Each day we read reports that the economy is booming.
“U.S. housing and consumer are strong” (1)
“Factory output is poised to speed up.”
“Stronger global growth expectations and a weaker dollar should help.”
“The stock market hits record highs…”
With that being the case, you might find it surprising that several large corporations have recently announced they will be laying off large numbers of employees, especially managers. (2)
Companies which are facing an increasingly tough business environment are being forced to “slash costs and stabilize”. (3) Some companies find themselves at a disadvantage because of the move away from fossil fuels. (4) Some companies have failed to innovate in order to remain competitive. Some companies have to carry legacy costs that newer competitors, especially those in the technology or e-commerce space do not have. Many companies are struggling to keep up with commodity and wage costs that are rising with inflation.
Retail was especially hard hit in the past few years as consumers are relying increasing on online retailers, and the trend seems to be continuing into 2022. (5)
For those who are “let go”, navigating the next stage of life can be very difficult. Loss of income can lead to serious financial issues. Financial stress also tends to damage relationships leading to divorce or separation.
A recent study by showed that, “the earnings of laid-off workers fall significantly — about 16 percent after five years — relative to similar workers who managed to keep their jobs. About 55 percent of the long-term earnings drop is due to lower wages.” (6)
The reality is that the current economic environment is less predictable then previous generations. There is more job turnover (voluntary and otherwise), there is an increasing demand for technology skills, and there is more competition for potential jobs.
Though the unemployment rate has remained near the 3.9% level for nearly a year, the U6 unemployment rate is twice that level at 7.4%. (9) U6 unemployment includes all classes of unemployed even those considered “marginally attached” and/or part-time for economic reasons. In other words, those who would like a full-time job but can only find part-time work. This means there is a larger pool of labor competing for jobs than the traditional numbers suggest.
As a result, it may take longer to find a new job, comparable to the one lost. While much has been made of the shortage of workers and the abundance of jobs, the reality for job markets is unclear.
This job instability, especially during a person’s prime working years can significantly affect their prospects for retirement.
According to a 2016 study by The Center for Retirement Research 50% of US households will be unable to maintain their pre-retirement standard of living in retirement, this is up from just 30.4 percent in 1989. (7) Several factors are driving this situation… the decline of corporate pension plans and company 401k matches, home price declines, and the increase in Social Security full retirement age.
In addition, many people have little money saved in terms of liquid savings. While this problem was ameliorated during COVID by government support, the withdrawl of this support in the past 6 months and the rapid increase of inflation has hurt many consumers. Because of this savings gap many have been forced to draw money out of their 401k’s after losing their job, forced to pay not only taxes but a penalty for early withdrawal as well.
“The Center for Retirement Research assumes that when they hit 65… those with money in 401(k)s, individual retirement accounts, and other savings and investment accounts will buy inflation-indexed annuities with it. Most Americans don’t do either of these things, of course, but many should, and these methods create income estimates that can be combined with Social Security and/or pension income to give a fair picture of a household’s potential retirement income.” (7)
Creating Guaranteed Retirement Income can provide a level of security for what retirees can expect. Many studies show that retirees number one fear is running out of money in retirement. (8) Guaranteed Retirement Income helps address longevity risk and the fact that we as a people are living longer than our parents did.
In order to have a successful retirement we need to do a better job of planning ahead and preparing for life changing events, like being laid off or let go.
With all of this in mind, what are 5 things do we have to do in advance, to prepare for being unemployed in this current economy?
- Build up liquid savings… It is important to keep a portion of your assets liquid and accessible when they are needed.
- Reduce expenses… Cut down on your monthly expenses, and to the greatest extent possible, save the excess cash flow. It is a valuable lesson to learn that “keeping up with the Jones” prior to the Great Recession led to many people becoming less financially secure.
- It is essential to practice Lifelong Learning… the economy is changing rapidly due to technology and innovation. It is no longer prudent to rely on skills learned 20 or 30 years ago. The new workforce requires people to bring more value to the table.
- The growth of the “Gig Economy” has created a new class of contract and self-employed workers. Being self-employed and running your own business, whether it’s as an Uber driver, or a subcontractor position, or an entrepreneur, requires a different mindset and collection of skills than those of a typical w2 employee. Develop the mindset. Learn the skills.
- Create a plan for your retirement assets to reduce risks… It is critical to extract the maximum value from the assets you save for retirement. Working with a financial professional can provide additional insights and guidance.
One improves their odds of success by preparing for change. Planning ahead can help you successfully navigate the loss of a job, as well as hundreds of other economic challenges we have to face in our daily lives.
If you would like to discuss this article or your situation in more detail, please contact me at email@example.com .
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