Financial Literacy - Careers
career
7 steps to security after a job loss

The maximum length of COBRA coverage is 18 months for unemployed workers. You can lose coverage earlier if you fail to pay your premiums on time or if your former employer stops offering any health plan. Some health care plans will allow you to convert your group coverage to an individual policy at the end of the COBRA coverage period.  For more information, see Bankrate's story, Coping without group insurance.

Don't touch your retirement fund

If you've already watched your retirement account take a free fall in the stock market, it may be tempting to grab what's left and use it for your current living expenses. But remember that even long-term unemployment isn't likely to last as long as your retirement. So think about your need for that cash in the future and just leave it alone.

"There is no way you can make up for the market loss and the actual cash-out loss in your remaining work life," Birkofer says.

As an illustration, Birkofer says a 50-year-old cashing out an account that dropped from $40,000 to $26,000, following a 35 percent loss, would end up with only about $16,900 after taxes (25 percent plus the 10 percent penalty for withdrawing before age 59½). To build the account back up to the original $40,000 by age 65, assuming an average 8 percent return on new investments, she will need to save $1,473 a year.

But if the money had stayed put, that $26,000 would be worth $82,476, assuming no new contributions were added. "Starting out at zero, which is where they will be after the cash out, means they have to save $3,037 per year to get to $82,476 by 65," Birkofer says.

Commit to saving money

When you are barely making ends meets with your reduced income, it's hard to even think about saving. But the habit of setting aside some money now -- however small the amount -- will pay off in the long run.

"It starts with making it automatic," Birkofer says. "There are a number of ways to automatically save small amounts of money. There are online banks -- HSBC Direct, ING Direct -- that will automatically take as little as a dollar out of your bank account every month."

If you were one of the many caught with little or no savings when your pink slip came, you are painfully aware of the economic disadvantage of not having a nest egg when a crisis hits.

"The minimal amount you should put away in case of unemployment or any kind of emergency in which you have to get your hands on cash quickly should be three to six months of net, or after-tax, income," McClary says. "The longer you put it off, the longer it takes to save that money."

Birkofer says it this way, "Even at the depths of a personal economic crisis, if you don't make room to save, you are blocking the road out of the mess."

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