Author Topic: DH just laid off-401k question  (Read 7674 times)

LmoArk

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DH just laid off-401k question
« on: March 26, 2015, 01:26:52 PM »
I got the dreaded phone call today that DH was laid off.  I'm a SAHM to three small children with very few marketable skills.  We live in a very high COL area.  He gets three more months of pay and he's meeting with someone today to start his job search.  He's a very high earner, so high that finding a comparable job is unlikely.  We wanted to get out in about 5 years, move to the country and have him work a little bit via telework, but this is happening now and our savings, while decent, are not what we'd like them to be in order for our desired move. 
My question is, should we continue to put money into his 401k until the end, or stop contributions now and hoard
 cash?
« Last Edit: March 26, 2015, 01:45:19 PM by farmdreaming »

Gone Fishing

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Re: DH just laid off-401k question
« Reply #1 on: March 26, 2015, 01:35:31 PM »
What does your current cash/taxable investment/ROTH Contribution total look like versus your expenses?  How many months can you go before you would be forced to withdraw from the 401(k)?  How long has it taken others in his field to find work? 

partgypsy

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Re: DH just laid off-401k question
« Reply #2 on: March 26, 2015, 01:38:51 PM »
cash is king, especially in this situation.

LmoArk

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Re: DH just laid off-401k question
« Reply #3 on: March 26, 2015, 01:39:56 PM »
What does your current cash/taxable investment/ROTH Contribution total look like versus your expenses?  How many months can you go before you would be forced to withdraw from the 401(k)?  How long has it taken others in his field to find work?

Including principal on mortgages (one rental property) we save 49-50% post tax income.  If we sell the rental, we have around 2.5 years of comfortable living.  I'm not as good with spreadsheets as most on here so I don't have as precise of numbers as you'd probably like. 

I don't know anyone at his stage in his type of career who has been booted so I don't know how long it takes to find employment. 

matchewed

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Re: DH just laid off-401k question
« Reply #4 on: March 26, 2015, 01:43:38 PM »
You need to know that number. That tells you how much time you have until your husband needs to find a job. It's the primary question to answer. I would not horde cash until you can answer that question.

Then answer the question of how much is your husband's job in demand right now? What are his prospects for finding a new job? Are his skills up to date for the market?

Cash may be king, but it all depends on how long you can last and how long you have to last. Figure those out first.

frugaliknowit

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Re: DH just laid off-401k question
« Reply #5 on: March 26, 2015, 01:48:06 PM »
Forgetting the sale of the rental property:  How many month's expenses do you guys have in cash/cash equivalents?

LmoArk

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Re: DH just laid off-401k question
« Reply #6 on: March 26, 2015, 01:49:25 PM »
Forgetting the sale of the rental property:  How many month's expenses do you guys have in cash/cash equivalents?

15 months

LmoArk

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Re: DH just laid off-401k question
« Reply #7 on: March 26, 2015, 01:52:17 PM »
All this being said, we can easily trim some expenses.  Since his income is very high, and we were saving 50%, we've been living somewhat comfortably and can make cuts immediately.  So the 15 months mentioned previously is at current spending levels.

Sibley

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Re: DH just laid off-401k question
« Reply #8 on: March 26, 2015, 02:05:55 PM »
I'd slash my expenses and increase the cushion. If you post a case study, then you'll get plenty of suggestions. If your husband is a really high earner and you've been saving 50% then there's a lot of room for more savings there.

With cash for 15+ months of expenses, you'll be ok for a while. With any luck, your husband (or you!) can find something to at least pay the bills pretty quickly.

thd7t

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Re: DH just laid off-401k question
« Reply #9 on: March 26, 2015, 02:19:06 PM »
You are including mortgage principal in your savings rate.  You can't count that as savings under these circumstances.  You aren't able to turn around and spend that money if you need it.  I don't think you're in trouble, but that portion of your savings is a little deceptive in this case.

LmoArk

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Re: DH just laid off-401k question
« Reply #10 on: March 26, 2015, 02:24:15 PM »
You are including mortgage principal in your savings rate.  You can't count that as savings under these circumstances.  You aren't able to turn around and spend that money if you need it.  I don't think you're in trouble, but that portion of your savings is a little deceptive in this case.

Taking out mortgage principal we save around 41-42% of post tax income.

In re
I'd slash my expenses and increase the cushion. If you post a case study, then you'll get plenty of suggestions. If your husband is a really high earner and you've been saving 50% then there's a lot of room for more savings there.

With cash for 15+ months of expenses, you'll be ok for a while. With any luck, your husband (or you!) can find something to at least pay the bills pretty quickly.

I'm terrified of a case study.  I'm so emotionally raw right now I don't think I could take it.


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Re: DH just laid off-401k question
« Reply #11 on: March 26, 2015, 02:33:51 PM »
Take a deep breath.  Relax.  I got laid off three times in a two year period during the recession, and with a much smaller cash cushion than you.  I'm fine today, and you're going to be fine as well.  Think of this as a little taste of early retirement.  It will be over before you know it.  :)

As for the 401(k), I'd stop all the contributions.  You can always contribute more in the future.  For now, just keep the money handy.  :)

tomsang

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Re: DH just laid off-401k question
« Reply #12 on: March 26, 2015, 02:34:27 PM »
Sounds like you need a bit of time to evaluate this situation.  It sounds like you have a great cushion, he has a severance policy, he will receive unemployment, and the job market is actually pretty hot right now.  Things will work out well.  The fact that you have a cushion puts you into a situation where many people don't have the security blanket. 

Find out your true expense, his unemployment benefits, and expected time to find a job.  The community can be gentle if you spell it out.  We are here to help!

Your family will be fine. 

matchewed

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Re: DH just laid off-401k question
« Reply #13 on: March 26, 2015, 02:42:00 PM »
You are including mortgage principal in your savings rate.  You can't count that as savings under these circumstances.  You aren't able to turn around and spend that money if you need it.  I don't think you're in trouble, but that portion of your savings is a little deceptive in this case.

Taking out mortgage principal we save around 41-42% of post tax income.

In re
I'd slash my expenses and increase the cushion. If you post a case study, then you'll get plenty of suggestions. If your husband is a really high earner and you've been saving 50% then there's a lot of room for more savings there.

With cash for 15+ months of expenses, you'll be ok for a while. With any luck, your husband (or you!) can find something to at least pay the bills pretty quickly.

I'm terrified of a case study.  I'm so emotionally raw right now I don't think I could take it.

You've got over a year of cushion, it's going to be okay. You can probably afford to not hoard cash and take your time with the job search, again you'll need to gain some perspective on how long the search will be in order to determine whether or not to hoard the cash.

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Re: DH just laid off-401k question
« Reply #14 on: March 26, 2015, 02:48:58 PM »
With between 15 - 30 months liquidity at your current spending levels there is nothing to panic about.

Drop any discretionary spending.

The hubby needs to find a job. It doesn't have to be the greatest dream job.

You just need to stop burning saved dollars. Each saved dollar cost you $2 earn after tax dollar to get if you are saving ~50%.

The faster you stop the burning and start saving again [even a little] the less damage you do to your FIRE plans.

Once he gets a job he can then switch to looking for a job he really likes and pays really well.

What I wouldn't do is wait a long time unemployed waiting for the dream job to show up.

-- Vik

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Re: DH just laid off-401k question
« Reply #15 on: March 26, 2015, 02:51:08 PM »
Forgetting the sale of the rental property:  How many month's expenses do you guys have in cash/cash equivalents?

15 months

Might not be much, but did you include his anticipated unemployment benefits?  Also, are you cash flow positive on the rental?

With 15 months worth in the coffers, I'd back off the 401(k) contributions at least down to the match.  With the drop in income, you might drop back a bracket or two anyway for the 2015 tax year.  Be sure to revist your IRA options come tax time next year, you may be eligible for deductions/contributions that you were not in the past due to your husband's high income.  I second the opinion to go ahead and cut expenses now.  It might actually make things feel a little more panicky to begin with, but will give you flexiblity and more control as you move forward. 

Sounds like you are in FAR better shape than 90% or so of people that have been laid off over the past 7-8 years.   Even if your husband can only replace 70-80% of his income, you will be still be better off than most Americans.  Draw comfort from your preparation.  Many of us have been there ourselves, my wife was laid off 2x due to the recession and we came out just fine on the other side.   

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Re: DH just laid off-401k question
« Reply #16 on: March 26, 2015, 02:54:06 PM »
I'm sorry to hear about this. I would encourage you not to take any drastic action today. You have enough cushion to last you for a good long while. Take a day or three to process this information and come up with a good plan before you go and make big changes that you might regret when your husband finds a new job.

LmoArk

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Re: DH just laid off-401k question
« Reply #17 on: March 26, 2015, 06:51:12 PM »
Forgetting the sale of the rental property:  How many month's expenses do you guys have in cash/cash equivalents?

15 months

Might not be much, but did you include his anticipated unemployment benefits?  Also, are you cash flow positive on the rental?

With 15 months worth in the coffers, I'd back off the 401(k) contributions at least down to the match.  With the drop in income, you might drop back a bracket or two anyway for the 2015 tax year.  Be sure to revist your IRA options come tax time next year, you may be eligible for deductions/contributions that you were not in the past due to your husband's high income.  I second the opinion to go ahead and cut expenses now.  It might actually make things feel a little more panicky to begin with, but will give you flexiblity and more control as you move forward. 

Sounds like you are in FAR better shape than 90% or so of people that have been laid off over the past 7-8 years.   Even if your husband can only replace 70-80% of his income, you will be still be better off than most Americans.  Draw comfort from your preparation.  Many of us have been there ourselves, my wife was laid off 2x due to the recession and we came out just fine on the other side.

I have not included any unemployment benefits, as it didn't even occur to me until hours after it happened.  I don't even know how to begin figuring those numbers out.

We are not cash flow positive on the rental, but we're essentially neutral.  We bought it at a high price (2007) and lived there for over five years.  We moved when it would have been a loss selling it, so we kept it and rented it.  It has since appreciated to more than we paid for it.

To everyone who has responded, thank you so much for being so kind.  I'm a planner and this, while I'm not naive and I know everyone is replaceable, never actually seemed possible.  I'm just so scared for my kids right now.

matchewed

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Re: DH just laid off-401k question
« Reply #18 on: March 27, 2015, 06:06:28 AM »
Forgetting the sale of the rental property:  How many month's expenses do you guys have in cash/cash equivalents?

15 months

Might not be much, but did you include his anticipated unemployment benefits?  Also, are you cash flow positive on the rental?

With 15 months worth in the coffers, I'd back off the 401(k) contributions at least down to the match.  With the drop in income, you might drop back a bracket or two anyway for the 2015 tax year.  Be sure to revist your IRA options come tax time next year, you may be eligible for deductions/contributions that you were not in the past due to your husband's high income.  I second the opinion to go ahead and cut expenses now.  It might actually make things feel a little more panicky to begin with, but will give you flexiblity and more control as you move forward. 

Sounds like you are in FAR better shape than 90% or so of people that have been laid off over the past 7-8 years.   Even if your husband can only replace 70-80% of his income, you will be still be better off than most Americans.  Draw comfort from your preparation.  Many of us have been there ourselves, my wife was laid off 2x due to the recession and we came out just fine on the other side.

I have not included any unemployment benefits, as it didn't even occur to me until hours after it happened.  I don't even know how to begin figuring those numbers out.

We are not cash flow positive on the rental, but we're essentially neutral.  We bought it at a high price (2007) and lived there for over five years.  We moved when it would have been a loss selling it, so we kept it and rented it.  It has since appreciated to more than we paid for it.

To everyone who has responded, thank you so much for being so kind.  I'm a planner and this, while I'm not naive and I know everyone is replaceable, never actually seemed possible.  I'm just so scared for my kids right now.

Take the time to understand that you are actually in a good position. Your children are not in danger. This is important for your decision making. You'll need a clear head and if you go into the process with fear clouding your judgement you could make a bad decision. You and your family are safe.

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Re: DH just laid off-401k question
« Reply #19 on: March 27, 2015, 06:24:20 AM »
I'd say you have problems ... but not emergencies.  This experience may make your expected 5-years into more years, but it isn't likely to knock you out of the game altogether.  You are better off than the average American and will weather this storm. 

Stop contributing to the 401K, but don't withdraw any money.  If all goes well, and he's working again in the near future, you can invest that money elsewhere.  If the job hunt is drawn-out, you may be glad to have that cash. 

You have three months of paychecks until anything changes financially for you; as others have said, as a high-earner, he will receive a severance package (or maybe that was the aforementioned 3-months of pay?) and unemployment.  But that doesn't mean you have to continue spending as you are.  Even if you were being frugal, you can cut back on things.  Slash your grocery spending, no new clothes, no vacations.  These won't be big sacrifices. 

Best advice on this thread:  Make no decisions right now while you are still whirling from the impact. 

And one thing you need to change once the crisis has passed:  You say you're a SAHM with few marketable skills.  As soon as possible, change that.  I'm not saying you should go back to work now while your children are small, but you should be capable of going back to work.  Every adult should be ABLE to work at something profitable, even if they choose not to do so right now.  Suppose, instead of being laid off, suppose he'd been in an accident and was disabled.  Then you would have an emergency:  You need to be able to support your family, if the need arises. 

frugaliknowit

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Re: DH just laid off-401k question
« Reply #20 on: March 27, 2015, 08:02:14 AM »
Echo Mrs. Pete.

Plus:  If you end up with too much cash as a result of stopping 401k contributions when your hubby gets a job (Yaaaaay!!), you can probably plow it into his (hopefully) new  401K or just invest it outside of a plan (part of your capital gains taxable "bucket").

LmoArk

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Re: DH just laid off-401k question
« Reply #21 on: March 27, 2015, 08:39:25 AM »
I'd say you have problems ... but not emergencies.  This experience may make your expected 5-years into more years, but it isn't likely to knock you out of the game altogether.  You are better off than the average American and will weather this storm. 

Stop contributing to the 401K, but don't withdraw any money.  If all goes well, and he's working again in the near future, you can invest that money elsewhere.  If the job hunt is drawn-out, you may be glad to have that cash. 

You have three months of paychecks until anything changes financially for you; as others have said, as a high-earner, he will receive a severance package (or maybe that was the aforementioned 3-months of pay?) and unemployment.  But that doesn't mean you have to continue spending as you are.  Even if you were being frugal, you can cut back on things.  Slash your grocery spending, no new clothes, no vacations.  These won't be big sacrifices. 

Best advice on this thread:  Make no decisions right now while you are still whirling from the impact. 

And one thing you need to change once the crisis has passed:  You say you're a SAHM with few marketable skills.  As soon as possible, change that.  I'm not saying you should go back to work now while your children are small, but you should be capable of going back to work.  Every adult should be ABLE to work at something profitable, even if they choose not to do so right now.  Suppose, instead of being laid off, suppose he'd been in an accident and was disabled.  Then you would have an emergency:  You need to be able to support your family, if the need arises.

Yes, the three months mentioned are his severance pay.  I went over my mint account early this morning (couldn't sleep) and have things figured out a little better.  Instead of 15 months just sitting there in easily accessible cash, we actually have 18 not including unemployment benefits.  I don't know how to figure those amounts out, and believe me, I tried last night.  Those websites are brutal.  The rental house is still worth what I thought, so we have 33 months before shit gets crazy bad.  He'll find something before then.  The goal now is to have the new job pay enough so that we don't have to uproot, although we are willing to do that if he finds a job elsewhere.

I'm technically employable (have a BA and worked prior to children), but what I am able to make in this area given my past experience would not keep us in our house.  We've talked disability before and know that we would move to a low COL area where my income potential would be more worthwhile.

Expenses.  Last year I took on electricity, gas and water.  We live in a 90 year old house with a nearly completely uninsulated addition that is open to the house (unknown at time of purchase).  The bathroom gets to 40 degrees in the winter.  Needless to say heating and cooling are pricey.  But last year I paid attention to usage and dropped our bills $450 for the year.  Not much, but I'm glad I did it.  I'm now planning on my house being even a bit warmer this summer.  My goal this year was food.  I was planning on cutting our expenditures by $250.  Now the goal is to drop it by $400 or $450.  We need to get out of Verizon wireless and switch to Republic.  I broke that to DH this morning and he's completely on board.  We're looking into dropping cable and getting a functioning wifi system so we can switch to netflix.  We can't really cut clothing purchases much because we don't really purchase clothing.  What little i do purchase is for my rapidly growing brood.  I'll be going consignment shopping and asking friends for hand-me-downs.  Vacations are a thing of the past.  Our last vacation was over 6 years ago. 

He's already sent feelers out and is doing job searches, narrowing down what he qualifies for.  He met with someone yesterday that is already talking contract work come July.  I feel a little better, but there's no relaxing yet.     

Jacana

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Re: DH just laid off-401k question
« Reply #22 on: March 27, 2015, 09:34:06 AM »
You are all going to be fine, you're in a great position with lots of savings and assets! This is a disaster scenario for those living paycheck to paycheck, not for your family. Answering your original question, personally I would stop contributing to 401K and keep the extra money. If all goes perfectly, you have plenty of time to add it back in to your 401k this year with the new job. If not, you'll want the extra cash on hand. 

Maybe it would help your peace of mind if you both came up with a timeline plan depending on how long the job hunt continues. You have plenty of ideas, but ordering them step-by-step might help reduce your anxiety.

I mean something like this:

Month 1-3: live off savings in account x, gather all financial info and expenses and forecast out, reduce expenses, husband applies to good prospects
Month 4-5: husband applies to all prospects, contract work, etc; begin steps to sell rental
Month 6: you apply for flexible or part-time jobs, while husband is home with kids (any money coming in reduces money from savings). Flexibility is key, so husband can still go to interviews or do contract work (or build up his own business if possible).
Month y: consider moving to LCOL area and you working full time.
Etc.

Not that I think it is likely for things to progress to that extreme, but having it all in writing means you are both on the same page and have everything in place before panic sets in. This also requires you to have gathered all the information you can, including what penalties you will pay for accessing money in places like retirement accounts, CDs, etc. so you know when to take a more drastic step before that has to happen.

One other thought: Don't sell yourself short. You have marketable skills, you're just not in a position to command a crazy high income (similar to myself and most people in this country). That does not mean you have no skills. Use what you have, there's nothing wrong with working regular income positions to support your family even if it is a fraction of what his salary was. And you're already in a great position to handle a lower income, with frugal habits and low expenses. In my field, I would never ever make close to what my husband already does, so I am the SAHP. And we've been spoiled by his above-average salary. But if he loses his job, I will go back to work in a heartbeat in any position I can find in or out of my field, because that wage is still way above zero. Consider starting with part-time work in retail, as a secretary, in childcare, at a library, at a university, whoever will hire you. Start thinking about it now and make it part of your plan. And smile, you are well prepared and everything is going to be fine!

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Re: DH just laid off-401k question
« Reply #23 on: March 27, 2015, 02:38:34 PM »
Would you be doing COBRA to continue health insurance with the old company?

If you end up w/o life insurance on the breadwinner, get a term policy.

I would do the 401K up to the match.

LmoArk

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Re: DH just laid off-401k question
« Reply #24 on: March 27, 2015, 03:46:36 PM »
Would you be doing COBRA to continue health insurance with the old company?

If you end up w/o life insurance on the breadwinner, get a term policy.

I would do the 401K up to the match.

We're going to see what we could get elsewhere, because cobra is $1525 per month.  Yikes!

We have life insurance on him.

No match.

WhatIsFrugalAfterAll

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Re: DH just laid off-401k question
« Reply #25 on: March 27, 2015, 03:54:02 PM »
Would you be doing COBRA to continue health insurance with the old company?

If you end up w/o life insurance on the breadwinner, get a term policy.

I would do the 401K up to the match.

We're going to see what we could get elsewhere, because cobra is $1525 per month.  Yikes!

We have life insurance on him.

No match.

1525 is not that unusual for a family with the parents in the late 40s/50s.  You can go a higher deductible plan and save more, just depends how things play out..

You will be fine! I have never had 12 months of cushion in cash in my life. You are better prepared than I...

LmoArk

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Re: DH just laid off-401k question
« Reply #26 on: March 27, 2015, 04:40:16 PM »
Would you be doing COBRA to continue health insurance with the old company?

If you end up w/o life insurance on the breadwinner, get a term policy.

I would do the 401K up to the match.

We're going to see what we could get elsewhere, because cobra is $1525 per month.  Yikes!

We have life insurance on him.

No match.

1525 is not that unusual for a family with the parents in the late 40s/50s.  You can go a higher deductible plan and save more, just depends how things play out..

You will be fine! I have never had 12 months of cushion in cash in my life. You are better prepared than I...

We're low and mid 30s and it is the high deductible plan.  :(