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Questions and Answers About Job Loss

Q:  “I’ve been laid off as my company has run out of capital.  Should I leave my 401 (k) with the company or take it out?”

A:  Amy White, a certified financial planner I contacted on the question, was succinct: “Why in the world would you want to leave the management of your money in the hands of the folks who flew that company into the ground?  Get it out of there and roll it into a self-directed IRA and forget about it.  Use it only as a last resort.”

Q:  “What’s a last resort?”

A:  White again:  “To prevent yourself from becoming homeless.”

Q:  “But I’ve been told that the taxes on taking money from a 401 (k) are less than taking money from an IRA.  Wouldn’t that argue to leave the money in the 401 (k)?

A:  “That’s a good question.  Shows you’ve done your research.  But you need to preserve the principal and many 401 (k) accounts were obliterated by managers in failing companies.  Rolling it over to an IRA has no tax consequences at the time you do it.  Later, much later, when you take a distribution of your IRA, then you’ll pay taxes and you’ll have time to figure out how to minimize those.   Take the money and roll it over and forget about it.”

Q:  “In this work environment where it takes months to find a job, what should a person do to protect themselves?”

A:  “That’s the essence of  Fallback Position.  Do the 8 personal exercises in the book to know who you are, what your values are, what you want, and what you don’t want.  Then go through the checklist of things that you need to know about your finances and your benefits and rights, so when a layoff comes, it won’t affect you in a devastating way.  You’ll be prepared.  Having a fallback position prepared will probably make you a better employee, perhaps so valuable even that you’ll be the last to be tossed off the lifeboat.”

Q:  “I like my boss and my job, why should I worry about a Fallback Position?”

A:  “You’re very fortunate.  Many people no longer have working environments that are pleasant.  The pressures of the shareholder, the board of directors, analysts, and mutual fund managers all demand continued improvement in performance in publicly-held companies.  If the CEO of your company can enhance their reputation, compensation, career by laying you off, then you’re toast.  You need to be prepared for what can happen, not just what you think will happen.”

Q:  “I’m being laid off.  With two weeks severance.  How can I get more?”

A:  “Go ask.  Explain you need more.  The rule of thumb is you need a month for every $10,000 in salary you currently make—that’s how long it will take to find a job.  Try to get that much.  If they are not forthcoming, consider talking to an attorney and have the attorney make a second request.  It has an intimidating effect.  Next time, though, get your severance deal when you sign on with the company.  You are hired by your friends, but that’s not who lets you go.”

Q:  “But I’m happy I’m getting a job.  Why would I spoil the relationship going in with a negotiation for severance?

A:  “The quick answer is that you won’t spoil the relationship going in.  Explain that you know the company wants an employee who will look out after its interests and you are demonstrating that you are a person who looks out after her own interests as well as the company.  You’re demonstrating responsibility and forward-looking to contingencies.  It’s all positive on your behalf.  In addition, at that point they want you, so they’ll excuse a request that they see at the time as not going to cost them any money, because they know they all will be successful and there will be no need.  At least that’s what they think at the moment.  You don’t need to be wearing rose-colored glasses; let them.”