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The Smart Take:
Unemployment numbers are near historic lows, but for some white-collar professionals, that does not tell the whole story. Many are rightfully concerned their job is at risk, potentially harming a retirement plan that would otherwise be on track.
Listen as Tyler Emrick, CFA®, CFP®, talks through what industries are getting hit the hardest and what you can do now to help protect your retirement in the face of job insecurity.
Also, check out our episode on pension lump sums to hear more about strategies for 2023.
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The Hosts:
Kevin Kroskey, CFP®, MBA – About – Contact
Tyler Emrick, CFA®, CFP® – About – Contact
Intro:
It’s another edition of Retire Smarter. Glad you’re with us. Walter Storholt, alongside Tyler Emrick, wealth advisor, CERTIFIED FINANCIAL PLANNER™ at True Wealth Design, serving you in Northeast Ohio, in Southwest Florida, as well as in the Greater Pittsburgh Area. You can find Tyler and the whole True Wealth team online at TrueWealthDesign.com. Go check them out today. Tyler, we’ve got a great conversation today, as we are going to be talking about a topic that’s been in the news a little bit, or the news has at least helped sparking some of this awareness of folks, and people may be … I mean, we may have some listeners going through what we’re going to talk about today right now, maybe picking up some of the signs perhaps that they might be joining this … I don’t know. Crew isn’t the right word, but joining this group of folks that might have to go through this situation in their lives, and we’re talking about a potential layoff as you near retirement.
Hey, I’m almost at the big day, Tyler, but maybe there’s some rumblings going on in my company of a potential layoff. We’ve been seeing this in … the tech news has been making kind of the biggest headlines, all the big tech companies kind of doing some layoffs and cutting workforce, and the Fed’s been talking a lot about this, too. So can’t wait to get your perspective on this and how do we analyze it? How should we be thinking about it? Especially if we’re maybe picking up some signs that, I don’t know, we might be on the chopping block. Is that the way to put it?
Tyler Emrick:
That way to phrase it? I don’t know. Yeah, absolutely. I would maybe-
Walter Storholt:
Maybe offer sheet might be coming our way, perhaps.
Tyler Emrick:
Well, heck, there might even be some listeners here, Walt, that are sitting there going, “Why are we talking about layoffs? I mean, wasn’t the unemployment rate at historically low rates?” Yes, that’s true. I think in January it was about 3.4%. 3.4?
Walter Storholt:
That’s a good point, that this maybe almost doesn’t track initially.
Tyler Emrick:
Right. Well, I look back through some of the data. That’s the lowest unemployment rate we’ve seen since 1969, so the late ’60s, and it’s not a news story. Right? You turn on the news channel, you’re going to hear these numbers. It’s well reported. I think most listeners are going to be familiar with it, but I don’t know if that story, sort of what you alluded to, really tells the whole story, especially depending on the industry that you’re in. You brought up the tech industry. You look at the employment landscape over the last six months or so, a lot of the big-name firms in the tech industry have announced layoffs. Microsoft, Google. Amazon, I think it was like 3% of their corporate workforce. Facebook … or correct me. I’m sorry. Meta, it was about 13% of their workforce that was laid off. Those are pretty-
Walter Storholt:
Those are big numbers.
Tyler Emrick:
… staggering numbers.
Walter Storholt:
Yeah.
Tyler Emrick:
Absolutely, and I would argue we’re starting to see it spread to other industries. I know here locally, a few of the big companies like Goodyear, for example, big employer here in Northeast Ohio, they’re cutting 5% of their global salaried workforce, like 500 positions or so. They just announced that here in January and, maybe even more specifically, the hospital systems and some of the negative news that’s coming out with their profitability. UH, a large hospital system in the area here, they let off more than 100 employees and eliminated over 300, 300 unfilled job postings, so I think the loss-
Walter Storholt:
It’s hard to picture that being the case this close off the heels of the pandemic, right?
Tyler Emrick:
You got it, right? When you see operating losses … I think theirs, for the first eight months of 2022, is almost $200 million of operating losses. That’s a big deficit to be running in a particular year. If you find yourself in one of these industries or at a company where you’re concerned about their financial health, and you’re on that doorstep of retirement, today we just want to kind of talk about how you can prepare for that and what some of your options might be and what you should be really looking out for. Because if you don’t get laid off, hey, that’s great, but the studies and the stats really show that, even if you don’t get laid off, the reality is you’re probably not going to work as long as you expect.
I have these conversations all the time where people think they’re going to work longer than they actually do. One of the studies that we reference each year is put out by the Employee Benefits Research Institute. They do a retirement confidence survey. They send it out to a few thousand people or so each year, and they’re trying to gauge a few things with individuals that are working and about retirement. What that study has consistently found, that a large percentage of those retirees in the workforce actually leave earlier than what they planned. Almost half, Walt. That’s a pretty big number, right? Half of individuals retire before they expect to.
Walter Storholt:
That’s a big number. Yeah.
Tyler Emrick:
Yeah, and I wouldn’t say it’s all good reasons. About a third of those individuals that retired early, they do so because of some type of hardship, health problems, disability, not related to COVID. About a third for that, and then about another third … not quite, but about another third are retiring early because of a change at their company, layoff or restructuring or something of the like. What that means is there’s a pretty considerable gap between workers’ expectations and retirees’ experience.
When we kind of put this into a little bit more perspective here, those later working years tend to be both the highest earning and the highest savings, right? Kids are out of the house, maybe your mortgage is paid off, and if those years are cut short, that can be a huge derailment on your retirement, so we want to be mindful of that. Even if we’re talking about today, hey, a potential layoff and how to handle it, I think this is just good overall advice in your own personal situation because, again, studies are showing that you might retire early or there’s a high likelihood that you would, and you might do it not because you want to, but for some of these other reasons. Again, being prepared, I think, is going to be pretty big.
As we think about, and you’re analyzing your situation, and you’re thinking through your current employer, what are some of the things that these employers are doing right now that are maybe not quite the layoff, but are showing signs that maybe they’re in some financial trouble or that layoffs might be coming? I had a couple doctors at the end of this past year in 2022 get letters from their HR department kind of outlying a few of the changes that the hospital system that they worked for was making with their benefits. I think this is probably the first place a lot of these employers are going to go to try to look at, “Hey, where can we save money?” before they actually go to a layoff. That makes sense, right, Walt?
Walter Storholt:
Yep.
Tyler Emrick:
What was included in that letter was where they explained that their matching program to their retirement plan was actually getting cut by two thirds.
Walter Storholt:
Oh, wow.
Tyler Emrick:
That’s a pretty significant amount of free money that’s off the table. You got it, and something that they also put in there was that they’re no longer going to be making those contributions to their retirement account out of every paycheck. They’re actually switching to an annual funding of that matching contribution to a retirement for the employees, which might not seem like a big deal, but, if you’re an individual that’s looking to retire in a particular year and maybe you’re like, “Hey, I’ll work till November. I’ll take off for the holidays and retire, then,” okay? Well, if your company switches their benefits program to an annual contribution and you leave, and you’re not there employed at the end of the year, well, some of those rules state that you have to be employed at the end of the year on December 31st to get those matching contributions. As you think about that timing, well, hey, do I want to give up a whole year of free matching contributions to my retirement plan just to retire two months before the end of the year? It can have some pretty big ramifications there, so-
Walter Storholt:
Yeah, I could see that causing a lot of people to adjust their plans.
Tyler Emrick:
Right. Now, not every employer’s going to maybe do it this way, but, in their case, that’s how those things were kind of working down.
Walter Storholt:
You kind of see those things as warning signs, right? Like-
Tyler Emrick:
Oh, absolutely. They’re looking for places to save money. I mean, we’ve seen some pushing of those cost of living adjustments, if you get those annually. We’ve seen a couple of the hospital systems kind of push and delay those typical increases in pay as well. Yes, I think those are all tell-tale signs.
I think another big one would be if you work for a company that has a pension, and they go through and say, “Hey, we’re going to offer a one-time lump sum payout.” I’ve seen this with a number of the employers in our area where they’ll go through and say, “Hey, traditionally, we don’t give you access to this particular retirement plan until you’re retired, but we’re going to give you the opportunity to say if you want to go ahead and take that money and run, we’ll let you do it.” What that does is it gets a huge liability off the books of the employer, and then the employee is able to take those benefits and roll them over to another retirement account or whatever.
We don’t have enough time to get down into the intricacies of that, but those pension lump sum offers, we’ve seen some employers off start to offer those and, over the years, offer them for ways of saving money as well. I think Kevin did a pretty good episode on that pension lump sum offers and how to analyze that. I think it was episode 106, if you want to go back and check that out, but pension-
Walter Storholt:
Let me do my part. We will link to that in the show notes of today’s episode, so-
Tyler Emrick:
Fair enough.
Walter Storholt:
If you want to check that out, we got an easy link for you.
Tyler Emrick:
I better have got the episode right. I think it was 106.
Walter Storholt:
I’ll double check it while we’re rolling. You said 106? If that’s wrong-
Tyler Emrick:
106.
Walter Storholt:
… I’ll pop in. Okay.
Tyler Emrick:
Correct it at the end, right? We might have to have some of these corrections at the end of every episode where you go through and say, “Hey, it’s just slightly different than what Tyler had said. It was close.”
Walter Storholt:
Like a newspaper. We’re going to have an ombudsman do reviews and issue corrections and things like that.
Tyler Emrick:
Yes, that’s right. I watch PTI, which is a sports show that’s on, and then they do their errors and omissions at the end of every episode then, so-
Walter Storholt:
That’s right.
Tyler Emrick:
… I don’t know why that popped up in my mind, but it did.
Walter Storholt:
That’s great.
Tyler Emrick:
The other change to maybe be on the lookout for is early retiree packages and being offered and, again … AT&T, I’ve been through this with Verizon and some of these other employers where they’ve offered a select number of employees early retirement packages to say, “Hey, we’ll make and sweeten the deal for you if you’d go ahead and potentially retire,” and they get some of that payroll off of the books. If you look at those early retiree packages, a lot of them are always standard, but there’s two components I think that are in most of them.
There’s a severance component, and as you look at severance, it’s typically based off of your years of service and maybe a few other things. Then there is a healthcare component, and they might offer healthcare for a number of weeks after you would accept that severance package. Sometimes that healthcare can run congruent with COBRA. Sometimes it’s completely separate, and then COBRA benefits would be after all that. Those are two of the main things I think are in most of those early retiree packages. There can be some other things like increased pension payouts. AT&T did that about … I think it was eight years ago or so when they went through and did theirs, but I’ve seen some things done with stock option plans and RSU plans and things like that as well. There could be a host of different benefits or incentives that these employers are kind of set up to … not push, but offer individuals on the doorstep of retirement to pull the trigger and pull it.
Yes, you want to understand those benefits, but I think the most important thing is you got to be prepared if you get offered something like that. This goes hand in hand if you get caught up in a layoff and being prepared for that. A few years ago, I was introduced an individual, she was referred to me, and when she gave me a call, and we were kind of talking through her situation a little bit, seeing if we wanted to set up a meeting, her main goal was she wanted to discuss an early retiree package that her company was offering her and see if does it make sense for her to take it? Let’s just make heads or tails of it and just make sure she’s making a good decision for herself.
She came in the office, and we got through the meeting, and very early on in that meeting, it was clear to me that she understood the benefits that were on the table and what the company was trying to do. She was a high level executive at a very large firm. She was extremely smart, intelligent, and really took the time to understand the benefit. What was also clear by the end of that meeting was she wasn’t in a position to accept the retiree package. What I mean by that is her job had been a big portion of her life, and she had not even thought about retirement, and then she gets this offer that was kind of thrown in her lap, and they said, “Hey, make a decision within about a month,” I think is what she had as the timeframe to do. You talk about a mind shift change on that, Walt. It’s tough-
Walter Storholt:
One month-
Tyler Emrick:
… to get your mind wrapped around it, right?
Walter Storholt:
… is really tough. Yeah.
Tyler Emrick:
Exactly, and even though she could understand what they were offering, this is a whole other conversation as far as her trying to wrap her arms around, “Well, what am I going to do in retirement? What does it look like?” She hadn’t even gotten to the point of … she could afford to retire if she wanted to, but she just hadn’t even started down that journey. She actually ended up just not taking the offer and continue to work but, from our meeting, she ended up actually coming on as a client. She hired us, and we’ve been working together now for a few years, and I’m not kidding, more than a couple times, she’s come back after she’s gotten a good handle and started to actually think about that transition. She’s made comments saying, “Hey, I wish I would’ve taken that offer,” but she wasn’t in the position to be able to accept it. That make sense or-
Walter Storholt:
It does make sense, and it actually makes me think about our last episode, Tyler. You were talking about just the emergency fund piece of our conversation about cash, and the three months could be right for one group of people, six months right for another group of folks. I was like, “I feel like I’m in the … ” Even though my situation probably matches the three-month side of the equation, I feel more comfortable having that six months because, God forbid, if something did happen and lost my job or went out of business or Connie loses hers or something like that happens, I would just feel personally more comfortable with more time to assess the situation and so that you don’t just then jump into the next thing that comes along job-wise and would actually be able to think about what you want to do for your next move. This is kind of similar to what this woman was going through. It’s a really short period of time to make kind of major life-
Tyler Emrick:
Oh, it is.
Walter Storholt:
… decision changes.
Tyler Emrick:
A lot of times, these things were really thrown on your lap. In her situation, it was the offer, but you look back to some of the statistics we referred to earlier on. A health concern or a layoff like that, those are things that are just going to come, and it’s going to be out of the blue, and, the more prepared that you are for those types of things, it makes a whole world of difference how those experience can go from and what you end up doing from it. Preparation, I think, is key.
Now, you’re at a company that actually gets caught up, and you are caught up into a layoff, what are some of the things that you need to be considering? I just want to make a general comment. Of course, you want to know your rights. Maybe you want to have a lawyer take a look at the package, understand the severance pay, how the benefits are going to work. Are you going to be eligible for unemployment? Are you not? Those are some of the basic and high level things that probably should be running through your head as you’re kind of going through that particular offer.
I think healthcare is a big one, especially if you’re before 65 and you don’t have access to Medicare. It’s like, “Well, what are you going to do for healthcare, and what do your options look like?” Well, COBRA can be pretty expensive and sometimes, even what’s offered on the individual healthcare network through the ACA, those plans can be expensive as well, depending on your income level and so on and so forth. Understanding if something like that gets put in your lap, how you can work through the transition and how they’re going to structure it, I think, goes a long way with your comfortability.
Once you can wrap your arms around that piece and what they’re potentially offering you, then you can make your decision and then move on with some of those other items that are going to need to be addressed as well. Because, as you know, when you work for an employer, well, you’re going to have a retirement account. Maybe you have some stock options, and you’re going to have all these benefits and plans that you’re going to have to decide, “Well, what do I want to do with them? Where are they going to go? How do I manage them? Am I going to be trying to look and go for a new position and immediately going in?” Maybe some individuals in the past I’ve worked with, they just go into the consulting route and do their own business. Those are very different paths and very different solutions to those paths. Again, putting some thought into it, as you’ve heard probably through most of the podcasts that we do, it’s almost on repeat, broken record, being prepared and understanding your options, I think, go hand-in-hand in a situation like this.
Walter Storholt:
Some things are worth repeating, and I think emphasizing that preparation is key-
Tyler Emrick:
Whether you want to hear it or not.
Walter Storholt:
Right.
Tyler Emrick:
Whether you want to hear it or not, right? It’s like, “Hey, preparation’s key.”
Walter Storholt:
Preparation and just thinking about it, not just taking the easiest answer and moving forward but actually looking at what’s best for you and your situation. All that I think is just really critical and really helpful. Very good. Well, thanks for the discussion on this today, Tyler. Really appreciate your help and assistance on the show and getting us kind of thinking about, okay, maybe this could happen to me. Could this happen at my company? Could I face a layoff as I near retirement? How would I react if it did happen? These are good things that, if nothing else, just for the mental exercise so that if it does happen, you’re prepared to deal with it if you have a short time span that you’ve got to react to. Definitely we’re thinking about, so I think this will get some people kind of just at least bouncing that around, open the old noggin a little bit. If that’s all that happens out of today’s show, then that’s great. Yeah.
Tyler Emrick:
That’s good, and how was I? Episode 106? I was right.
Walter Storholt:
You were correct. I went back and checked.
Tyler Emrick:
All right, good deal.
Walter Storholt:
You nailed it, so yeah. We’ll link to that pension lump sum episode 106 in the show notes.
Tyler Emrick:
No errors or emissions today.
Walter Storholt:
You got it, man.
Tyler Emrick:
That’s a success.
Walter Storholt:
A little housekeeping, as usual. If you’ve got questions for Tyler, Kevin, and the great team at True Wealth Design, you can call 855-TWD-PLAN. They’ve got offices in Northeast Ohio, Southwest Florida, and the Greater Pittsburgh Area. 855-TWD-PLAN, again, the number to call or go to TrueWealthDesign.com. We’ll link to that in the description of today’s show as well, and you can click on the Are We Right for You button to schedule a 15-minute call with an experienced advisor on the team. That’s TrueWealthDesign.com. All right, Tyler. Thanks for your help, and we’ll chat again soon.
Tyler Emrick:
It’s been great.
Walter Storholt:
Yep. We’ll see everybody next time, right back here on Retire Smarter.
Disclaimer:
Information provided is for informational purposes only and does not constitute investment, tax or legal advice. Information is obtained from sources that are deemed to be reliable, but their accurateness and completeness cannot be guaranteed. All performance reference is historical and not an indication of future results. Benchmark indices are hypothetical and do not include any investment fees.
