Ask The Experts: Keep Contributing In Unemployment?
Q. Hi Carmen, I was recently told by my employer that I was going to be laid off by the end of June. My husband is 50 and I am 35. He is currently employed. We own our own home and we have a considerable nest egg.
I will continue to receive a regular paycheck until June and I will have 8-months salary saved as an emergency fund when I receive my severance check (14 weeks pay plus 4 weeks vacation pay) at the end June...
Our financial advisor told us that my husband should continue to contribute the maximum to his 401k and continue the monthly contribution to our older son's 529, but suspend all other investments until I find a new job (my 401k, both of our mutual funds both retirement and non-retirement accts and to hold off on starting a new 529 for our baby who was just born in April). Is that a right move? -Anonymous
A. Thank goodness it looks like you have a decent financial advisor! Yes—even though you already have 8 months of salary saved and another 18 weeks of pay coming at you, I’d still err on the side of being conservative, especially these days, and hold off on extra retirement savings/investing until you land another gig.
It’s O.K. to continue with his 401(k) as your husband is employed but you won’t be able to contribute to your 401(k) as you’re no longer an employee. However, if that severance is being paid to you not as a lump sum, but over 18 weeks time, you can still contribute, as you’ll still be on payroll. But as a lump sum, you’ll be off the books soon.
While you’re unemployed, try living as best you can off of the one paycheck and save up as much of your current savings and severance as possible so when you land a new gig—hopefully in less than a year’s time—you’ll be able to play a little catch up with retirement and won’t have to build that emergency fund up all over again. Live lean now and plan for the longest job search. It’s a ‘What if’ scenario that you are in a great place to tackle. Things will probably turn out much better than we’re planning for!
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Carmen Wong Ulrich is the host of On The Money