Life is rarely uneventful. A curveball or surprise at the most inopportune time is bound to appear for just about anyone.
The economic situation of the past few years continues to result in a lot of life-changing events for individuals in the form of job loss or career changes. Unemployment, in particular, is a life-changing event that many are experiencing as the world continues to deal with the pandemic and its fallout. Such times of uncertainty may drive many upcoming client conversations.
Job loss changes the future and will impact your client’s financial goals. The current times serve as an opportunity for advisors to engage with clients as soon as possible to talk about 401(k) rollovers, help them uncover other assets and align their retirement strategies. First, it’s important to understand where things currently stand.
Unemployment in the United States
Here’s a snapshot of some of the official unemployment data released by the Bureau of Labor Statistics:1
- The unemployment rate decreased to 3.5% in September 2022, then increased to 3.7% in October 2022, signaling minor fluctuations but overall better numbers than what we were seeing just a couple of years ago
- The unemployment rate has been in a narrow range of 3.5 percent to 3.7 percent since March 2022
- Over six million people remain unemployed in the United States
Potential financial assistance during this time
Most of the pandemic-related financial assistance and relief has ended by now, but there may still be opportunities for those who’ve struggled financially during the last few years.
Encourage your clients to check their eligibility for such COVID-19-related relief as food stamps/meal programs or funeral assistance for loved ones who may have passed away from the illness.2
If your client remains unemployed, point them toward their state’s unemployment insurance services. Each state sets its own guidelines, but someone could qualify if they:3
- Are unemployed through no fault of their own
- Meet work and wage requirements
- Meet any necessary state requirements
Best financial practices and opportunities during hard times
Talk to your clients about some of the tried and true ways to tighten the purse strings as they navigate life without an income.
Rethink the budget
First and foremost, your client would be wise to rein in any unnecessary spending until they’ve gotten another income stream. Going jobless brings about a temporary “trim the fat” situation when it comes to money.
Help them revisit all of their expenses, particularly subscriptions and luxuries. Do they need to be subscribed to every streaming service? Could they reduce how often they order takeout food? Can they lower their grocery budget by skipping convenient deli items? There are a lot of things to visit in terms of budgeting without a current income.
Beware of scams
When money becomes scarce and emotions are heightened, it may be easier to be tricked into fast money-making schemes. Remind your clients to be vigilant and aware of investment scams, phishing emails, Medicare fraud and more. We’ve previously dug into the topic of investor scams and encourage you to review our list of some of the most common scams to warn your clients about.
Avoid the temptation to cash out the 401(k)
If your client has a 401(k) with their former employer, they’ll need to do something with it eventually. While it is widely considered best practice to roll it over into a new 401(k) account at the next job, what about in between jobs? Some may be tempted to cash out, fully or partially, especially if it’s a large sum. But that’s generally not advised.
As you know, cashing out 401(k) accounts before retirement can come with penalties and major taxes. The amount they see in their account won’t even be close to what they’d actually receive when withdrawing. Plus, once it’s cashed out, it’s done growing, and all of a sudden money meant for retirement is gone.
Encourage them to leave the 401(k) alone for now. If they’re still tight on finances when they start a new job, then one way to keep more money in the present is to only give a small amount to the new 401(k) in the beginning, with the intent to increase their contributions as time goes on and their current financial situation stabilizes.
Dip Into emergency savings if needed
Hopefully your clients have some emergency savings ready to dig into. If so, that’s okay, because this is exactly what those savings are here for. If they don’t have an emergency savings fund available, now is a good time to educate them on why it’s important to stash away some money for this kind of crisis.
Next steps for investors and advisors
The events of the past few years might have revealed that some of your clients had a lower tolerance for risk than you or they thought. As an advisor, you can help provide reassurance by framing conversations around their values as much as their finances and help them set long-term goals that align with those values.
You may even want to rerun your planning projections, which will serve a better purpose as life continues to regain its balance, but will likely show that the long-range plan is still on track.
Guidance through emotional situations
Beyond finances, advisors may best serve their clients by simply listening to concerns and helping them process what they’re going through. Sometimes the best decisions need to wait until they can be made with clear, rational logic once a person gets past the emotional reaction to a life event.
That’s where our Behavioral Finance Advice program can help. This award-winning program offers solutions for helping clients deal with emotionally intense financial situations and navigating unexpected life events that could throw a wrench into their plans. You’re invited to click below to access helpful tools and resources to guide your clients through the turmoil of uncertainty.