Planning in the Age of Uncertainty

Anxiety about investments causes plenty of sleepless nights among Americans. But for many, it pales next to the new anxiety about jobs.

Putting your financial life in order in the ‘90s requires more than balancing your retirement portfolio--it requires a whole new approach to the way you earn money.

Take Tim Jones.

Like hundreds of thousands of other workers, Jones became flotsam in American industry’s feverish attempt to reduce ballast.

He worked for IBM Corp.--the bluest of the blue-chip companies, one with a long history of taking care of its own--until 1993. No longer content to leave the downsizing to volunteers, the company initiated layoffs for the first time in its 75 years.

For Jones, that meant he and 900 other workers in the San Francisco Bay Area were “surplus.� They were given a choice: accept a buyout offer--�a bridge to retirement�--or accept a lower-paying job.

“I looked at this so-called offer--sort of like offering a condemned man a last cigarette just before he’s blindfolded,� says Jones, who at 53 had been with IBM for 16 years. Still, his choices were slim. He took the deal.

Coping With Insecurity

The struggle to find new employment was far more difficult than Jones anticipated. Yet at a time when tens of thousands of workers are in the midst of the same situation--a whopping 131,000 people lost their jobs this January and February alone--and literally millions are worried about the prospect, it’s important to know that Jones survived. He learned to cope with uncertainty, and he prospered.

Thanks to his wife’s income and her insistence that they always live debt-free, Jones wasn’t forced to take a lower-level job just to get a paycheck. Instead, he says, he applied for positions that were somewhat loftier than the one he left. And now, as an engineer for Wyle Electronics in San Jose, he’s happier than ever.

American workers of all stripes can--indeed must--learn from the experiences of Jones and other displaced workers.

The distressing fact is that the bond of loyalty between workers and their companies--the fabric that once kept them together--is in tatters.

Tenure, particularly for middle managers in big companies, is dropping dramatically, says John Challenger, executive vice president of Challenger, Gray & Christmas, an outplacement firm in Northbrook, Ill.

The culprit is an otherwise attractive trend: vast technological breakthroughs that are reshaping the corporate landscape.

“The days when a person entered a company or profession and did the same thing for the rest of their career no longer exist,� acknowledged Fred McNeese, a spokesman for IBM.

So how do you learn to adapt when what you’re adapting to is uncertainty?

Get your house in order

The first challenge most workers have to face--ideally while they’re still employed--is to address the financial basics, says Tim Kochis, a certified financial planner in San Francisco.

Most people live beyond their means, such planners say.

If they take home $30,000 annually, they spend $32,000. If they take home $100,000, they spend $110,000. That may have been less risky when jobs were secure and incomes were rising each year. But today it’s very risky.

It’s important to give yourself a sense of financial flexibility, Kochis says. What that means may vary dramatically from one individual to the next. It might boil down to having six months’ worth of earnings that could be tapped at a moment’s notice. Or it might mean living with less debt and contributing a bit more faithfully to a retirement account.

People who have survived layoffs note that savings were the key to getting them through a stretch of unemployment.

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In some cases--when people were unable to find new work at all and were forced to retire long before they’d planned--good financial health meant the difference between living a simple but comfortable life and living in poverty.

Consider Leo, a former aerospace worker who was forced into retirement at age 62--three years earlier than he expected. (He did not want his full name used because of pending litigation.)

“Looking for work at my age is really difficult,� he said. “The euphemisms start to come out. ‘We’re looking for somebody we can train. You appear to be overqualified for the position.’ I had every intention of working until I was 65. I planned on working until I was 65. I was just cut off at the pass.�

Asked to give advice to people still in the labor force, Leo did not equivocate: “If your company offers a 401(k) plan, contribute the maximum. I didn’t, and I can see where I could have doubled what I had in savings. . . . Income is about one-third of what you earned when working. I don’t think most people realize how much their income is going to drop.�

Jones agrees that a good budget can make a huge difference.

“I was lucky enough to have married a woman who always insisted on our being totally out of debt,� he said.

Seek training

Smart workers in the 1990s will reevaluate their careers continually--keeping an eye on where they are, how important their divisions are to the company and how their job fits into society in general, says Mark Philipsen, principal at Hewitt & Associates management consultants in Los Angeles.

Then they update their skills to suit what’s needed in the work force--even when the training might not be directly related to the job at hand.

“It’s all about skills these days,� Philipsen says.

Even as hundreds of employers are downsizing, thousands of others are growing, he adds. But today’s growth fields are vastly different from those of a decade ago. By knowing the trends, employees can make themselves marketable both within their own corporations and outside.

“Take advantage of all the education and technology training in your field that you can get,� Challenger said. “Make a point of signing up for what’s offered by your company. If they don’t offer training, ask for it. Go back to school at night if you can.�

Said IBM’s McNeese: “Companies that are going to compete in this world are going to need skilled employees that give them added value--an edge that differentiates them from 50,000 other competitors. If Fred McNeese doesn’t keep his skills up to date, he’s going to have a problem. He might be highly skilled in some area. But if that high skill is in making the beta cam, it’s going to be very difficult to add value to my company.�

Adapt

Indeed, whether you’re working or looking for work, you need to develop an attitude of resiliency, Challenger says.

Companies, instead of having departments with clear hierarchies and job descriptions written in stone, are increasingly forming and disbanding “teams� and “virtual groups� that tap individuals with specific skills to tackle specific problems.

Often when there’s a shift in what a company does or how the job is accomplished, employees break into two groups--those who accept the changes and work to make them happen as smoothly as possible, and those who fight the changes, continually throwing roadblocks in the path of progress, Challenger says.

In most instances, managers are forced to choose whom to keep and whom to lay off. When you adapt--accept changes and help make them happen--your boss looks better to senior management. That makes your boss happy, and it helps forge a positive working relationship, which boosts your chance of keeping your job even in a layoff, he says.

Know your rights

Many people who have been let go in recent years maintain that there are two terms that every 1990s worker should learn: “age discrimination� and “constructive termination.�

If people are fired because of their age, they should know that federal law protects them, says Joseph Cleary, director of the age discrimination section of the Equal Employment Opportunity Commission’s office of legal counsel.

Specifically, the Age Discrimination in Employment Act prohibits employers from firing you simply because of your age--whether you are 65 or 105, Cleary says. The act requires that victims of discrimination be made “whole,� either through reinstatement or compensation, he adds.

The EEOC will investigate and, if it sees merit, can work out a settlement or even file suit for you.

The other term, “constructive termination,� means you could stay with the company only if you agreed to accept much less pay.

Normally, if you leave your company voluntarily, you are not entitled to unemployment insurance benefits. But the definition of “voluntary� is subject to interpretation.

Jones and his colleagues at IBM were offered a choice of demotions and pay cuts or a “voluntary� separation agreement. They were initially denied unemployment, but the group successfully appealed.

Get cracking

Losing a job is a gut-wrenching, emotionally devastating experience--on that all parties agree. Many workers will benefit from taking a week to cool off. During that time, however, they’d be wise to consider what they would like to do and are qualified to do--or could become qualified to do--in the future, says Challenger.

Those who like what they have been doing, are good at it and want to continue shouldn’t hesitate to stay in the same field.

But the newly unemployed can also take their severance pay--or even their savings--and invest in themselves by going back to school for a degree or use the money to launch a new enterprise.

Many onetime corporate employees took their severance and savings and became entrepreneurs--providing niche services to the companies or industries they left, or striking out in fields they may have dabbled in before.

But taking this path is risky. Although many entrepreneurs say they love their new jobs, they acknowledge that the hours are long, the income is lower--particularly in the early years--and there’s no security. Government statistics also show that the vast majority of new businesses fail within the first few years.

Those who can afford to take a risk--emotionally and financially--may find the gamble rewarding. Many newfound entrepreneurs say their jobs are now so much fun that they would never go back to punching a clock.

Whether you’re planning to strike out on your own or launch yourself back into a corporate job, you shouldn’t procrastinate. Your financial health and your employability are likely to peak immediately after a layoff but then deteriorate with time. Strike while the iron is hot.