How to Handle Impact of Long Term Unemployment

When you become unemployed, there is usually no solid guidance provided to you. Much of what is on the internet is sage wisdom and a cross of well-wishers providing shallow commentary on your struggle. Today, I thought I would share a few perspectives that I have not seen written about anywhere in hopes that it will help others.

Health Care

Even if you are in good health, you may need to be proactive in thinking about health care. In society, we conflate healthcare with health insurance but these concepts are distinct. For me, I got enlightened by spending time in an urban area filled with Democrats and found that my head was filled with Republican mistruths. Democrats know that corporations are evil and do not care about the people and there is a lot that can be learned from this worldview.

One day I needed to urgently see a doctor but knew I could not afford to pay the high charges my then doctor charged patients. This forced me quickly to ask myself what do the working poor in urban areas do. The answer in my community was that there was a healthcare clinic on Albany Avenue in Hartford (The most crime-ridden part of Hartford). I learned that there is a clinic where I could see a doctor for only $20.

Health Insurance

We all know that Obamacare did not make health care or insurance affordable. In the state of Connecticut, we have the Husky plan which is insurance provided by the state at no cost to the unemployed. Enrollment is relatively straightforward albeit the process will not win usability awards.

Early Retirement

You do not have to wait till you are in your 60s to retire. The government allows for people to retire as early as 55. Employer-sponsored, tax-deferred retirement plans like 401(k)s and 403(b)s have rules about when you can access your funds. As a general rule, if you withdraw funds before age 59 ?, you’ll trigger an IRS tax penalty of 10%. The good news is that there’s a way to take your distributions a few years early without incurring this penalty.

Under the terms of this rule, you can withdraw funds from your current job’s 401(k) or 403(b) plan with no 10% tax penalty if you leave that job in or after the year you turn 55. (Qualified public safety workers can start even earlier, at 50.) It doesn’t matter whether you were laid off, fired, or just quit.

The distributions are not completely tax-free: Like all withdrawals from a traditional 401(k) or 403(b), you do have to pay income tax. Only the 10% tax penalty is bypassed in this scenario.

In addition, note that employers are not obliged to allow early withdrawals; and, if they do allow them, they may require that the entire amount be taken out in one lump-sum withdrawal. This could expose you to a higher income tax.

This rule applies to current – not former – 401(k) or 403(b) plans. The government does not permit penalty-free withdrawals before 59.5 from plans you had with a previous employer. If you want access to that money under the rule of 55, you would have to transfer those funds into your current 401(k) or 403(b) plan.