement and therefore, you have to be very cautious about using it prior to retirement. I recognize that sometimes it is easy to withdraw money from retirement accounts; however, there is a cost to that. Not only is there a tax cost, but it’s also less money you have growing for your retirement. Therefore, while withdrawing from your retirement account to cover short-term needs may provide you short-term comfort, I can almost guarante it will provide you with long-term discomfort.
For those of you affected by the General Motors layoff, you need to start taking action as soon as possible. Don’t wait until your severance ends, take action now. The sooner you take action the easier it will be to get through this crisis.
Rick is a fee-only financial advisor. If you would like Rick to respond to your questions, please email Rick at firstname.lastname@example.org.