Laid-off GM white-collar workers: Don't make these financial mistakes

All the anger and frustration surrounding the white-collar layoffs at General Motors only gets worse by the minute. After all, many employees are being shown the door during the same week the automaker reported that last year's global, pretax profit hit $11.8 billion.

Mixing profit-sharing checks and pink slips isn't a morale booster. 

And all that heated emotion can trigger a slew of financial mistakes for someone who is suddenly laid off.

It won't help a bit, for example, to go into your next job interview and start grumbling about life at America's largest automaker. Don't even think of saying things like: "It's time for something new for me. It sure isn't the same old Generous Motors any more." 

Sure, GM's financial picture isn't grim as it begins laying off some 4,000 salaried workers in its latest round of restructuring — including nearly 1,300 jobs at GM's Technical Center in Warren. 

After all, UAW workers will receive up to $10,750 in profit-sharing checks the week of Feb. 22, based on North American pretax profits alone. That's down from $11,750 for profit-sharing checks issued in 2018. 

GM said employees who left the company as part of the salaried staff reduction — both the voluntary program late last year and the involuntary layoffs being implemented now — will receive their full 2018 compensation, including any bonus pay out for 2018. The bonus formula is not the same as the one for the union workforce.

"The specifics around the bonus payouts — timing and amounts — will be communicated to employees soon now that our year-end results have been released,"  Patrick Morrissey, a GM spokesman, said on Wednesday. 

More: GM will cut about 1,300 jobs at Warren Technical Center

More: GM factory workers get $10,750 in profit sharing; company earnings slip

Financial planners expect the bonus to be paid out around March 1. 

It's a different GM and a different kind of economy, too. 

The U.S. economy isn't in the tank, like it was when GM filed for Chapter 11 reorganization in federal bankruptcy court in June 2009.  

The U.S. jobless rate was 7.6 percent in January 2009 and climbing higher. It hit 9.5 percent in June 2009 and peaked at 10 percent in October 2009. 

The U.S. jobless rate was 4 percent in January 2019. 

"There are lots of head hunters out there working hard right now and I think they have jobs that are looking to be filled," said Sam G. Huszczo, a chartered financial analyst in Southfield. 

"I would say the Detroit market appears stronger than many had feared." 

Even so, there are plenty of mistakes one can make if you're overwhelmed by negative emotions after a job loss. Here's what to avoid if you're dealing with a layoff or job cuts: 

Heading straight for the 401(k) to cover the bills

For many people who leave jobs, it's tempting to cash out of their 401(k) and use the savings to cover immediate expenses.

Don't do it. 

Ideally, you should have three to six months of cash on the sidelines in a bank account to cover emergencies, such as an unexpected job loss. Realistically, many people don't have $500 or $1,000 in the bank to cover bills. 

If you can, try to avoid raiding tax-deferred accounts, such as a 401(k) plan or IRA, which could drive up your tax bill. 

In general, taking $5,000 out of your 401(k) when you're 45 years old, for example, could lead to a cost of $1,700 in federal income taxes and penalties if someone is paying an effective 24-percent rate for 2019, according to Rob Williams, vice president of Financial Planning at Charles Schwab.

You might have more wiggle room under some conditions with some types of retirement accounts. 

If you're age 59 and a half or older, you can avoid the 10 percent early withdrawal penalty if you take money out of that 401(k). But you're still subject to ordinary income tax rates on the withdrawal, Williams said. You'll also be subject to mandatory 20 percent federal withholding on the withdrawal, plus any withholding the state requires. 

In addition, there are some complicated ways to avoid the extra penalty. If you leave the company between the ages of 55 and 59 and a half, for example, you can avoid the 10 percent penalty if you take money of your current company's 401(k) and follow the requirements under the IRS Rule of 55. The Rule of 55 does not apply to IRAs. 

But another strategy can work with IRAs, under the 72(t) distribution rule for those retiring early; again specific steps must be met. 

Or consider your options if you have a Roth IRA that is from your contributions, not a Roth funded by a rollover.

You can take money out of a contributory Roth IRA tax-free, if you raid your regular contributions only, not earnings on that account, no matter your age, said Leon LaBrecque, a chartered financial analyst and chief growth officer for Sequoia Financial Group in Troy. 

Your earnings on a Roth IRA would be tax free if both of these are true: You’ve had the Roth IRA for at least five years. And you’re age 59 1/2 or older when you withdraw the money.

Even so, remember, this is long-term savings that is designed to pay the bills once you retire — not money to cover the latest financial hiccup.  

"This is retirement money," LaBrecque said. "So take only what you need, and try to leave the rest."

Roughly 30 percent of people who terminated employment in 2017 cashed out of their Vanguard 401(k) plans. Nearly 70 percent of those cashing out were in their 20s and 30s. Many times, those cashing out had balances of less than $5,000 in the account, according to Vanguard's "How America Saves 2018" report. 

Dragging your feet looking for another job

While the severance pay might not be great, it still is cash coming in the door.

At GM's Tech Center in Warren, the notice of workforce reduction filed with the state of Michigan said that beginning on Feb. 4, employees are being asked to stop reporting to work as their responsibilities will cease, but they will continue to be employed. Their last day as an employee in the payroll system will be Feb. 28 but compensation for wages and benefits will continue through April 9.  (Under the Worker Adjustment and Retraining Act, employers must provide 60 days notice when a large number of layoffs are involved.) 

Through April 9, the affected GM workers may devote all of their time to job search efforts, retraining and other transitional activities. 

GM provided a chart for severance in other correspondence. Some laid off GM workers with three years or so on the job reported getting 1.5 months of severance.

Others with six years on the job will get three months of severance pay; those with 12 years of service will get six months. 

"Don't wait to start looking for a new job," said Ric Edelman, founder of Edelman Financial Engines. 

In many cases, it can take six months or more to find another job, experts say. 

Edelman said it's best to look at any severance payout as an advance warning of sorts that you need to look for employment elsewhere quickly. Don't live on the severance and wait until that money runs out to find work.

The sooner you can find a new job, the easier it will be to avoid going into credit card debt. 

Take some key steps soon, such as getting a resume updated immediately.  

The longer you wait, the more likely you are to forget all the job responsibilities that you had at a given company — and you might leave some of that experience off inadvertently from your resume.

"It could be the one thing that your future employer would be looking for that you accidentally left off," said Richard James, president and CEO of Financial Services of America in Warren. 

Take some time to upgrade your skills for the next job, if necessary. 

Check websites such as Indeed.com or Ranstad or the Ladders.com for jobs. 

GM has stressed that time could be on the side of those who are laid off, too, if they move soon to look for another job.

"We've said we are taking these actions while the overall economy and job market is strong, increasing the ability for impacted employees to find other jobs," GM's Morrissey said.

He noted, for example, that Beaumont Health has indicated that it is interested in hiring laid-off GM workers for openings in southeast Michigan.

More:GM's white-collar job cuts: Who's out, what layoff process looks like

More:Five things to know about your money in 2019

Letting fear burn a hole in your pocket

"Generally when someone gets laid off and I get a call, I advise them to touch nothing," said Timothy P. Bogert, financial consultant for AmericaGroup in Rochester Hills.

Instead, he says it's best to meet with clients and explore all the options.

Don't get so angry at GM that you just rollover your 401(k) plan out of there into an IRA without reviewing the rules carefully. 

Big moves don't need to be made all at once. And you need to know the tax implications associated with any moves, particularly with retirement accounts. All sorts of rules can apply based on your age, the type of retirement account and even whether some contributions were made on an after-tax basis. 

"Sometimes people panic when they get the dreaded news and pull the trigger before knowing all the tax implications," Bogert said.

Or sometimes they get talked into products that they don't understand. You might hear about insurance programs, for example, where workers can get a lump sum payment if they're laid off. 

Don't gloss over any of the details of any such plans. Such insurance can be costly over time — and include a long list of fine print for what's not covered. You're often not going to get any payout, for example, if you quit your job, you were fired, if you knew about a job loss before you bought coverage or if you're offered continued employment or the chance to be transferred if there's a merger or a sale of the business. 

Continuing to spend as if nothing happened

Don't just keep pulling out your credit card or debit card to go out to eat or treat the kids to special treats — or as if you can find another job in a month or two.

"You will need to create a new 'bare bones' budget, set priorities for your bills, and cut where you can without being late on your most important payments," Huszczo said.

Make sure you understand all the details and costs associated with outgoing employee benefits like COBRA Health Insurance, Huszczo said. 

You'd want to keep a close eye on your extra costs for health insurance and put that into any budget. 

What are some of the big bills ahead? Car payments? Utility bills from the cold winter? Maybe even an income tax bill for 2018 taxes?

"This is the time to get your bank account fat and your spending plan skinny," said David Kudla, the CEO of Mainstay Capital Management.

The severance package from GM will support most laid-off employees for months, he said. 

"However, the ideal job may be months away, so play it conservative with expenses for a while," Kudla said.

Don't splurge with any extra cash that might come along your way — maybe an inheritance, a tax refund or even bonus checks.

Sure, maybe you're not going to get a big bonus if your boss didn't like you. But even some extra money, if it shows up, could be helpful while weathering the storm. 

Contact Susan Tompor: stompor@freepress.com or 313-222-8876. Follow Susan on Twitter @Tompor.