By Craig Erwin, Ph.D.
My cousin, Jenny, who is single, lost her job two years ago. Her unemployment benefits ran out over a year ago. Two years is a long time to go without income. She expects to land a good job that pays well, but employers are likely to be concerned about her long employment gap. She does not plan to work part-time or do contract work; Instead, she dedicates all her time to her job search. So far, although she has applied for innumerable jobs, and interviewed for dozens, she has received only a couple of offers, which she has turned down because she wanted something that pays more.
Unfortunately, during the past two years Jenny has dipped into her retirement savings to pay for food, rent, and other necessities. Spending retirement savings instead of saving for retirement is a terrible thing, but it gets worse. Spending retirement savings before you are eligible to retire usually means you pay taxes and fines. So, it is usually very costly to withdraw retirement savings prematurely.
Her job loss (and failure to land another job quickly) are likely to have a terribly painful impact on Jenny’s retirement? It means she may never be able to retire, and, even if she is able, her standard of living will likely be substantially lower than if she had not been out of work for two years.
Hopefully, Jenny will soon realize that she has no choice but to take a job, any job. Taking a job should make Jenny more attractive to employers, especially if she hones her skills, as she would in contract work in her field. It will also enable her to make some money and, hopefully, stop using retirement savings. It will also give her a job to list on her resume, to offset that 2-year gap.
There is another reason that Jenny needs a sense of urgency; the job market has been strong, but it is likely to weaken as the Federal Reserve’s takes aggressive steps to slow the economy. Soon jobs may be tougher to find. Hopefully Jenny will soon change her approach because every passing day is costing her dearly.
Have you had an extended period of unemployment? If so, were you forced to use retirement savings?
For more information on unemployment, retirement, and saving for retirement, click on the following links: