By: Jean Wilczynski, CFP®, Senior Wealth Advisor
If you feel like the U.S. job market is sending you mixed messages, you’re not alone. On one hand, the U.S. unemployment rate remains relatively low at 3.9% as of October 2023.1 This workforce climate would have been hard to imagine during the worst days of the 2008 financial crisis, or in the early stage of the COVID-19 pandemic. On the other hand, we have also seen a steady cadence of headline-grabbing layoffs from several large employers across multiple sectors. Google alone shed more than 12,000 jobs this year.2
Why? For many, persistent inflation and the realities of sharp Federal Reserve rate hikes prompted fears of an impending recession. The advent of generative AI has also led several industries to reshuffle their priorities ahead of potentially far-reaching disruption.
The resulting air of economic uncertainty can be difficult to grapple with. Sunny unemployment figures may not offer much comfort if you feel that inflation, high interest rates and AI disruption are likely to impact your livelihood.
We hear a lot of questions about job loss in this climate. Below, we address three common concerns and share steps to help you build financial resilience while also protecting yourself and your goals.
1. What should I do if I’m still employed, but worried about the future?
Stay calm. Remember: you're not alone. You have resources and strategies to help navigate these waters. Tap into your professional networks. If you work in an industry that has been disrupted by layoffs, it’s very likely that support groups have formed to help those impacted land on their feet.
Prioritize protecting yourself and your loved ones. Identify essential expenses, such as housing, food and healthcare. Because inflation has reduced your real purchasing power over the past few years, consider increasing your buffer for these essentials.
If possible, look for ways to address your current debts, or limit your exposure to more debt in the near future. Interest rates are unlikely to decline soon, which means debt - especially variable-rate debt like credit cards - will be more expensive than in prior years.
For healthcare, understand your coverage costs without employer support, like relying on COBRA3. If this is not feasible, explore alternatives like healthcare exchanges.
Stay informed about financial assistance programs available for rent, mortgages and utilities. Take the time to learn about unemployment insurance claims and processes now, should you need them.
This is the time to keep open channels of communication with lenders. If you're repaying mortgages, student loans, or other debts, ascertain your terms and potential forbearance opportunities due to rising interest rates.
2. How should I build a financial safety net for myself?
We recommend a safety buffer of at least six months of your fixed expenses in an emergency fund such as a savings or money market account. If you already have an emergency fund, re-evaluate your expenses to check if you need to save more money. Inflation has likely sapped the real value of your emergency reserves. However, the higher interest rates currently offered by savings and money market accounts will work in your favor.
If you're below this threshold:
- Explore freelance opportunities or additional hours at work.
- Redirect funds from nonessential subscriptions to your emergency savings.
- Consider a careful, temporary pause in retirement contributions.
- Look for ways to consolidate or share expenses with others.
3. What financial life moves should I avoid?
Avoid depleting retirement funds unless you have absolutely no other alternative. Rash decision-making in volatile investing conditions can often undercut your long-term financial plans. If you cannot avoid withdrawals from retirement funds, be well-versed with the implications of your decisions. Roth IRAs, for instance, have always permitted tax- and penalty-free withdrawals of contributions (earnings have their own rules). Withdrawals of pre-tax contributions from 401(k)s and traditional IRAs are taxed at ordinary income rates and may be subject to a 10% early withdrawal penalty.
With a strategic approach and the right guidance, you can navigate this period of uncertainty and protect yourself and your family. Never hesitate to seek financial counsel or assistance — we're here to support and guide you. If you have any questions, your Exencial advisor is just a call away.
Sources:
- U.S. Department of Labor (11/3/23) — The Employment Situation
- Reuters (9/13/23) — Alphabet lays off hundreds from global recruitment team
- U.S. Department of Labor — Continuation of Health Coverage (COBRA)
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