Long term unemployment planning

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Alto Astral
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Long term unemployment planning

Postby Alto Astral » Mon Mar 20, 2017 1:37 pm

Him: Age=37, Income=130K
Her: Age=32, Income=100K
Desired AA: Either 70/30 or 80/20
Emergency Funds - 12 months (@ $5K/ month living expense)
$50K (1,2,3,4,5 year CD Ladder of $10K each at CapitalOne ranging 1.3%-2.3%)
$10K CapitalOne360 Savings @ 0.75%
Investments
9% Cash: $40K (Checking Accounts @ 0.01% - available to reallocate)
2% Taxable: $10K (+ $2k/month, Vanguard Total Stock Index)
5% His+Her RothIRA: $22K (+$11k/year, Vanguard Total Stock Index)
56% His 401k: $240K (+$18K/year, Blackrock Total Stock Index)
28% Her 401k: $120K ($18K/year, Vanguard Total Bond Index)

100% Total $420K

Mortgage: $235K at 3.625% interest 30Y fixed (currently paying $800 extra per month towards principal to pay it off in 15 years)
Tax: Married-Filing-Jointly, 28% Bracket
State: IL
Kids: 3 years + newborn

Hi,
I have 12 months living expenses in CDs. However, I am evaluating my portfolio to optimize it not only for tax-efficiency but also plan for any long term unemployment beyond 12 months. I am coupling this with a downturn in the stock market.

Plan
1. For example, one strategy may be to put the VanguardTotalBondMarket in my Roth IRA (backdoor 11K/year) instead of Her-401k (She has a decent 500 Index fund I can gradually swap this with). This way the Roth IRA contributions can be withdrawn first without penalty.

2. I am starting to put $2k/month in my Taxable with VanguardTotalStockIndex. During a market downturn, if I sell these, I will be locking in my losses. Should I be selling the bonds in Roth IRA first?

3. Put money in taxable before putting money in 529 to avoid non-qualified expense penalty (this is subjective and may not apply to wealthy folks or those will super stable jobs)

4. After 1 and 2, dip into the bond portion of the 401k

5. Sell stock portion of the 401k

6. Hopefully re-employed by this time

Question:
1. In a hypothetical scenario, how long can you stay unemployed without touching your stocks? (In case you don't want to realize losses during a stock downturn)
2. How are you planning for your potential long-term unemployment?

Thanks for your time
Alto

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flamesabers
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Re: Long term unemployment planning

Postby flamesabers » Mon Mar 20, 2017 2:12 pm

1. My estimate would be about 8 months.
2. By saving and investing my money. Besides, I have two jobs: my accounting job which is full-time and the army reserves. In the event I was no longer employed with the accounting job, I could do additional duties with the army reserves to bring in extra income until I found a full-time job in the civilian sector.

Unless you have special circumstances, I think having 12 months of living expenses is sufficient. I think something to keep in mind is you could probably trim down your current $5k of monthly expenditures if you had to in order to prolong the life of your emergency fund. Also, while you may not find an ideal job replacement in 12 months, you could always do temporary work or something to at least have some income coming in.

Alto Astral
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Re: Long term unemployment planning

Postby Alto Astral » Mon Mar 20, 2017 2:29 pm

flamesabers wrote:1. My estimate would be about 8 months.
2. By saving and investing my money. Besides, I have two jobs: my accounting job which is full-time and the army reserves. In the event I was no longer employed with the accounting job, I could do additional duties with the army reserves to bring in extra income until I found a full-time job in the civilian sector.

Okay, nice having that second job. I am in IT and close to 40; hence the planning.

flamesabers wrote:Unless you have special circumstances, I think having 12 months of living expenses is sufficient. I think something to keep in mind is you could probably trim down your current $5k of monthly expenditures if you had to in order to prolong the life of your emergency fund.

Yes, the daycare cost of $1200/mo for my toddler will go away. So will the extra $800 towards mortgage principal. So that should drop my monthly expense to $3K

flamesabers wrote:Also, while you may not find an ideal job replacement in 12 months, you could always do temporary work or something to at least have some income coming in.

Okay, that's something to chew on. Maybe some freelancing types or dome consulting. Okay, I had not considered this route.

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celia
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Re: Long term unemployment planning

Postby celia » Mon Mar 20, 2017 2:43 pm

Alto Astral wrote:Question:
1. In a hypothetical scenario, how long can you stay unemployed without touching your stocks? (In case you don't want to realize losses during a stock downturn)

DH and I were both laid off in the same month (different industries and different employers) and were unemployed for 12 and 9 months. It was during the 90s when there was mass unemployment and very few companies were hiring (because they were laying off). We had just re-financed our mortgage (keeping the pay-off date the same) and had kids in faith-based schools, which was a priority for us. We were lucky in that we didn't touch any of our savings, because:

1. We reduced expenses dramatically. It's surprising what you can do without if you have to.
2. Unemployment insurance was extended to 9 months at that time due to the mass lay-offs.
3. My last employer gave me a large severance (one week's pay for every year I had been with them).

2. How are you planning for your potential long-term unemployment?

We are now retired and don't want to be employed any more. House has been paid off and kids are gone. :D At the time, we should have had at least 6 months of living expenses set aside in savings, but didn't. We were at the stage where all of our income was being spent each month, even though we stuck to a budget and had to prioritize our needs. In our pre-kids years, we lived on only one income, but when child care and tuition started, that was no longer a possibility.

KlangFool
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Re: Long term unemployment planning

Postby KlangFool » Mon Mar 20, 2017 3:00 pm

OP,

I do not know how many times that I have to remind you. But, here I go again. You only have one portfolio. If your portfolio is big enough, you can handle anything.

A) So, it is okay for you sell your stock in your taxable account if you buy it back with your bond at your 401K and/or Roth IRA account. You only generated an accounting loss. It is not a bad thing. Effectively, you did not sell your stock. You are selling your bond.

B) Do not prepay your mortgage. Use that $800 per month to grow your taxable account. Paying off your mortgage in 15 years is pointless for you. Your danger zone is over the next 10 years. If you survive that long, you can pay off the mortgage in one lump sum. If you don't, getting your money tied up with the house is no help.

In the case of unemployment, the pool of money available to you are as follows:

1) Emergency fund

2) Do not re-invest your taxable dividend and distribution.

3) Taxable account

4) Roth IRA contribution.

KlangFool

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flamesabers
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Re: Long term unemployment planning

Postby flamesabers » Mon Mar 20, 2017 3:09 pm

Alto Astral wrote:
flamesabers wrote:Also, while you may not find an ideal job replacement in 12 months, you could always do temporary work or something to at least have some income coming in.

Okay, that's something to chew on. Maybe some freelancing types or dome consulting. Okay, I had not considered this route.


When I was just a full-time student without a regular job, I did things like work as an election judge for the city and participate in medical research studies to earn some extra money.

Alto Astral
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Re: Long term unemployment planning

Postby Alto Astral » Mon Mar 20, 2017 3:46 pm

KlangFool wrote:A) So, it is okay for you sell your stock in your taxable account if you buy it back with your bond at your 401K and/or Roth IRA account. You only generated an accounting loss. It is not a bad thing. Effectively, you did not sell your stock. You are selling your bond.

Okay, I see. Its not a realized loss since I am buying it back inside the 401k by re-balancing it with bonds. Do TLH rules apply for 401ks and Roth IRAs?

KlangFool wrote:B) Do not prepay your mortgage. Use that $800 per month to grow your taxable account. Paying off your mortgage in 15 years is pointless for you. Your danger zone is over the next 10 years. If you survive that long, you can pay off the mortgage in one lump sum. If you don't, getting your money tied up with the house is no help.

But If I am unemployed in 15 years, won't I have one less payment to make with the home paid off? While I understand that the next 10 years are risky, isn't 15+ years riskier? Or are you saying that the taxable gains in 15 years will outpace the mortgage savings?

I concur with the other 4 steps.

Alto Astral
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Re: Long term unemployment planning

Postby Alto Astral » Mon Mar 20, 2017 3:49 pm

flamesabers wrote:
Alto Astral wrote:
flamesabers wrote:Also, while you may not find an ideal job replacement in 12 months, you could always do temporary work or something to at least have some income coming in.

Okay, that's something to chew on. Maybe some freelancing types or dome consulting. Okay, I had not considered this route.


When I was just a full-time student without a regular job, I did things like work as an election judge for the city and participate in medical research studies to earn some extra money.

Well, now that I am probably done with all the kids I am going to have, I could be open to medical research :) But in all seriousness things go wrong there too; happened to a hospital-bed neighbor.

kathyauburn
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Re: Long term unemployment planning

Postby kathyauburn » Mon Mar 20, 2017 4:01 pm

I applaud you for thinking about this.

Over the course of my life, these are the financial things I have never regretted:

1. living substantially below my means
2. paying off my mortgage, in full, as soon as I could

These are the things I have regretted:

1. buying individual stocks
2. not returning to the career I loved because I could make more money doing something I did not love

KlangFool
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Re: Long term unemployment planning

Postby KlangFool » Mon Mar 20, 2017 4:08 pm

Alto Astral wrote:
KlangFool wrote:A) So, it is okay for you sell your stock in your taxable account if you buy it back with your bond at your 401K and/or Roth IRA account. You only generated an accounting loss. It is not a bad thing. Effectively, you did not sell your stock. You are selling your bond.

Okay, I see. Its not a realized loss since I am buying it back inside the 401k by re-balancing it with bonds. Do TLH rules apply for 401ks and Roth IRAs?

KlangFool wrote:B) Do not prepay your mortgage. Use that $800 per month to grow your taxable account. Paying off your mortgage in 15 years is pointless for you. Your danger zone is over the next 10 years. If you survive that long, you can pay off the mortgage in one lump sum. If you don't, getting your money tied up with the house is no help.

But If I am unemployed in 15 years, won't I have one less payment to make with the home paid off? While I understand that the next 10 years are risky, isn't 15+ years riskier? Or are you saying that the taxable gains in 15 years will outpace the mortgage savings?

I concur with the other 4 steps.


Alto Astral,

<< But If I am unemployed in 15 years, won't I have one less payment to make with the home paid off? >>

1) We had calculated this. If you are unemployed 15 years later, your investment is big enough that it can generate enough cash flow to pay the mortgage. Or, you can pay off the mortgage in one lump sum. You are being "penny wise, pound foolish" by pre-paying the mortgage.

2) If you are unemployed and you do not have enough money, why would you want to take a more expensive student loan for your kids by paying off your mortgage?

KlangFool

KlangFool
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Re: Long term unemployment planning

Postby KlangFool » Mon Mar 20, 2017 4:11 pm

Alto Astral wrote:
KlangFool wrote:A) So, it is okay for you sell your stock in your taxable account if you buy it back with your bond at your 401K and/or Roth IRA account. You only generated an accounting loss. It is not a bad thing. Effectively, you did not sell your stock. You are selling your bond.

Okay, I see. Its not a realized loss since I am buying it back inside the 401k by re-balancing it with bonds. Do TLH rules apply for 401ks and Roth IRAs?


Alto Astral,

<<Do TLH rules apply for 401ks and Roth IRAs?>>

No. But, you are generating loss in your taxable account. Hence, you will not be paying tax.

KlangFool

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flamesabers
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Re: Long term unemployment planning

Postby flamesabers » Mon Mar 20, 2017 4:12 pm

Alto Astral wrote:
flamesabers wrote:
Alto Astral wrote:
flamesabers wrote:Also, while you may not find an ideal job replacement in 12 months, you could always do temporary work or something to at least have some income coming in.

Okay, that's something to chew on. Maybe some freelancing types or dome consulting. Okay, I had not considered this route.


When I was just a full-time student without a regular job, I did things like work as an election judge for the city and participate in medical research studies to earn some extra money.

Well, now that I am probably done with all the kids I am going to have, I could be open to medical research :) But in all seriousness things go wrong there too; happened to a hospital-bed neighbor.


For most of the medical research studies I was in the control group since my health is good. Probably the hardest thing with the studies was studying in bed for most of the day. I couldn't get up and walk around because of the requirements of the study, but they did provide free wifi and cable TV, so it wasn't completely boring for me. Plus I got two free meals when I did the overnight studies. :mrgreen:

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knpstr
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Re: Long term unemployment planning

Postby knpstr » Mon Mar 20, 2017 4:20 pm

File for unemployment, cut all unnecessary expenses.

Also remember that it could take a while for a real loss.
A simple example: if you contribute $20,000/yr for 25 years at 8% you have $1.5M in your portfolio and you've contributed $500K.
You can "lose" $1,000,000 of "house money" (67%) and not lose what you contributed into the portfolio.
Very little is needed to make a happy life; it is all within yourself, in your way of thinking. -Marcus Aurelius

Alto Astral
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Re: Long term unemployment planning

Postby Alto Astral » Mon Mar 20, 2017 4:24 pm

kathyauburn wrote:I applaud you for thinking about this.

Over the course of my life, these are the financial things I have never regretted:

1. living substantially below my means
2. paying off my mortgage, in full, as soon as I could

These are the things I have regretted:

1. buying individual stocks
2. not returning to the career I loved because I could make more money doing something I did not love

Thanks. I think I am getting into a holy war on paying off mortgages. Stay tuned :)

If you don't mind me asking did you or someone you know go through long term unemployment? Did you/they regret not having planned anything specific about it? Such as a larger EF?

Alto Astral
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Re: Long term unemployment planning

Postby Alto Astral » Mon Mar 20, 2017 4:30 pm

KlangFool wrote:Alto Astral,

<< But If I am unemployed in 15 years, won't I have one less payment to make with the home paid off? >>

1) We had calculated this. If you are unemployed 15 years later, your investment is big enough that it can generate enough cash flow to pay the mortgage. Or, you can pay off the mortgage in one lump sum. You are being "penny wise, pound foolish" by pre-paying the mortgage.

I remember your calculation to cash flow college. So I skipped the 529 and opted for taxable. I don't recollect a discussion on mortgage per se (or I may have been too absorbed with the 529 portion). But I am believe it follows the same logic.

KlangFool wrote:2) If you are unemployed and you do not have enough money, why would you want to take a more expensive student loan for your kids by paying off your mortgage?
KlangFool

Okay I see the point here. Instead of taking say a 6% student loan 15 years from now. I could NOT prepay the $144K ($800*12months*15years) at 3.625%. Instead, if I even only left it in a 2 % CD and compound it, I would effectively lose only 1.625% compounded interest on that amount (3.625%-2%). However, if I invest in taxable and maintain the AA, I have more options with the single portfolio.

But couldn't it go either way? Meaning if its a bear market in/for 15 years, wouldn't I be glad to have that paid off and need to sell lesser bonds? Of course, the kids would be on their own with the college tuition. However, I won't have that option with the mortgage - to not pay it.

As you may have noticed, I really really have trouble wrapping my head around the single portfolio concept for everything. You just seem to get it and I am fumbling.

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willthrill81
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Re: Long term unemployment planning

Postby willthrill81 » Mon Mar 20, 2017 4:33 pm

I haven't read the whole thread, but I think that the seemingly common concern about being forced to sell stocks in a downturn is overblown.

You're taking an unlikely situation (being unemployed), saying it will outlast a reasonable EF (3-12 months) and unemployment coverage, and then that you'll need to liquidate your bonds (if applicable) before you finally touch your stocks. Unless we're talking about widespread unemployment that is also leading to a declining equities market, your unemployment and a market downturn are unlikely to coincide, especially with the aforementioned buffers.

I've learned that Bogleheads are a fairly risk averse group, but the truth of the matter is that you simply can't eliminate all risk. You can take reasonable steps to mitigate it, but it will always be there. And if you're not careful, you may make too many sacrifices that are too big in an effort to protect yourself against the very unlikely.

My two cents. Worth every penny of it.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

delamer
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Re: Long term unemployment planning

Postby delamer » Mon Mar 20, 2017 4:38 pm

If you really think that you or your wife are likely to suffer a period of long-term unemployment, then you should conserve liquid assets. Don't tie up your assets in an illiquid asset like your home by prepaying the mortgage.

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knpstr
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Re: Long term unemployment planning

Postby knpstr » Mon Mar 20, 2017 4:52 pm

willthrill81 wrote:...
but the truth of the matter is that you simply can't eliminate all risk. You can take reasonable steps to mitigate it, but it will always be there. And if you're not careful, you may make too many sacrifices that are too big in an effort to protect yourself against the very unlikely.
...


+1
:beer
Very little is needed to make a happy life; it is all within yourself, in your way of thinking. -Marcus Aurelius

KlangFool
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Re: Long term unemployment planning

Postby KlangFool » Mon Mar 20, 2017 4:53 pm

Alto Astral wrote:But couldn't it go either way? Meaning if its a bear market in/for 15 years, wouldn't I be glad to have that paid off and need to sell lesser bonds? Of course, the kids would be on their own with the college tuition. However, I won't have that option with the mortgage - to not pay it.

As you may have noticed, I really really have trouble wrapping my head around the single portfolio concept for everything. You just seem to get it and I am fumbling.


Alto Astral,

You are betting on your 70/30 AA to return more than 3% per year over the next 10 to 15 years. If it is not, you will not reach your number anyhow. If your 70/30 AA can return more than 3% per year, it will make more money than paying off the mortgage. So, why would you pre-pay the mortgage?

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Re: Long term unemployment planning

Postby KlangFool » Mon Mar 20, 2017 5:03 pm

willthrill81 wrote:
Unless we're talking about widespread unemployment that is also leading to a declining equities market, your unemployment and a market downturn are unlikely to coincide, especially with the aforementioned buffers.



willthrill81,

We call that recession. And, it occurred regularly every few years.

KlangFool

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willthrill81
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Re: Long term unemployment planning

Postby willthrill81 » Mon Mar 20, 2017 5:14 pm

KlangFool wrote:
willthrill81 wrote:
Unless we're talking about widespread unemployment that is also leading to a declining equities market, your unemployment and a market downturn are unlikely to coincide, especially with the aforementioned buffers.



willthrill81,

We call that recession. And, it occurred regularly every few years.

KlangFool


90% of people kept their jobs in 2008-2009, and that was the worst recession in living memory. Yes we do have an occasional recession that leads to unemployment, which is usually concentrated in 'luxury' sectors or those that are becoming obsolete anyway (far from random), but that does not necessarily mean that we should worry about extended unemployment. I know that it happened to you, but it doesn't happen to many. Be careful of pessimism bias.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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knpstr
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Re: Long term unemployment planning

Postby knpstr » Mon Mar 20, 2017 5:15 pm

KlangFool wrote:
willthrill81 wrote:
Unless we're talking about widespread unemployment that is also leading to a declining equities market, your unemployment and a market downturn are unlikely to coincide, especially with the aforementioned buffers.



willthrill81,

We call that recession. And, it occurred regularly every few years.

KlangFool


It is worth noting while unemployment rose dramatically, in the "great recession" unemployment still only peaked at 10% in October 2009, June 1983 was the last time unemployment was this high at 10.8%. and 10.8% of 1983 was the highest point in a chart starting at 1948.

Just for some perspective of what "widespread unemployment" means.

source: bls.gov/spotlight recession 2007-2009

The long term unemployment rate peaked at 4.4% (looking for work longer than 27 weeks)
:beer
Last edited by knpstr on Mon Mar 20, 2017 5:18 pm, edited 1 time in total.
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delamer
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Re: Long term unemployment planning

Postby delamer » Mon Mar 20, 2017 5:16 pm

KlangFool wrote:
willthrill81 wrote:
Unless we're talking about widespread unemployment that is also leading to a declining equities market, your unemployment and a market downturn are unlikely to coincide, especially with the aforementioned buffers.



willthrill81,

We call that recession. And, it occurred regularly every few years.

KlangFool


And you won't be able to get a home equity loan or sell you house either, if there is an overall economic decline.

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Re: Long term unemployment planning

Postby delamer » Mon Mar 20, 2017 5:20 pm

knpstr wrote:
KlangFool wrote:
willthrill81 wrote:
Unless we're talking about widespread unemployment that is also leading to a declining equities market, your unemployment and a market downturn are unlikely to coincide, especially with the aforementioned buffers.



willthrill81,

We call that recession. And, it occurred regularly every few years.

KlangFool


It is worth noting while unemployment rose dramatically, in the "great recession" unemployment still only peaked at 10% in October 2009, June 1983 was the last time unemployment was this high at 10.8%. and 10.8% of 1983 was the highest point in a chart starting at 1948.

Just for some perspective of what "widespread unemployment" means.

source: bls.gov/spotlight recession 2007-2009

:beer


When 1/10 people who want a job can't find one, that's widespread unemployment. Not to mention those who ended up in part-time jobs when they wanted full-time jobs, or those that had to take a job below the pay rate and/or level of education that they'd had in the past.

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Re: Long term unemployment planning

Postby KlangFool » Mon Mar 20, 2017 5:24 pm

knpstr wrote:
KlangFool wrote:
willthrill81 wrote:
Unless we're talking about widespread unemployment that is also leading to a declining equities market, your unemployment and a market downturn are unlikely to coincide, especially with the aforementioned buffers.



willthrill81,

We call that recession. And, it occurred regularly every few years.

KlangFool


It is worth noting while unemployment rose dramatically, in the "great recession" unemployment still only peaked at 10% in October 2009, June 1983 was the last time unemployment was this high at 10.8%. and 10.8% of 1983 was the highest point in a chart starting at 1948.


knpstr,

Those numbers are only useful to the economists. At the personal level, a person could not be 10.8% unemployed. So, telling me or anyone that are unemployed during that period, the unemployment rate is only 10.8% is useless.

KlangFool

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willthrill81
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Re: Long term unemployment planning

Postby willthrill81 » Mon Mar 20, 2017 5:24 pm

delamer wrote:
KlangFool wrote:
willthrill81 wrote:
Unless we're talking about widespread unemployment that is also leading to a declining equities market, your unemployment and a market downturn are unlikely to coincide, especially with the aforementioned buffers.



willthrill81,

We call that recession. And, it occurred regularly every few years.

KlangFool


And you won't be able to get a home equity loan or sell you house either, if there is an overall economic decline.


It can be harder to do either of those in a recession, but it's far from impossible. Further, you could easily have an existing HELOC, and recessions are a great time to BUY properties.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: Long term unemployment planning

Postby KlangFool » Mon Mar 20, 2017 5:26 pm

willthrill81 wrote:
KlangFool wrote:
willthrill81 wrote:
Unless we're talking about widespread unemployment that is also leading to a declining equities market, your unemployment and a market downturn are unlikely to coincide, especially with the aforementioned buffers.



willthrill81,

We call that recession. And, it occurred regularly every few years.

KlangFool


90% of people kept their jobs in 2008-2009, and that was the worst recession in living memory.



willthrill81,

Unless you can hire OP or me and make sure that we are not one of the unemployed 10%, how is that piece of statistic useful to us?

KlangFool

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willthrill81
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Re: Long term unemployment planning

Postby willthrill81 » Mon Mar 20, 2017 5:27 pm

KlangFool wrote:At the personal level, a person could not be 10.8% unemployed. So, telling me or anyone that are unemployed during that period, the unemployment rate is only 10.8% is useless.

KlangFool


That's an erroneous line of reasoning. Here's why.

According to the CDC, 717 people died from being tangled in their bedsheets. That's about 1 in 446,304 people. But the odds of it happening are irrelevant to you because it either happened to you or it didn't. Assuming that it could happen to you, you should take steps now to avoid being tangled in your bedsheets and dying. :oops:

Again, I reiterate that you cannot eliminate all risk. It's impossible and non-productive to attempt to do so.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: Long term unemployment planning

Postby knpstr » Mon Mar 20, 2017 5:29 pm

delamer wrote:It is worth noting while unemployment rose dramatically, in the "great recession" unemployment still only peaked at 10% in October 2009, June 1983 was the last time unemployment was this high at 10.8%. and 10.8% of 1983 was the highest point in a chart starting at 1948.

Just for some perspective of what "widespread unemployment" means.

source: bls.gov/spotlight recession 2007-2009

:beer


When 1/10 people who want a job can't find one, that's widespread unemployment.[/quote]

Yup, that's what I said! the bls said 90% were okay, 10% got the shaft. 4.4% got the shaft for longer than 27 weeks.

klangfool wrote:So, telling me or anyone that are unemployed during that period, the unemployment rate is only 10.8% is useless.


Obviously, you can't be 10% unemployed. But there is a 90% chance you kept your job. and a 95.6% chance you found a job within 6 months.
I'm guessing if you have portfolio you tide yourself over for 3 years, you'll probably be okay...

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Re: Long term unemployment planning

Postby KlangFool » Mon Mar 20, 2017 5:33 pm

knpstr wrote:
Obviously, you can't be 10% unemployed. But there is a 90% chance you kept your job. and a 95.6% chance you found a job within 6 months.
I'm guessing if you have portfolio you tide yourself over for 3 years, you'll probably be okay...

:beer


knpstr,

50% of the employees at my location was laid off on 1/1/2009. Some of them still remained permanently under-employed until now.

KlangFool

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Re: Long term unemployment planning

Postby knpstr » Mon Mar 20, 2017 5:37 pm

KlangFool wrote:
knpstr,

50% of the employees at my location was laid off on 1/1/2009. Some of them still remained permanently under-employed until now.

KlangFool


But how many could still find a job elsewhere to make ends meet if they wanted/needed, even if they were "under-employed" or taking a job they didn't prefer?

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Very little is needed to make a happy life; it is all within yourself, in your way of thinking. -Marcus Aurelius

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Re: Long term unemployment planning

Postby delamer » Mon Mar 20, 2017 5:46 pm

willthrill81 wrote:
delamer wrote:
KlangFool wrote:
willthrill81 wrote:
Unless we're talking about widespread unemployment that is also leading to a declining equities market, your unemployment and a market downturn are unlikely to coincide, especially with the aforementioned buffers.



willthrill81,

We call that recession. And, it occurred regularly every few years.

KlangFool


And you won't be able to get a home equity loan or sell you house either, if there is an overall economic decline.


It can be harder to do either of those in a recession, but it's far from impossible. Further, you could easily have an existing HELOC, and recessions are a great time to BUY properties.


You keep talking about overall numbers, but those don't help an individual who is unemployed. If you don't have a job, you don't care that you can buy real estate cheaply.

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Re: Long term unemployment planning

Postby willthrill81 » Mon Mar 20, 2017 5:57 pm

delamer wrote:You keep talking about overall numbers, but those don't help an individual who is unemployed.


That's the same argument as Klangfool's, and it's just plain wrong.

We talk about overall numbers as a means of assessing the likelihood of something happening to us. If there is a 10% chance of something bad happening to us, we should probably take steps to mitigate that risk in some way. If there is a .0001% chance of the same, we rightly ignore it and all the other similar risks with an infinitesimal likelihood of occurrence, lumping them together as our own personal 'black swans'.

The likelihood of selling your stocks while they're down because of an extended unemployment is between these extremes, but I would say it's probably less than 1% for those with a good EF and willingness to be 'underemployed' for a time. Is that worth sacrificing your expected returns by backing down your equity exposure, which would only have a minimal impact if the worst should happen anyway? Perhaps for some who are especially risk averse this would make sense, but most would likely say no.
Last edited by willthrill81 on Mon Mar 20, 2017 6:49 pm, edited 1 time in total.
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Re: Long term unemployment planning

Postby MarkRoulo » Mon Mar 20, 2017 6:49 pm

When discussing unemployment (and the chances of it happening to someone specific), the overall unemployment rate is a good starting point, but you REALLY want to consider more than that. A fifty year old in the tech industry is probably at more risk than a 30 year old actuary. And some sectors within industries are more volatile than others (semiconductor manufacturing seemed to have layoffs every three or four years for a while ... it is long overdue).

Silicon valley hiring seemed to just freeze from about 2001 to 2003 or so. If you had a house there and then lost your job things could be very exciting.

If you are young, educated and mobile (and have some savings) looking at raw percentages is fine.

Older, married with a house and kids is a bit different. Hopefully these folks have more of a financial cushion.

Gawker ran a series on the unemployed (Google for "Gawker Unemployment Stories"). The stories are not representative, but are pretty bad. That is what folks worry about (whether they should or not).

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Re: Long term unemployment planning

Postby willthrill81 » Mon Mar 20, 2017 6:52 pm

MarkRoulo wrote:When discussing unemployment (and the chances of it happening to someone specific), the overall unemployment rate is a good starting point, but you REALLY want to consider more than that. A fifty year old in the tech industry is probably at more risk than a 30 year old actuary. And some sectors within industries are more volatile than others (semiconductor manufacturing seemed to have layoffs every three or four years for a while ... it is long overdue).

Silicon valley hiring seemed to just freeze from about 2001 to 2003 or so. If you had a house there and then lost your job things could be very exciting.

If you are young, educated and mobile (and have some savings) looking at raw percentages is fine.

Older, married with a house and kids is a bit different. Hopefully these folks have more of a financial cushion.

Gawker ran a series on the unemployed (Google for "Gawker Unemployment Stories"). The stories are not representative, but are pretty bad. That is what folks worry about (whether they should or not).


+1

Spot on. This is a personal assessment, and if you suspect that your job is more at risk than most or have data to confirm that, you should plan accordingly. But otherwise, it's a known risk (selling your stocks while they're down because you need the money from extended unemployment) that you just deal with in the very unlikely event that it occurs.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: Long term unemployment planning

Postby knpstr » Mon Mar 20, 2017 7:05 pm

MarkRoulo wrote:When discussing unemployment (and the chances of it happening to someone specific), the overall unemployment rate is a good starting point, but you REALLY want to consider more than that. A fifty year old in the tech industry is probably at more risk than a 30 year old actuary. And some sectors within industries are more volatile than others (semiconductor manufacturing seemed to have layoffs every three or four years for a while ... it is long overdue).


I'd agree with this as well.

Some of my comments here tied into a different thread by the OP on weathering a stock market drop/and layoff at the same time and (possibly) having to use retirement funds to weather the storm.

Using generic numbers at a 50% drop they'd have enough money to last 3 years if he was 100% stocks or 4 years if he was 70 or 80% stocks and some suggested he hold bonds because it would buy that extra year. I then commented why not hold 100% bonds and go for having enough for 6 years?

I was trying to make the point of "when is enough, enough" when it comes to being cautious? Certainly it is different for everyone but to seriously "plan" for being unemployed without any job for 4+ years, while not impossible, seems like a bit of an outlier/exaggerated scenario, to me.
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Re: Long term unemployment planning

Postby mrsytf » Mon Mar 20, 2017 7:50 pm

This doesn't answer your question but you have $40k in cash under investments. Why isn't this invested? You mentioned reallocation but you can reallocate with he $2k/month you are contributing. That's what I do. If everything is balanced the money goes in according to my AA. If my bonds for example need a lift, the entire amount goes into bonds to get them to the desired percentage of the portfolio.

You need to get that $40k working quickly.

Also when does your first CD ladder come due? I personally don't like CD ladders for efunds but that's just me. You can't access the money without a penalty. For some one who is worried about unemployment, you only have two months of expenses really liquid.

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Re: Long term unemployment planning

Postby kathyauburn » Tue Mar 21, 2017 8:01 am

Alto Astral wrote:
kathyauburn wrote:I applaud you for thinking about this.

Over the course of my life, these are the financial things I have never regretted:

1. living substantially below my means
2. paying off my mortgage, in full, as soon as I could

These are the things I have regretted:

1. buying individual stocks
2. not returning to the career I loved because I could make more money doing something I did not love

Thanks. I think I am getting into a holy war on paying off mortgages. Stay tuned :)

If you don't mind me asking did you or someone you know go through long term unemployment? Did you/they regret not having planned anything specific about it? Such as a larger EF?


For years I did the usual dance around paying off the mortgage. Then I just did it. Don't regret it for a second. Never did. Then again, I live below my means, so my residence was and is a pretty small part of my overall net worth. Will keep it that to the end. Possessions and debt make me feel trapped. I hate that feeling. In planning now to move to Europe, I really only have the small residence to worry about (and a 12-year-old Camry that still runs great, by the way). I can sell the residence or rent it out. Will probably sell, everything, and close this chapter of my life for good. Free as a bird. I don't foresee wanting to return to the U.S., and if I do, I'll rent.

LT unemployment: nah. But you plan for the worst and hope for the best. Stuff happens. This ain't my father's world, where the WASP man ruled and had little competition and could stay in a job half or most of his life and retire with two pensions and social security. In many fields today people with 6 years of "tenure" are considered old-timers. Gov and education are practically the only fields left with unions/pensions, and we all know what's happening to those. It's sad, really--another reason I'm moving to Europe. People over there have less stress than we do, generally lead happier lives (see the latest happiness index report), and typically do not have to tie their futures to the stupid stock market, aka casino, while simultaneously paying for their kids' college and praying that they retain their health insurance so that they aren't bankrupted by a medical situation. I came back here 25 years ago to make as much money as I could while living like a pauper so that I could return, live and teach part-time. Mission accomplished, so far. If I had it to do over again I would have just stayed in Europe. Oh, well.

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Re: Long term unemployment planning

Postby krannerd » Tue Mar 21, 2017 9:36 am

OP,

Based on the numbers you provide, I think you could hold out almost indefinitely in an unemployed state.

Unemployment in Illinois will pay out $613 for you and child weekly (and possibly an additional $419 for your working spouse...not sure about total family benefits allowed). So...best case you could bring in $4128 / month from unemployment for 26 weeks (out of each 52 week period). Reduce that for tax withholdings (15%) and you're at $3508 / month. Info from http://www.ides.illinois.gov/Pages/Unemployment%20Insurance.aspx

So, if you've got a $60k EF that you burn at $3k/month (after expense reduction), you've got 20 months there. Plus ~6 months of unemployment.

IMO...the best way prepare for long term unemployment...reduce expenses and maintain a cash cushion (as you're doing). Also, emotionally prepare yourself that your first job after a long stretch of unemployment may not be at the same level or salary as the one you departed.

I think you're in good shape. Let's hope you don't need to test this plan.

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Re: Long term unemployment planning

Postby knpstr » Tue Mar 21, 2017 9:53 am

kathyauburn wrote:People over there have less stress than we do, generally lead happier lives (see the latest happiness index report)


I'm happy to be living in a country that is within the top 9% of all countries in happiness. 14th out of 155

:beer
Very little is needed to make a happy life; it is all within yourself, in your way of thinking. -Marcus Aurelius

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Re: Long term unemployment planning

Postby Valuethinker » Tue Mar 21, 2017 10:32 am

kathyauburn wrote:. I came back here 25 years ago to make as much money as I could while living like a pauper so that I could return, live and teach part-time. Mission accomplished, so far. If I had it to do over again I would have just stayed in Europe. Oh, well.


One has to be careful about inter-country happiness comparisons.

IME a Brit and an American at the same level of objective satisfaction with life will describe it quite differently.

An American will tell you how everything is great, plans for the future, etc. etc. A Brit will say "mustn't grumble" and complain about the football, why England never wins the World Cup (if English), the weather and the traffic ;-).

Scandinavians have a very high quality of life in my view, but they are by no means the happiest of people. I the weather has a lot to do with it.

Spain, Italy, Greece have horrific problems, but (perhaps excepting Greece) you meet many people who are happy with their lot there.

France has a fantastic quality of life in so many ways: wine, food, sunshine, working hours, pensions, long holidays, excellent healthcare and infrastructure. Yet most French people seem simply to be morose and grumpy, to the point where the country has a word for it "La Morose".

If you can find a place in Europe you really love, then good on ya. "one must cultivate one's own garden" - Voltaire (Candide)

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Re: Long term unemployment planning

Postby kathyauburn » Tue Mar 21, 2017 11:56 am

Valuethinker wrote:
kathyauburn wrote:. I came back here 25 years ago to make as much money as I could while living like a pauper so that I could return, live and teach part-time. Mission accomplished, so far. If I had it to do over again I would have just stayed in Europe. Oh, well.


One has to be careful about inter-country happiness comparisons.


Absolutely. Personal experience is the best. You can live in a so-called "happy" country, but if your personal situation is bad (work, etc.), you'll probably be unhappy.

I've always said that the big things (social security, infrastructure, health care, work-life balance, cost of living) are better in Europe, while the small things (shopping hours, customer service) are better in America. I'll take the big things, thank you. ;)

P.S. Americans are always groaning about the taxes in Europe. I've never understood that. Add up federal, state, local, and you're paying about the same. Add in cost of college, housing, personal retirement, savings needed to prevent an economic catastrophe (health care in the event of job loss), and you come out way ahead in Europe. To each her own, though. I decided to try for the best of both worlds: put my 25 years in in the USA to pile up the money, and then get the heck out to enjoy life again.

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Re: Long term unemployment planning

Postby Alto Astral » Tue Mar 21, 2017 12:19 pm

mrsytf wrote:This doesn't answer your question but you have $40k in cash under investments. Why isn't this invested? You mentioned reallocation but you can reallocate with he $2k/month you are contributing. That's what I do. If everything is balanced the money goes in according to my AA. If my bonds for example need a lift, the entire amount goes into bonds to get them to the desired percentage of the portfolio.

You need to get that $40k working quickly.

Yes, I do. The $2K/month is separate though - from paychecks. I hope to ease it into VanguardTotalStockIndex and converting the $22K in RothIRA into VanguardTotalBondIndex. However, I hope I do not end up moving those into a high yield savings account under pressure from my wife. She considers all that "stock market" so while she is totally fine with AA and all, she cringes when I talk about moving cash to taxable StockIndex. I guess getting first jobs during the great recession does that.

mrsytf wrote:Also when does your first CD ladder come due? I personally don't like CD ladders for efunds but that's just me. You can't access the money without a penalty. For some one who is worried about unemployment, you only have two months of expenses really liquid.

I just started all of them last week. I evaluated building up IBonds in a separate post but got a lukewarm response. So I am thinking CDs are better than IBonds.

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Re: Long term unemployment planning

Postby Alto Astral » Tue Mar 21, 2017 12:33 pm

kathyauburn wrote:For years I did the usual dance around paying off the mortgage. Then I just did it. Don't regret it for a second. Never did. Then again, I live below my means, so my residence was and is a pretty small part of my overall net worth. Will keep it that to the end.

Did you pay it off at once when you compared it to net worth? Or did you pay extra towards principal monthly? I was in the extra-principal camp for over a year but I believe I will hold that off and re-evaluate it in a few years. I was thinking of having the home paid off in 15 years by the time kids go to college - but KlangFool pointed out that the kids will need to take more expensive loans. If they end up getting scholarships, I guess I can pay it off at one go.

kathyauburn wrote:Possessions and debt make me feel trapped. I hate that feeling.

I am looking at a couple of decades of that. Sigh.

kathyauburn wrote:In planning now to move to Europe ...
People over there have less stress than we do, generally lead happier lives (see the latest happiness index report) ..

Norway? Was recorded as the happiest country.

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Re: Long term unemployment planning

Postby Alto Astral » Tue Mar 21, 2017 12:43 pm

krannerd wrote:OP,

Based on the numbers you provide, I think you could hold out almost indefinitely in an unemployed state.

I did a double-take on that.

krannerd wrote:Unemployment in Illinois will pay out $613 for you and child weekly (and possibly an additional $419 for your working spouse...not sure about total family benefits allowed). So...best case you could bring in $4128 / month from unemployment for 26 weeks (out of each 52 week period). Reduce that for tax withholdings (15%) and you're at $3508 / month. Info from http://www.ides.illinois.gov/Pages/Unemployment%20Insurance.aspx
http://www.ides.illinois.gov/IDES%20For ... LI110L.pdf

So, if you've got a $60k EF that you burn at $3k/month (after expense reduction), you've got 20 months there. Plus ~6 months of unemployment.

Thanks for that. I scrolled to the end of the pdf and found the numbers you are showing.

krannerd wrote:IMO...the best way prepare for long term unemployment...reduce expenses and maintain a cash cushion (as you're doing). Also, emotionally prepare yourself that your first job after a long stretch of unemployment may not be at the same level or salary as the one you departed.

I think you're in good shape. Let's hope you don't need to test this plan.

I think I can cancel the escrow too and keep that in a high yield account instead. It deducts and extra $900 or so per month (we have high prop tax). I know its one less thing to worry about if its part of the mortgage payment, but it may give me a few months. I don't know.

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Re: Long term unemployment planning

Postby aristotelian » Tue Mar 21, 2017 12:46 pm

KlangFool wrote:In the case of unemployment, the pool of money available to you are as follows:

1) Emergency fund

2) Do not re-invest your taxable dividend and distribution.

3) Taxable account

4) Roth IRA contribution.

KlangFool


This is me as well, with 401k being last. For the taxable account, I hold tax exempt muni and short term bonds, and consider those to be my second tier emergency fund, although I would dip into stocks first if the market was high because it would be an opportunity to cash capital gains for free while in 15% tax bracket. I don't like market timing in general, but I would make an educated guess in that situation.

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Re: Long term unemployment planning

Postby Alto Astral » Tue Mar 21, 2017 12:47 pm

knpstr wrote:
kathyauburn wrote:People over there have less stress than we do, generally lead happier lives (see the latest happiness index report)


I'm happy to be living in a country that is within the top 9% of all countries in happiness. 14th out of 155

:beer

At least we are happier than the Irish. I thought they were a happy lot with St Patty and all that beer and dancing.

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Re: Long term unemployment planning

Postby Alto Astral » Tue Mar 21, 2017 12:52 pm

aristotelian wrote:
KlangFool wrote:In the case of unemployment, the pool of money available to you are as follows:

1) Emergency fund

2) Do not re-invest your taxable dividend and distribution.

3) Taxable account

4) Roth IRA contribution.

KlangFool


This is me as well, with 401k being last. For the taxable account, I hold tax exempt muni and short term bonds, and consider those to be my second tier emergency fund, although I would dip into stocks first if the market was high because it would be an opportunity to cash capital gains for free while in 15% tax bracket. I don't like market timing in general, but I would make an educated guess in that situation.

So something around 6 months expense in cds and the rest in muni+bonds would work as 2 tier EF?

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Re: Long term unemployment planning

Postby Tommy » Tue Mar 21, 2017 3:25 pm

Basically I'm facing the same issue - 57.5 yo, laid off from tech industry, sending resume and getting no reply. In my case I need 3 years to pay off house, 7 years to get Medicaid. So, will do any job that allow me not to touch investments (taxable and not taxable) for the next 7 years and hope they will continue to grow without additional contributions. Hopefully after this can go back to normal life :(

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Re: Long term unemployment planning

Postby kathyauburn » Tue Mar 21, 2017 4:21 pm

Tommy wrote:Basically I'm facing the same issue - 57.5 yo, laid off from tech industry, sending resume and getting no reply. In my case I need 3 years to pay off house, 7 years to get Medicaid. So, will do any job that allow me not to touch investments (taxable and not taxable) for the next 7 years and hope they will continue to grow without additional contributions. Hopefully after this can go back to normal life :(


In such a case I would encourage you, if possible, to consider broadening your search to include overseas locations, particularly those in which health care is nationalized (as it is in most developed countries except the US and even many not-so-developed countries). An additional benefit is that standard vacations in, say, European countries are 5 to 6 weeks per year--particularly important to older workers who should rightly view taking a job in the US with the standard 10-day vacation per year as a form of punishment, cruel indeed.


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