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What Does Financial Planning Look Like When Your Employer Closes Its Doors?

Dan Danford Shares How Financial Planning is Different for Each Employee

 

When the Harley Davidson plant in Kansas City closes its doors next year, approximately 800 workers will experience a life-changing event. Financial planning is important for everyone, but when losing a job, it becomes crucial.

As Dan Danford, CEO of Family Investment Center, said in an op-ed in the Kansas City Star, the next steps these employees take will be critical.

Different ages, different number of family members, different financial needs and other aspects make each situation unique. The approach an individual takes to this situation will not be a one-size-fits-all scenario. In fact, Danford notes that it’s a mistake to follow the lead of a colleague.

“Good choices depend on thoughtful analysis of some personal issues,” Danford said.

For example, current financial status must be taken into consideration: Is the person married or single? Do they have other family income, such as a spouse who works and can take care of health insurance? Is there an emergency reserve in the bank they can count on until another job is secured? If a job isn’t immediately available, how long can they go without a steady paycheck? These are all important financial planning questions.

“Younger workers may face a big mortgage and a houseful of children,” Danford said.
“Older workers may have health limitations or fewer job prospects. Some workers nearing retirement age anyway may choose not to seek another job.”

Taking Care of Health Insurance
COBRA benefits offer a short-term solution for health insurance, but it comes at a price and it’s not very flexible. Because Harley Davidson offered good insurance, former employees will probably face a situation where their premiums will be high in comparison, which will impact the budget.

Young workers will have access to individual policies that don’t have all the bells and whistles older folks require, so they can probably save some money there. However, anyone with a spouse and children will need something more extensive, and COBRA only covers them for around 18 months.

The Retirement Plan
While it’s tempting to dip into that 401(k) plan while unemployed, it’s not recommended because the costs are high in a number of ways. As you likely already know, you’ll have to pay taxes, state and federal, on funds you withdraw. Second, when you pull money out of your 401(k), you’re negatively impacting the ability of that vehicle to build up compound interest, which sets you back months, if not years. A better choice would be to borrow money elsewhere.

Adjusting the Budget
Danford notes that it’s always tough for workers to scale back a comfortable lifestyle. However, given the fact that these employees will have had many months to prepare for this situation, they can begin gathering information.

“How much adjustment is needed?” Danford said. “Where can you adjust without disrupting your lifestyle and needs? Are there things you can do to boost your emergency fund or savings? Can you sell unused items? Empty the garage or basement, perhaps?”

Finally, Danford offers that, “trauma is likely to be short-lived. Unemployment in the United States is low and good workers are in demand everywhere. It is likely employees will find new work faster than it seems.”

For more information about financial planning for you and your family, contact Family Investment Center today.

 

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