Act quickly to survive sudden loss of a job

If the country’s economic malaise leaves you out of a job, here’s the first thing to remember: Stay calm.

That’s because once you know you’ll be out of work, there are several steps you can take to help you survive a sudden job loss without economic ruin. But time is of the essence.

“Don’t ignore it. Don’t think it will go away,” said David Jones, president of the Assn. of Independent Consumer Credit Counseling Agencies, which represents nonprofit counseling services. “You don’t need to panic, but you do need to address it right away.”

Here’s what you do:

Ask questions

Before leaving your workplace for the last time, you should know what kind of compensation package you’ll take away. Is the company giving you severance pay? If so, how much?

What is happening to your vacation time? You are legally entitled to be paid a lump sum upon your departure for the vacation days you have accrued but haven’t taken, said Laura Moscowitz, staff attorney with the National Employment Law Project in Oakland. (You’re not, however, entitled to be compensated for unused sick days.)

Some companies will give you the option to take your remaining vacation days -- effectively delaying your official termination date -- instead of getting a cash payment for them. That could mean a few extra weeks or months on the employer’s health plan -- extra coverage that could be worth hundreds of dollars or more.

Understand COBRA

A federal law -- the Consolidated Omnibus Budget Reconciliation Act of 1986, known as COBRA -- in most cases allows you to continue getting health insurance under your former employer’s plan. The catch is that the company probably will stop subsidizing the premiums, so your monthly payments could double or triple.

That may still be a good deal, especially if you are older or have serious medical issues. But you should first investigate potentially cheaper options.

If your spouse has health coverage, find out whether you can join that plan. (Usually the rules allow a spouse who has lost a job to be added to a plan at any time, not just during the “open enrollment” process.)

You may also want to check the cost of securing an individual policy by calling a broker or going to any one of a dozen websites that can help you compare insurance rates. But don’t delay. Unlike group plans, which generally don’t require medical examinations to join, individual plans do. If you don’t pass the exam with flying colors, the price of the policy could go up -- or you might not be eligible for it at all.

If you can’t get other coverage at a reasonable cost, you probably will need COBRA. But you have to sign up for it within 60 days after your job ends. If you miss the deadline, the COBRA option evaporates.

Apply for unemployment

If Jack Kyser could give just one piece of advice to laid-off workers, it would be this: File for jobless benefits immediately -- as soon as you’re no longer employed. The chief economist for the Los Angeles County Economic Development Corp. said he learned this the hard way when he was laid off years ago. It can take far longer than you expect to get a new job, Kyser said, so it’s important to keep some money coming in.

Unemployment benefits won’t handle everything. The payments typically cover no more than 35% of lost wages. The percentage can be a lot lower for highly paid workers because each state caps how much you can get per week. In California, the maximum is $450. (The average nationwide benefit is about $300 a week.)

That may not be much, but it can help slow the drain on your savings. However, the payments take some time to process, so apply as soon as possible. The sooner you do, the sooner the checks start coming.

The benefits normally can last for six months if you remain unemployed that long. Congress sometimes lengthens the period during economic downturns.

Learn your rights

Depending on the circumstances of your job loss, you might be entitled to greater severance payments or extended unemployment benefits, said Maurice Emsellem, policy director at the National Employment Law Project.

If you lost a job because of foreign competition -- for example, your employer moved production overseas -- you could be entitled to as many as 52 weeks of unemployment benefits, plus 104 weeks of educational training assistance.

If you were part of a massive layoff or plant closing, you might be covered by the federal Worker Adjustment and Retraining Notification Act. Known as the WARN Act, the law requires your employer to give you 60 days’ notice or pay you 60 days of back wages. Certain industries and small employers are exempt.

How do you know whether you qualify? The state employment office should be able to tell you, but you may need to raise the question.

Assess your finances

Start pulling out your financial records, such as check registers and investment and bank statements, as quickly as you can. Then sit down, with your spouse if you have one, and figure out a budget.

If your spouse is still working, your goal should be to live on the one income, plus unemployment benefits, without dipping into savings, Jones said. If no other family members have jobs (or you’re single), you will need to consider cutting expenses to the bone.

The biggest mistake that the unemployed make is adjusting their budgets too late. People often assume that they’ll get a new job quickly, so they’re loath to cut out luxuries such as cable TV and housecleaning and gardening services. But that money spent early on can’t be recovered. If it takes longer to find work than you anticipate, you can find yourself economically devastated in record time.

By cutting back immediately, you will have bought yourself extra weeks of solvency, Jones said. If you do get another job in short order, you can just as quickly rehire the gardener and the housekeeper and turn the cable back on.

Tap savings strategically

If you can’t avoid drawing on your savings, it’s better to take money from some types of accounts than from others.

Those who need to tap savings should realize that pulling money out of some accounts can be costly. It’s wise to consider ways to liquidate assets that cost the least in tax and investment return. So, where do you pull money from first?

The best place to turn would be a checking or savings account at a bank. Such accounts earn little interest in today’s market, and withdrawing from them won’t trigger a tax bill.

If that’s not enough, you can start liquidating investments that are in taxable accounts. You may have to pay capital gains tax on stocks you sell, but generally no more than 15% if you’ve held the assets for at least one year.

If you have money in a variable annuity, you may be able to borrow against the equity in the account. But that could prove expensive in the long run, depending on how much you had been earning on the invested assets. Read your annuity contract or ask your financial advisor.

Your last resort should be tapping a tax-deferred retirement account. Generally speaking, money pulled out of these plans is fully taxable as ordinary income, which can mean a much higher rate than 15%. In addition, you get hit with a 10% federal penalty. State income taxes and penalties are also likely to apply to your withdrawals.

(It is possible to tap a retirement account without penalty by using the money to buy a stream of regular payments for the rest of your life. But doing that has drawbacks, especially if you’re young and likely to return to work, so you should consult a qualified advisor before choosing this option.)

Plan ahead

If you aren’t facing an imminent job loss, now is the time to start building up your savings, Jones said. The more you have, the better able you will be to weather an economic upset, be it a job loss or a car repair, without significant damage.

If you’re living from paycheck to paycheck, seek help from a credit counselor, he suggested. Most nonprofit credit counseling services will give you basic budgeting and credit management advice at no cost or for a nominal fee. To find one, go to www.aiccca.org and click on “find a counseling agency.”

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Kathy M. Kristof welcomes your comments but she cannot respond to every question. Write to Personal Finance, Business Section, Los Angeles Times, 202 W. 1st St., Los Angeles, CA 90012, or e-mail kathy.kristof@latimes.com.