Suze Orman's Action Plan (25 page)

ACTION:
Prepare for it. As of October 2009 the unemployment rate is at 10.2%, the highest level in more than 26 years. Even if the economy has improved by the time you read this, I want you to remember what happened in 2009 and use it as all the motivation you need to protect your family in the event we hit another rough period. As I always say, hope for the best, prepare for the worst. And the best way to protect your family is to know that you will still be able to pay the bills if you are ever laid off.

This makes it imperative that you build an emergency savings account that can cover your family’s living expenses for eight months. I know that is a lot, but you have got to start saving as much as you can right now. In “Action Plan: Spending,” I review the steps you and your family can take to rein in your spending today so you have more money to put into a safe savings account.

And if you flew past the Action Plans for credit and real estate, I want to make sure you are up to speed on the fact that you may not be able to tap your credit card or a home equity line of credit to pay your family’s bills in the event you are laid off.

You also want to start your job hunt right now—while you still have your current job. Network like crazy, show up at industry conferences, and take a look at job postings in your field. If there is any specific skill mentioned that you are not up to speed on, get yourself schooled on it ASAP. Employers aren’t interested in hiring someone who meets 80% of their needs when they have such a large pool to choose from that they can find the person who meets 100% of their needs. Make sure that person is you.

ACTION:
You will still need to supplement that money with your own savings. The reality is that your maximum unemployment benefit typically will replace less than 50% of your lost wages. There is also a time limit to those payouts; 26 weeks is the standard amount of time you are eligible to collect unemployment. In harsh economic times, Congress can vote to extend the benefit period for an additional 13 weeks. (Unemployment
is handled by your state, based on general standards set by federal law.)

To find out your state’s rules, go to
www.servicelocator.org
and click on the Unemployment Benefits link.

ACTION:
You must have money set aside in a regular bank savings account or money market account. There is no guarantee that the lines of credit you have relied on in the past will be available when you need them. The only way to protect yourself and your family is to have your own savings set aside in a federally insured bank or credit union. You also need to appreciate that lenders are one step ahead of you. If they are worried that an economic slowdown could cause you to lose your job, they aren’t going to just shrug it off. They know if that happens you will then use your credit card or HELOC to cover your bills, and because you don’t have a job, that increases the likelihood that you won’t be able to keep up with the payments on that borrowed money. So, to head off this problem, lenders will cut back on what they allow customers to borrow in tough times.

The only safe alternative is to have cash set aside in a savings account.

ACTION:
Try as hard as you can not to touch your retirement savings. What seems like a reasonable action to help you get through problems today will devastate your long-term security. You need that money for retirement; spend it today and you will have less tomorrow. And don’t tell me you will worry about that later, or you will boost your savings when you get another job. Even the best of intentions to make up for the withdrawals can run into harsh realities: Your next job may not pay enough to allow you to save to make up for your early withdrawal. (That said, if you feel you are out of options and need to raid your retirement funds to get by, please review my advice in “Action Plan: Retirement” about how you may be able to take money out of your 401[k] without having to pay the typical 10% early withdrawal penalty.)

There is one important action I want you to take with your 401(k) if you are laid off: Roll over the money into an IRA at a brokerage or mutual fund company. As I explain in “Action Plan: Retirement,” rolling your money into an IRA gives you access to the best low-cost mutual funds and ETFs, rather than limiting yourself to the investment choices in your 401(k).

ACTION:
Get serious about finding ways to come up with real savings—right now. This is nonnegotiable: You must build up a savings reserve. In “Action Plan: Spending,” I explain how you and your family can (and must) adjust to the new realities to find ways to reduce your expenses—or increase your income—so you have money to put toward important financial goals. There is nothing more important than building an emergency savings fund that can carry your family for eight months.

ACTION:
Get insurance now. If you can’t get it from your employer, shop for your own policy. I don’t care how healthy you are today. It’s tomorrow I am worried about, and you and I both know a serious accident or sudden illness is always a possibility. Remember: Hope for the best, prepare for the worst. You need to understand that many of the families that end up filing for bankruptcy did so because they had unexpected medical bills that were impossible to pay off. Having health insurance reduces your financial burden if anyone in
your family becomes severely ill or injured. Now, the truth is, insurance doesn’t absolutely protect you from bankruptcy. The sad fact is that even people with insurance end up in bankruptcy because of high copays and costs that aren’t covered. But the point is that insurance offers you some protection, whereas without insurance you have no protection.

I appreciate how expensive it is. Employers have been increasing charges to employees for their coverage; that can mean higher premiums, higher copays, or reductions in the scope of coverage. This is happening because health insurance costs keep rising at a rapid rate and companies are hard-pressed to shoulder the cost, and also because businesses feel the pressure to boost earnings (or minimize losses). Shifting more benefit costs onto employees helps the corporate bottom line.

Regardless of cost, you must have some insurance. If your old plan is too expensive, you should have shopped around for less expensive options within the plan. The reality is that because you turned down coverage during the open-enrollment period, typically in the fall, you may be shut out from restarting your coverage until the next enrollment period. (Certain exceptions apply for new employees and employees with life-changing events, such as a divorce or job change; check with your human resources department.)
If that’s the case, I am asking you to get short-term coverage through a private plan until you are eligible to get back on your company’s plan.

ACTION:
As I write this in November of 2009, it looks as if there may indeed be health care reform. But I don’t want you to wait for Washington to save you. You need protection right now. Even if legislation is passed, extended coverage may not be effective until 2013. You can always drop it if and when we have reform in place. That’s one nice thing about health insurance: You pay your premium monthly, rather than annually. So you can drop the coverage whenever you want.

ACTION:
Go to
ehealthinsurance.com
, the largest online resource for health insurance. If you prefer to work with an agent, the National Association of Health Underwriters (
nahu.org
) has an online search tool to give you leads on agents who help clients find individual health insurance policies. As you shop, realize that the group plan at your
old job probably included a full menu of broad coverage—including mental health and maternity benefits, prescription drug coverage, and so on—that you may not need. Shop for a policy that provides only the specific coverage you need to keep your premium cost as low as possible.

ACTION:
Shop for less expensive health insurance. But do not—repeat, do not—go without health insurance. You can’t afford to be uninsured. What if someone in your family becomes ill or is in a serious accident?
Ehealthinsurance.com
has created a website specifically for people who have been laid off; it includes a calculator to help you see what alternatives to COBRA might cost:
www.ehealthinsurance.com/ehi/health-insurance/cobra-learning-center.html
.

ACTION:
In many cases, a private plan will be less expensive than staying on your company plan. Here’s what you need to know: Every employer with more than 20 employees that offers health insurance is required by the federal COBRA regulation
to allow employees who’ve been laid off to stay on the company plan for 18 months, with one very big catch: The employee is responsible for 100% of the cost of the plan, as well as an extra 2% to cover administration costs. That is not just 100% of your normal premium when you were an employee, but 100% of the total cost, including what your employer used to pay on your behalf. So that can be a lot more than you were paying as an employee.

PLEASE
NOTE:
A special federal law passed in 2009 reduced the employee’s share of the COBRA premium to just 35% of the total cost for the first nine months you have COBRA coverage. (Your employer receives a government tax credit for the other 65%.) This special law was in place for people laid off between September 2008 and December 31, 2009. Please check my website for updates on whether this provision has been extended beyond 2009
.

ACTION:
Stay on the company plan through COBRA, but get a private insurance plan for your family. Assuming your family is in good health, the cost of a private insurance plan for them will be less than continuing their coverage through COBRA.

At the same time, find a health insurance broker with extensive experience working with clients with preexisting conditions. (Go to
nahu.org
to find a list of agents in your area.) Different insurers have different policies; you want to work with someone who will shop around to locate a plan that may work for you. If you can’t secure a private policy, you may have to opt for coverage offered through your state. This can often be very costly, so it is definitely to be used as a last resort. You can find links to your state insurance department at
naic.org
(National Association of Insurance Commissioners).

ACTION:
Stay on COBRA for as long as possible. I am sorry to say that there are indeed many states that do not have any last-resort coverage available for residents who can’t qualify for an individual private policy. Just five states—Maine, Massachusetts, New Jersey, New York, and Vermont—have programs in place that offer guaranteed insurance at all times and to all residents. In Rhode Island, North Carolina, and Virginia (and in some instances Pennsylvania), you may be able to get last-resort coverage if you have been turned down for private policies. Contact your state health insurance commissioner’s office to find out what’s
offered where you live; or look up your state’s health insurance options on
www.coverageforall.org
.

ACTION:
Do not base your job search on health benefits. Take the job and shop for your own individual policy or continue on your old employer’s plan through COBRA. But you need to choose COBRA coverage within 60 days of being notified you were COBRA-eligible; if more time has already passed, you have lost your right to stay on your old employer’s plan.

ACTION:
Get a job; school can wait. I am all for changing careers—hey, I spent my first seven years after college working as a waitress—but I am always suspicious when I hear someone tell me they want to go back to school right after they were laid off. It becomes this nice safety blanket to wrap yourself in, rather than dealing with a tough job market. But if you haven’t really thought through what your new career is and you haven’t figured out a financial plan for how you will pay
for school, then it becomes a lousy idea. What are you going to live on while you go back to school? Don’t think you can touch your emergency savings plan. That’s for emergencies. Going back to school is not an emergency. It is a choice. Plan on taking out loans? Okay, but again, what are you going to live on while you are in school? Credit cards? That’s never a good idea.