With the U.S. unemployment rate approaching levels not seen in the past 80 years, it’s more likely than ever that a sizable portion of your clients will be turning to you with the news that they’ve lost their jobs.
Use these steps to calmly lead your clients through the stress of losing their income and benefits, and decrease your own chances of standing in the unemployment line.
Cash Is King
The first need for suddenly unemployed clients is to preserve all of the buying and spending power they possibly can.
Of course, they should start by analyzing every single dollar that is leaving their bank accounts each month and reduce or eliminate everything but the basic necessities. Depending on how dire the clients’ situation, that could include contacting their landlord or mortgage lender to see, after explaining the situation, if it’s possible to get a break on the rent check or mortgage payment due, at least for the time being.
If the clients have other debt, they should resist any urge to pay it off right now and instead make only the minimum payment required to avoid defaulting on the loan.
In fact, any larger necessary purchases the clients need to make (such as a big auto repair bill) should be put on a credit card or home equity line of credit that can hopefully be paid off once the clients are working again.
In addition, it’s probably wise for the clients to temporarily eliminate saving for bigger goals, like retirement and college.
Once the clients have pared their monthly expenses down to a bare minimum, you can help them figure out where the money is going to come from to cover those costs.
Help With Health Insurance
Clients who have lost their jobs and are 65 or over can usually rely on Medicare. But there are also health insurance options for those who are unemployed, and well under that age.
Assuming they had coverage at their previous job and the employer is still in business, the clients may be able to get covered under COBRA, usually for up to 18 months, and perhaps up to three years in certain situations.
But a couple of COBRA caveats: The beneficiary usually has to enroll in COBRA within 60 days of notification of employment termination from the employer, and because the beneficiary has to now pick up what the employer was paying for the health insurance, the cost may shock your clients (especially those who are on a tight budget).
Depending on the clients’ state and situation, they may be able to get more affordable coverage by enrolling in an Affordable Care Act plan within 60 days after losing their employer’s health insurance coverage.
Those clients with low or no income for an extended period of time may qualify for Medicaid and/or “CHIP” (Children’s Health Insurance Program) coverage.
Regardless of the clients’ needs and circumstances, they should start their search for health care insurance coverage by going to www.healthcare.gov.
(Some) Help Is Available
With millions lining up for unemployment benefits and overwhelming the systems online and in the offices, the sooner your clients apply for unemployment assistance, the better.
How much will your clients get? That figure is determined in part by how much they were earning, how much they have worked in the previous four quarters and the state in which they worked (not necessarily where they live).
The bad news is that the average unemployment check is around $378 per week, often lasts only about 26 weeks, and the recipient still has to keep looking for work and applying for jobs. Plus, the benefits are generally taxable income at both the state and federal levels.
The good news is that the benefits may now be available to self-employed independent contractors. And because of the CARES Act legislation signed into law on March 27, there may be an additional payment of $600 per week through the end of July, and the states may choose to extend regular unemployment benefits up to an additional 13 weeks.
For more information on unemployment benefits, training and job searches, your clients can visit the U.S. Department of Labor’s site at www.careeronestop.org.
Take What Income They Can
Clients whose employment is terminated and who are covered by an employer, state or federal pension may want to begin taking their monthly payments as soon as possible. The extra income will certainly help right now, and it allows clients to survive without drawing down as much (or any) of their personal savings and investments.
Yes, the pension checks will likely be smaller than if the clients were to delay the payments until later. But in the clients’ (and the world’s) current (and likely future) tenuous situation, a proverbial bird in the hand definitely beats a slightly larger one in the bush.
The same goes for those clients who are over age 62 and considering taking their Social Security benefits. Depending on the clients’ income, the Social Security payments could be tax-free. At worst, only 85% of the benefits will be taxable.
Clients who receive Social Security benefits before reaching full retirement age may receive a reduction in benefits if their annual earned income exceeds a certain level (for 2020, it’s $18,240). However, those lost dollars will be recouped by the clients in the form of larger checks, once they reach full retirement age.
Even if/when the clients start working again and perhaps won’t need the pension or Social Security payments, they don’t have to regret initiating those payments. They can use those payments to maximize savings to a pretax retirement plan, which will offset the tax bill from the now unneeded income.
In the case of Social Security, under current rules your clients can withdraw their claim for Social Security benefits within 12 months of initiating the payments. The recipients will have to repay any benefits previously received, but they will then qualify for higher payments down the road and avoid taxation on the benefits they would have otherwise continued to receive.
Kevin McKinley is principal/owner of McKinley Money LLC, an independent registered investment advisor. He is also the author of Make Your Kid a Millionaire (Simon & Schuster).