Do you have a SHTF plan?

For many folks, the advent of Covid played havoc with their work status, with layoffs, reduced hours, or just getting let go/company failing. This isn’t fun, and the economic fallout from the Chinese Flue hasn’t ended yet. The number of people who have chosen this time to retire (or had the time chosen for them) is large, and probably growing. Even if you don’t assume a virus causing havoc, you should still have a “S&$t Hits the Fan” plan. You never know when your company may fail (Enron?) or a change in management happens which causes job changes.

The first step is to try and understand how much money you may receive, both upon being let go, for the next several months, and then beyond.

  1. Vacation time: Check to see how much vacation time you have remaining. If you do, you’ll get paid this out with your last paycheck.  
  2. Severance/Separation Package: Its possible that the company letting you go  will provide you with a package, depending on your years of service. I’ve seen as much as 1-2 years, though the standard appears to be one weeks pay for every year of service. This package could also include medical care for a period of time, or other benefits.
  3. Unemployment: In the US the have unemployment insurance, which pays a percentage of your income (up to a certain max). As a US worker, you pay into that with your paycheck every week, so its not exactly “free money.” I’ve been paying into it for 30+ years, so I don’t feel guilty collecting it. The unemployment period can be up to 26 weeks, though it has been extended to longer in times of extreme distress for the US economy.
  4. Personal Investments: Its possible that your investments (dividends, real estate, etc.) is already paying you and income stream. Take this into account as well.

Now its time to look at your expenses. Are there specific expenses that you can cut out in order to reduce the outflow? Is there additional expenses that will hop up due to your being let go?

  1. Possible expenses reduced/eliminated: Investments (401K, IRA, other), Gas, Dining, Charity, Hobbies, etc.)
  2. Expenses that may go up: Medical. In the US, you are eligible for COBRA insurance, which is where you can continue to get your former companies health insurance – but it will cost more, as you are paying for your co-pay and the company’s share

Once you’ve got an idea of what your inflow and outflow is, you have some idea of how long you can last until you have to really start dipping into your retirement/other funds. The key is to do this sort of planning well ahead of time, so that when SHTF, you don’t have to react entirely with emotion.

Example SHTF plan:

Severance$17,395.16
Remaining Vacation$4,348.79
Unemployment (26 weeks)$20,306.00
$42,049.95
Cobra (12 months)($16,961.36)
Remaining Funds$25,088.59
Monthly after-tax income$2,090.72
Property Taxes($534.47)
Utilities($506.00)
Insurance (home, auto, life, flood)($297.76)
Groceries($450.00)
Other expenses($300.00)
($2,088.23)

As you can see, there is sufficient funds in the SHTF plan above, primarily due to a generous amount of unemployment for 26 weeks. Based on this, you could last 9-12 months before having to pull money out of your investments. Hopefully this will help you find another source of employment. Of course, the benefit of keeping your expenses low and paying off your debts/mortgage dramatically help here.

Luckily, this hasn’t happened to me yet, but I will say that I am expecting it in 2021. They’ve moved several new, young engineers into my group and are starting to train them in areas that have been my specialty. My assumption is that when the time is right for them, management will let me go. Since we’re in OK financial shape right now, I’m not fearing it – I’m just hanging out, doing work I enjoy, and collecting the paycheck till they make the decision.

Kevin

Hope your holidays are going well!

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Mr. 39 Months

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