“It is during our darkest moments that we must focus to see the light.” – Aristotle Onassis
I’m sure we have all been impacted by job loss at some point or another, especially in the last few years. While it isn’t exciting to lose a job, it’s just as much a part of the economy as graduating or getting a raise. A blow to the stomach yes (or slap on the cheek), but certainly a part of life.
In my career as someone that helps people with their finances, I’ve had multiple clients directly impacted by job loss, and from those experiences, I’d like to offer up a few of the positives that can come out of losing a job.
Personal and Career Growth
You’ve heard the stories. Everyday people find opportunity in despair. One of those individuals is Pat Flynn. If you don’t know Pat Flynn, he runs a very successful website called smartpassiveincome.com.
In short, Pat lost his job in 2008, started his own business, and became extremely successful. An interview with Pat tells his story of how losing his job was the greatest thing that could have happened to him. And he’s not alone. Thousands of businesses were born in difficult circumstances.
While starting a business isn’t the only option, you may find that your next career opportunity far exceeds your previous one. You may find better pay, better position, or better environment. A few positives to look for.
An Opportunity For More Control
One very attractive employee benefit most employers offer is the 401k plan (most obvious statement of this whole post). 401k plans have a wide range of limitations which vary from plan to plan, but there is one commonality among almost all of these plans… You cannot move money away from your provider.
In essence, you are forced to lock that money up inside that 401k plan.
When you lose your job however, the game changes. You unlock these ridiculous chains, and allow yourself to make some key financial decisions with this money. You are placed back in control.
Here are a few of the options you have:
IRA Rollover – an IRA Rollover allows you to keep the same tax deferred status of your 401k, but allows you to control where those funds go. Options like annuities, real estate, gold, silver, and other investment options become available in this scenario.
IRS Rule 72t (Early Systematic Withdrawal) – Rule 72t is a little gem that not a lot of people know about. It allows you to actually take out money from your retirement account before you turn 59 1/2.
The stipulation here is the withdrawals have to be systematic, and follow certain criteria. You can use this calculator to see what you could withdraw in your situation.
Full withdrawal – Most of you are probably familiar with the 10% penalty on early (before age 59 1/2) withdrawals from government qualified accounts (401k, IRA, etc). While its not an ideal situation to pay that penalty, extended unemployment can create a unique scenario where it can make sense.
In a scenario where you have low income over the course of a year, for example, withdrawing your money might be no different than taking that money as income later. Meaning, if I drop from a 28% tax bracket to a 15% tax bracket, then the penalty plus the tax bracket doesn’t feel any different than the brackets you would have otherwise been in.
Now keep in mind, withdrawing money is a delicate process. I would certainly recommend only doing this in close connection with your CPA.
Job loss is not ideal, but it’s not the end of the world. Instead of being blind sided and depressed, I recommend stepping into your new situation, and face it head on. You might find a lot of positives you may not have otherwise found.
Photo Credit: Flickr: Khalilshah