If I am Laid Off and I need to use my Retirement Savings Early....

[nico08]

how do I prioritize and make use of the investment accounts to be used for the withdrawal of living expenses?

I have the following types of investments- Taxable Cash Equivalent Assets, Taxable Stock and Bond Investments, Employer Sponsored Retirement Plan Accounts (401k, 403b, defined benefit pension, defined contribution pension), Tax Deferred Accounts (Roth IRA). I have an emergency fund within the taxable cash equivalent assets, but I am trying to figure out what I would do if my unemployment continued beyond the length of the emergency fund.

I figure I am at least 8 to 12 years away from early retirement if my current income and savings rate continue into the future.

If i was laid off from work, and I couldn't obtain gainful employment for a couple of years, how would I pull from these various accounts? Also, within these assets classes, how would I decide which specific investments to sell off or otherwise use for my living expenses? Would I make selling decisions in an effort to maintain my stock/bond portfolio allocation? As an aside, in a situation like the one described, does one change their stock/bond portfolio allocation during the year(s) he/she is out of the workforce?

I appreciate your advice.

[Htown Harry]

Good questions, midnighter.

I wish had my own answer over on page 23 of the Htown Harry financial plan.

You have touched on a limitation to rules-of-thumb for keeping "X-month's pay" in an emergency fund : most setbacks will be less severe, but some might be significantly more severe.

A few thoughts:

• the first several months would likely be partially subsidized by unemployment benefits. So, all things being equal, having an emergency fund equal to 6 months take-home pay would likely last quite a bit longer if a portion of your expenses are covered by unemployment payments. (Similarly, if the loss of job is health-related, the same sort of partial subsidy could be available from disability insurance coverage)
• A big negative in the spending category will be health insurance premiums. If you are looking to keep your coverage, the costs under COBRA will be significantly higher.
• Generally, I think the drawdown of assets would use the same general math as for a planned ER, namely a preference for using funds from taxable accounts first.
• Tax planning for the withdrawals is important.
• A tax efficient plan in the year you are laid off might not be the optimum plan for the following year.

[teejayevans]

Quote:

Originally Posted by Htown Harry Good questions, midnighter. Generally, I think the drawdown of assets would use the same general math as for a planned ER, namely a preference for using funds from taxable accounts first.

You probably won't have a choice. If you have IRAs you can use 72t to pull money out without penalties, but at your age that would be limited in the amount you can pull out.

You might want to consider have a more conservative portfolio, use balance funds, etc

TJ