Help a Reader: Position Eliminated

Recently had this comment left here:

My position where I had worked for almost 38 years was eliminated last Monday. Like millions of others in the USA we lived from paycheck to paycheck. I have a First mortgage of $140,000 and a second of $40,000. My home is worth around $160,000. I have around $50,000 in a 401K and am over 55 years of age. I think I would like to take the $50K and at least pay off the 2nd. That way if it comes to selling the house, I should at least get enough for it to pay off the 1st. And if I'm lucky be able to pay down all if not most of any credit card debt. It has only been a week but for someone that is almost 58 and has worked at the same place since he was 19, it may be very difficult to find a position that meets my qualifications and comes close to the $65K I was earning. Can you let me know if this is an advisable plan?

What's your advice for him?

Comments

[Kevin]

Don't cash out the 401(k) - you'll lose 10% right off the top to penalties for early withdrawal. Not to mention regular income taxes, which might be another 25% or more. That won't pay off your 2nd mortgage unfortunately.

What else do I suggest? Call everyone you know and see if anyone knows anyone else that could help find another position. At this point, finding a new job quickly has to be priority #1. And you may have to take a lower paying job just to stay afloat. If you do start falling behind on the house, call the mortgage companies and see if they will work with you for awhile. To raise money, go around your home and find stuff you don't use and start getting rid of it.

Repeat - do NOT pull out the 401(k) money.

I agree with Kevin. DO NOT PULL MONEY OUT OF YOUR 401K.

Put the house up for sale immediately. You may need to try and arrange for a short-sale with the bank. Once this house is gone, rent something cheap.

I agree - do NOT take the money out of your 401k.

I would look around for another job asap. The same exact thing happened to a man I know and he would get dressed up in a suit every day and drive up to places and ask if they would hire him just because he didn't know what to do with himself. Eventually, he took a real estate exam and became a realtor. You may want to look into that since it's relatively good paying and doesn't need a lot of specific training. I would also talk to people at your old job and ask them if they know anyone who is hiring. Also, don't wait for a job with the same pay or you may be waiting a long time. It's most important to get some income. I would also ask your company about early retirement packages or any severance pay they can offer. I would think you should get something since it doesn't sound like it was performance related.

I would also think about selling the house and renting a place, but only if the rent is significantly lower than your mortgage. The reason I say rent is because you won't qualify for another mortgage without a job. At your age with $50k in savings, you need to do as much as you can to increase your retirement savings, not withdrawal it. It's a tough situation but cashing out your 401k will only make it worse.

Look for a new job, then try to reduce your spending as much as possible, perhaps by moving. Good luck!

[Lolita]

Talk to your mortgage company and explain the situation. Keep in mind though that many times, mortgage companies cannot really do anything to help or offer assistance programs until you have fallen behind on your payments. At very least though, you can make them aware of your situation and find out what your options will be when that time comes. Lenders are in such trouble right now that they are doing as much as they can to help keep people in their homes and paying. A partially paying homeowner is much better than an empty forclosed house.

Stay positive! This is very important!!! Don't let this bump in the road stop you. Get out there and look for another job...your time on the job will be a plus when you go looking, I'd bet!

I had a supervisor get fired a while back. He called me a few weeks ago and said he's still looking but is working at a sporting goods store until he can find something. This man was driving a BMW and making about 3X what I was at the time but he's still plugging along and doing what he can to keep the money coming in.

Hang in there and good luck!!!

[ToughMoneyLove]

My advice for him is to: (a) find work - any work - to get some money coming in and (b) find a fee based financial planner to evaluate his entire situation and get a plan together for the rest of his financial life. That will surely not include cashing in the 401(k). The fact that he would even ask the question is a signal that he needs one-on-one financial counseling.

[Dennis]

How close to 59 are you? You can withdrawl from your 401K without penalty for early withdrawal. You may not found work that will pay the same, but find any work you can to pay for every day expenses.

[Kimberly Morrow]

DO NOT take money out of your 401k to pay your mortgage, beside the tax implications if you are under 59 and half, this is the only asset that is protected from bankruptcy. If you don't think you can continue to make the payments then put your house on the market now. Contact your bank, in person if possible and see if they will work with you. If you had insurance with your previous employer, I suggest you continue it through COBRA (you don't want medical bills piling up on top of everything else).

Being laid-off is a difficult thing for anyone, but especially after 38 years. I wish you the best and hope you have supportive family and friends nearby. If you have never heard of Dave Ramsey (daveramsey.com), I highly suggest you check him out. He gives advice on very similar situations daily on his radio and tv shows.

[Gwen Harrison]

I'm sorry, but I have to disagree with everyone who has commented so far. I think you need to withdraw that money from your 401(k). Depending on how close you are to age 59.5, if at all possible it would be better to wait until then, to avoid penalties. I don't recommend bankruptcy at all. Yes, your 401(k) would be protected, but you've only got $50K in there. Bouncing back from bankruptcy is difficult. Bankruptcy isn't worth it just to protect $50K.

Put your house up for sale *now*. Contact realtors in your area and ask if they'd be willing to accept a 1% commission in exchange for putting the house on the MLS and doing any paperwork related to the sale. Explain your situation, and make it clear you don't expect them to do any advertising in the newspaper, etc. Most people are looking at the MLS online when shopping for a home anyway. Start talking to the bank about a short sale of the home.

During our 23 years of marriage, my husband has been laid off four times. We had to sell our dream house after the last time. It was hard, but it was worth it. We paid off our debts, got out from under a big house payment, and rented a nice duplex until he was offered a better job in another state. I would choose the same course if I had to do it all over again.

[Jim]

Gwen is wrong. Do not touch the 401K. If things really go bad, they cannot go after your 401k. Additionally, the tax hit mentioned by others is the other negative. Find any job (full or part-time) that will help keep you afloat while you try to sell your home. Do use up your savings for the loss. As stated above, work out a short sale for your home.

[George]

Priority one is getting some new income. Finding another job that "meets your criteria" isn't what you need- you need a job - any job - right away. Getting a better job can ways come later.

Priority two is getting a handle on your expenses. In 38 years you've probably earned over a MILLION DOLLARS and have spent the vast majority of it. If you can't massively reduce your spending then you'll be in the poorhouse permanently. Selling off some of the stuff you've accumulated would be a good way to free up some cash. Got a car? Sell it and buy a beater. Got a DVD collection? Sell it and use the cash to reduce your debts.

You've come to realize that living paycheque to paycheque doesn't work well when something goes wrong. Don't keep making the same mistakes and expecting a different outcome.

[DC]

I agree with (almost) everyone else...don't touch the 401k!!! I was in a similar situation - even similar mortgages - and DID cash out my 401k. That was 14 years ago and I still have not replaced the money because of all the other crises that have occurred in the subsequent years. I KNOW that when you're in the middle of the crisis you feel like you don't have other choices but you really do!!! Your best bet is to pretend that 50k doesn't exist. I also agree with the advice to take whatever employment you can find. Although frustrating to "start over", you can do it. My family and I did. Also, with today's economy, mortgage lenders and other creditors are much more willing to work a deal.

[Montana Mike]

first off, you gotta get your game face on! Get mean! Get focused! Then, get any kind of work possible just to keep cash flowing in your direction. It's better to negotiate a good paying job when you're already employed. Next, sell stuff in your house, stopping eating out, kill your cable bill, land line...etc, you gotta gut your budget, eat beans and rice b/c you need to PROTECT YOUR 401K, and your home. Remember, YOU CAN DO THIS. Don't give up, never die, never surrender. YOu will make it through this, but you have to be tenacious! Network like a mad dog!

[Always Private]

sign up for unemployment

take in renters

get seriously frugal

[KC]

Don't cash in your 401(k).

Do reduce your debt.

Let me be honest, you are in trouble. At age 58 you have just a drop in a bucket of what you will need for retirment in a few years. You need to get serious about some things and fast.

You do have the option of living off other people's efforts and tax dollars but then that transfer the burden to them and makes it harder for them to avoid your situation.

So, get a job - two jobs, three jobs. You need an income flow. Find other ways to generate income as someone suggested renters.

Reduces expenses to bare bones. Consider selling your house and finding a smaller and cheaper place.

The amount of income you need to get ready for retirement at your age is going to be tremendous and probably not even possible now. But let's not just give in and give up.

[FamilyMan]

If you've been with the company for almost 40 years, and they let you go shortly (this is shortly) before you could seriously consider retirement, get a lawyer.

This is a common tactic for companies to take to reduce their overhead costs (both with employess whose work output is dropping due to their age--and we ALL face that; and in retirement benefits, especially if they offer medical benefits).

I bet at the least, a good lawyer could get you a week per year of service severance, minimum. The worst thing you can do is to just accept it. Your 40 years of loyalty should be worth more than that.

Good luck.

[ekrabs]

In case, it was somehow missed, do NOT take money out of your 401(k)!

The fact that the author is in his 50's only makes it that much more important that it is not touched.

Of course, we're all welcome to our opinions, and a few may actually disagree, but with all due respect, if you touch your money, you are going to be crying 10 years from now.

It's a shame to come to this point in life and still have so much hanging over your head, but I agree with some responders above: It's time to tighten your boot straps and get ready for some hard financial work.

However, if you can tough it out for the next 10 years, perhaps you can still retire in time. Maybe.

[Suze]

I really wouldn't start hiring lawyers at this point -- that's more money flowing out and you need money flowing in.

I agree with many others here: find a job. You probably aren't going to find one that meets your qualifications and you probably aren't going to make 65K a year. Don't let that stop you, take a different type of job (you may find something more suited to you later, but right now, you can't be picky.)

Leave your 401k ALONE. Put your house up for sale. In the meantime, sell other assets. Do you have a boat? Sell it. Do you have a motorcycle? Sell it. Do you have collections of any type? (watches, pottery, books?) Start selling them. Are you are paying for your kids schooling? Stop it. Be honest with them, you can't afford it right now -- have your kid explore loans to continue their schooling.

Good luck. You are in a difficult position but I have faith you will find your way out.

[Kevin]

Suze - he could always hire a lawyer on a contingency fee basis. That actually may not be a bad idea considering the lack of severance and term of service.

[Kenny]

Sorry, no quick fixes here. Money do not grow on trees, and even if it did, it takes a while to grow and then some of the fruits that grow on that tree needs to be preserved if you want Jelly in the winter months. If you don't make jelly and eat all the berries/apples/peaches, then it is time to go and do a 2nd and 3rd job like the 'developing' nation folks have been doing for decades.

If any American wants to ENJOY life, spend TOMORROW's FRUITS today, and then look for 'instant fixes', they do NOT EXIST anymore. In fact, they will NOT exist for too much longer, even in good times (in the US). Banks, Lending Institutions and Mortgage Companies are BURNT OUT.

You are OVER-BORROWED my friend. You family has had a great time going to sports events, entertainment, video-games, vacations, eating out, outsourcing of home-tasks, new items when old one is not at end-of-life, spending at school, cell-phone-usage-galore, too many pairs of shoes, great clothing outfits, nice treats during XMas etc. All of this might not be 100% applicable the the gentleman writing, but that is my observation of America (and I live in a 98% American-Whites neighborhood) where spending is done like money grows in the backyard.

Sorry Charlie, I do not have a sweet message saying "It's OK". You can come out of it by calling "1-800-FIX-IT-NOW". It is time to put in another 10-15 years working and joining the NO NEW STUFF Group as well as the 30-day-No-Shopping Group (and repeat every 30 days!).

Good luck with your 2nd and 3rd job, and of course, don't quit your first one. And, NO SHOPPING - PERIOD.

Kenny

[Anni]

Don't touch the 401k! Scrutinize all the bills to see what can be cut, get a job, or two, at this point it doesn't matter what. I know that sounds harsh, but having worked three jobs at one point, I know it can be done. Sell anything that is not a necessity. Do you have a hobby that can translate to income? Be creative and think outside the box.

[Ken F.]

To be perfectly blunt, you are screwed...

You have been incredibly irresponsible with the money you have earned over the years. And the worst part is, you don't seem to really be admitting your poor behavior ("Like millions of others in the USA we lived from paycheck to paycheck", as if that is some kind of justification). I tell you where you should be right now - your home should be completely paid off after 38 years of constant employment, you should be driving a paid-off car, you should not have any credit card debts or student loans, and you should have a 401-K with a balance of several hundred thousand dollars in addition to 6+ months of emergency savings in case of job loss.

Now, the reality of the situation is that you are ulinkely to find a job that pays you even 75% of what you were making before. And it will probably take you 6 months to even find that. Therefore, you are likely going to lose your home. And even if you do find decent employment, your lack of savings means that you will have no possibility of retiring before you are 70+ years of age (if then). I hope you have enjoyed your life and all the money you have squandered, because your future figures to be pretty bleak.

Sorry for the harsh assessment. If only someone had been this blunt with you 35 years ago, you might have acted more responsibly with your money during your lifetime and not find yourself in the hole you are in.

[Linda]

Go austerity. More than once I've lived on oatmeal, grits, bad coffee and an occasional piece of fruit to ward off scurvy.

Don't be afraid to take a menial job. $8 an hour beats 0 an hour. You'll be amazed at the backgrounds, both educational and professional, of people who are working with you. Guess what? They're paying their bills, too.

Stay away from critical family members, the kind who can't wait to make a snide remark when you're in a bad situation. After a year's search, when I'd found employment, my sister's husband asked me if "I'd enjoyed my year-long vacation." These are the people you need to avoid.

When you do find a job, save like a maniac. That's what will tide you over the next crisis.

[kitty]

Agree about not touching 401K. Even ir somehow you avoid penalty, you'll have to add 50K to your taxable income this year. You have already earned over 40K. Add to it unemployment and 401K money to it, and your wife's income, and you may end up in the highest tax bracket. With state taxes, you may end up paying over 40% of this money to the government even with no penalty. There is no way you'll clear enough money after taxes to pay your second mortgage, at least not this year. Even if you did, it'd be a waste to pay so much in taxes all at once.

Your post haven't mentioned any severance pay? Are you sure you will not get anything after 38 years? You also didn't mention how much your spouse earns.

What do you do? You might not be able to get 65K, how much can you get? I agree that your first priority should be finding a job and practicing austerity. In the meantime, find out if you'll get any severance, get unemployment and consider cash jobs. For example, in my area an illegal maid cleaning people's houses earns over $18 an hour cash, sometimes as much as $25. It is tougher if you are male, but maybe you can do some fixing/carrying. Are you handy? Can you do home improvement?

Don't really know what else to say. As much as I hate it, if you simply cannot pay for house, selling short may be your only option. It'll mess up your credit, but at least you'll have your 401K intact.

[Matt H]

Here's some advice: don't listen to Kenny or Ken F. No sense crying over spilt milk. I don't know what they're trying to accomplish with all that abuse.

I've seen friends get depressed at times like this, and it only makes things worse because they give up. This is a time to stay positive and forward-looking.

First of all, that 401(k) money is YOURS and you're going to need it later. Even though you felt like you were living paycheck-to-paycheck, you do actually have something to show for all that work you did. It's sheltered even from bankruptcy. No one can take that away from you if you don't let them. I'm a big believer in keeping promises and repaying debts, but frankly, the banks knew (or should have) that they were taking a risk approving mortgages with such a high loan-to-value ratio, so don't beat yourself up too much if they end up taking a hit here because of an event that was beyond your control.

Second, do explore the lawyer idea. It's possible that spending a few hundred bucks to have a lawyer write a letter could net you thousands in severance.

Otherwise, others have given good advice here. Trim your expenses down to the bare minimum and find another job ASAP, even if you have to swallow some pride and accept lower pay for a while. Almost anything with benefits would be great.

[Ken F.]

To Matt H:

"don't beat yourself up too much if they end up taking a hit here because of an event that was beyond your control." ?!?

Are you kidding me? What exactly was "beyond his control"? Living paycheck to paycheck? Going into credit card debt? Not paying off his mortgage after 38 (!) years of steady employment with one company? Only having $50K of savings with no emergency savings by the time he was 58 years old? Give me a break. How about he accept some personal responsibility for his life, rather than viewing him as a victim of events that were beyond his control. The poor housing market didn't cause his current financial despair. His lifetime of poor stewardship over his income is what led to his troubled situation.

What I was trying to accomplish with my post is to point out to other readers that he is suffering the effects of a lifetime of poor financial decisions. It is too late to help him - his fate is largely sealed at this point (unless he hits the lottery). But younger readers should pay close attention to his situation as an example of how not to ruin their financial lives. His poor example might at least help someone else avoid the same mess that he made for himself.

[Matt H]

Ken F.:

Losing his job was beyond his control. It's not like he was fired for cause.

"Living paycheck to paycheck? Going into credit card debt? Not paying off his mortgage after 38 (!) years of steady employment with one company? Only having $50K of savings with no emergency savings by the time he was 58 years old?" ...all of which the lenders would have known if they did their due diligence. That's why I have no problem with the lenders losing money on this; they were at least as irresponsible as the borrower in that transaction.

The person who wrote in for advice is clearly doing so because he's trying to start taking more responsibility for his finances and make some smarter financial decisions. So what if it's too late to get to the same position of financial security as someone who knew the best way to handle money 40 years ago? That's no reason to despair. There are still plenty of decisions he has to make that will affect his future. Will everything be OK? Not all by itself. It will take some work and sacrifice and changing some old habits and priorities, but certainly all is not lost.

I think younger readers already understood the mistakes he made in the past, particularly readers of this site. And the consequences were clear enough from the original post. The purpose of the post was to try to help the guy, not kick him when he's down. Even in the unlikely event it would make a difference to younger readers, I don't think it justifies being nasty to him.

[MelMoitzen]

I'm not into blaming the victim, but unfortunately I find myself reaching the same conclusions some of the more blunt commentors have, given the limited information provided.

It's important to know how the poster got to this stage. It could be that behavior modification is a large part of the solution, or it could be that circumstances that have been out of the poster's control for years and years have finally caught up with him and someone needs to call "game over" and send him to a bankruptcy lawyer.

For example: "*We* lived from paycheck-to-paycheck..." Who is the other part of this "we"? A spouse who never worked with unlimited free time to go out and spend, or a disabled dependent who has required costly medical treatment or home care that will continue for years to come? Just how much does he owe on your credit cards? More sensitive, practical answers will only come with the poster providing more details about his/her situation.

In the absence of this sort of information, I too have to question how the poster would need to live paycheck-to-paycheck on an income of at least $65K, in an area where houses cost $160K. Clearly he's not living in NYC, Southern Cal or the Bay Area. In most any other part of the country, $65K should be considered pretty good money and go a long way.

Many of us are working hard through the years, foregoing luxuries to enjoy a relaxed, comfortable lifestyle in retirement after our major obligations (mortgage, college expenses) are out of the way.

Regardless of how the poster got to this stage, it's a given that hard work at the back end will need to be part of the solution. If life has dealt the poster and dependents some really bad cards and he hasn't been living high on the hog up until this point, I'm sorry he'll never have the opportunity to do so. If he has been living beyond his means until now, he has already experienced the rewards I'll see in retirement and now needs to pay the piper with the hard work that lies ahead.

All that having been said, my best advice to the poster is:

1) Get a job. Any job. Yesterday.
2) Move. Any place where the cost of living is lower than where it is now, or where he won't fall prey to the same lifestyle and spending temptations that may have contributed to landing him in the position he's now in.

Let's play devil's advocate and assume the only work the poster can find pays $8 an hour. That same $8 goes a lot further in, say, Oklahoma than it does in California or in the larger cities in the Northeast. Houses can be bought for well under $100,000, or apartments rented (does he really need a house?) for perhaps $500/month once you're off the coasts and out of the major cities.

If relocating means uprooting from nearby family and friends, the poster needs to ask himself how serious he is about freeing himself of the financial bind he's in. If that's something he's unwilling or unable to do, then he may have no choice but to look to the same family and friends for financial assistance.

[Slinky]

If us younger readers are reading this site, we're probably smart enough that we don't need you to beat this guy up to teach us a lesson. My e-fund, retirement savings, and 20% house down payment are all on track, thanks.

To address the question: lower your qualifications. Take the first job you find. You lost all your bargaining leverage when you didn't save some money for a rainy day. I watched someone I know hold out for a job that met his qualifications. He was out of work for over a year and lost his wife because of it. Swallow your pride and do what it takes to salvage the situation. Either that or sell the house now. Since you have no savings, you may have to get a temporary job wherever you can find it while you look for a job. Something with flexible hours so you can interview would be best.

[Jim]

As most others have said I would not cash in the 401k just yet. You're only a couple years away from being able to take a withdrawal penalty free.

I'd do the following:

- File for unemployment.
- If you got no severance and there was no cause then consider talking to a laywer.
- Cut your spending to the bone.
- Start looking for a job.
- Does your wife work? If so then can you support yourselves on her income? If not then she should be looking for a job as well assuming she is able.

Jim

[suze]

Re: Lawyers.

Where do you live? If you live in Michigan, you are living and working in an at-will state. That means that you can be let go from your job for any reason, or no reason at all. It is actually designed to protect employees, so they can leave their place of employment when they and for the reasons they want: there is no implied contract. That is why I said don't immediately go hiring lawyers. Unless you are a victim of age/sex/racial discrimination, it's going to be a long expensive road and your time and energy would be better directed toward finding a job and cutting your expenses.

The poster did not say anything about finding a lawyer, so I'm assuming that isn't on his radar. It's interesting to me how many posters find it an option, though.

[Sarah]

"It is too late to help him - his fate is largely sealed at this point."

But I bet it felt really great finding someone down on their luck who you could kick around, huh? You must have felt totally superior and in control of your destiny as you spat in the face of someone looking for advice.

Is this guy in a bad way? Sure. Did his own bad choices contribute to it? Probably. Now that he recognizes he needs to do something, is there any point at all to his dwelling on whatever culpability he may have for his own situation rather than trying to focus on whatever he can do to help himself and his family? No.

...But you really got to TELL IT LIKE IT IS, huh?

[Donna]

All good info but first you need to outline a plan of action:
a. Attempt to find a job. I think the severance idea is a good one but if they did not offer it I am not sure what good a lawyer could do but it is worth a try. Everything is at this point.
b. Network - there are plenty of job fairs weekly where you could at least put out a resume.
c. Post your resume on all of the job boards and set up alerts so that you get bounce backs on all jobs that you qualify for.
d. Set your sights high initially and don't lower your expectations for at least a month.
e. Keep paying your most important bills first.
f. Cut back on everything that you can. Cancel cable, see about lowering your insurance costs, no eating out. Cancel anything you can that you do not absolutely need.
g. You could move out of state and rent your house. There are still renters out there. That would preserve your house for a while at least.
h. If you have to seek out the help of relatives for loans
i. Hang onto that 401k as long as you can. It is and should be your last option.
j. Is anyone else in your house working - if not they need to go to work. You could at least get a combined income of $65,000.

[Ken F.]

Wow, Sarah, you really opened my eyes! I should have advised him not to worry, the Easter Bunny will probably
crap golden eggs on his front porch. Then, he can ride his unicorn to the local pawn shop and sell them for
freaktastic amounts of cash...