Laid off? Your work's just starting

By Kathy Kristof

George, 53, was laid off and needs to make some major financial decisions while he figures out how to continue paying the mortgage.

It's a problem faced by hundreds of thousands of folks losing "good" jobs -- the kind with great health benefits and retirement savings options. At the same time that they must think about how to put food on the table, they must also think about protecting their remaining assets.

George is being inundated by "advisers" who maintain they work with his friends and have the answers. But he's suspicious, and rightly so. A phalanx of hucksters is descending on laid-off workers, exposing them to losing their savings at the same time that they lose their jobs.

"I feel shell-shocked," George said. "I know I've got to hurry and make some decisions, but this is just not something I've had to deal with for the past 20 years. I really would like to hand some of this over so I just wouldn't have to think about it."

We'll show George -- and you -- how to make wise choices even in the worst of circumstances.

First, do no harm

George was so demoralized about being laid off that he hadn't called his former company's benefits department to find out how long he has to make choices about health care and retirement accounts.

Instead, he was relying on the advice of salespeople, one of whom claimed he needed to immediately figure out what to do with his 401(k) assets. That's not true.

• Do it yourself: How to deal with a job layoff

In George's case, he doesn't have to move his 401k account at all. Federal law generally bars companies from forcing fired workers who have more than $5,000 in savings to move their 401k assets unless the company is dissolving the plan. (If you have less than $5,000, a former employer could compel you to take your money. Even then, you'd have 60 days before running afoul of tax rules.)

He does need to make a decision about health care, though. Federal law requires large employers to allow former workers to remain on the company health insurance plan for up to 18 months under a program dubbed COBRA (after the Consolidated Omnibus Budget Reconciliation Act that created the rule). But the employee has just 60 days to decide whether to enroll.

Now, take care of business

There are a few things that George does need to do right away. Here's his list:

Apply for unemployment insurance. Unemployment insurance is a federal program managed by individual states. Coverage amounts and the time it takes to obtain coverage vary, but there's almost always a delay between when you apply and when checks start arriving. The more layoffs there are, the longer it can take to process a claim. Moreover, you need to know the size of your unemployment check to budget.

George lives in Los Angeles, which means he needs to contact California's Employment Development Department. Jettisoned workers in other states can find their state's unemployment office (and a host of other programs) at the GovBenefits.gov site run by the federal government.

Cut the budget. Unemployment benefits are likely to cover only a fraction of George's working income. He and his wife, Susan, need to figure out whether they can live at least temporarily on her income and unemployment insurance alone.

These empty-nesters, who have been in the habit of going out to eat at least three times a week, have plenty of slush in their budget. They can probably make the mortgage if they cut discretionary expenses sharply and immediately. George estimates that they spend more than $500 a month on dinners and movies.

"We had the money to do it, and neither of us wanted to come home and cook," he explained. Until he gets a new job, George says he'll do the cooking. (See "Stock up, hunker down, worry less.")

Troll for help. The bigger budget issue for George and Susan is that their youngest daughter is a junior in college, which costs them roughly $20,000 annually. When they last applied for financial aid, they were told they were too wealthy to qualify.

Now they need to approach the school and explain their change in circumstances.

Nothing is certain, but most schools will work with parents to find last-minute sources of aid. At the very least, their daughter can apply for a federal student loan that will finance up to $3,500 of the cost at a relatively low interest rate.

"I'm obviously not going to pull her out of school, but I'm worried as hell about how I'm going to swing it," George said.

Brush up the résumé. The last time George wrote a résumé, he was only a few years out of college. Fortunately, dozens of Web sites, including MSN Careers, Job Star and Resume-Resource, offer free help and samples.

Consider health insurance options. Susan has company-sponsored health insurance, but adding George meant boosting her premiums by $125 per paycheck, or $250 a month. The other options: COBRA or an individual policy.

Under COBRA, the former employee must pay the full cost of the policy, plus a small administrative fee. If you're healthy, it's no bargain. George's former employer said his rate would be $410 per month.

Continued: Consider the long term

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