Out of Work, Out of Options and Over the Hill

by Emily Glazer

After 20 months without a job, 55-year-old Henry Dietz has nearly drained his 401(k) retirement plan.

He already has used up his personal savings, borrowed extensively, switched to a catastrophic health plan, which only covers medical emergencies, and even skipped family funerals because of travel expenses.

If he doesn't find a job soon, he may not be able to make his mortgage payments and the family may have to "move back with Mama," says the married father of three from Raleigh, N.C., who was laid off from an advertising agency.

Mr. Dietz's situation may be extreme, but many people are facing a similar dilemma: over 50, unemployed and running out of options.

With no job prospects long before they can afford to retire — and Social Security benefits still years away — many unemployed workers in their 50s and early 60s are struggling to pay the bills, the mortgage, health-care expenses and college tuition. It's a scenario that was unimaginable to many just a few years ago.

Of the 14.9 million unemployed, more than 2.2 million are 55 or older, according to the U.S. Labor Department. And almost half of those have been unemployed six months or longer. The unemployment rate in that age group is a record high 7.3%.

So what's an unwitting early retiree to do? Here are some tips to help stretch your finances.

1. Retirement Accounts

If, like Mr. Dietz, you have no choice but to dig into your retirement account, there are ways to minimize the tax hit and penalties.

Withdraw money from an individual retirement account or 401(k) before age 59 1/2 and you'll pay federal income taxes on the withdrawals and will get hit with a 10% penalty.

But the tax code has a provision, 72(t), that allows someone younger than 59 1/2 to withdraw a set amount of money at least five times until age 59 1/2 or for five years, whichever is longer. You won't pay a penalty, but the money is still taxed.

The caveat: Once you start taking out the money, you're locked into making withdrawals, says Jerod Wurm, a certified financial planner in Sacramento.

Jonathan Pond, a financial adviser for AARP, says that if you were laid off this year, you might want to delay tapping your retirement money until next year, when you might be in a lower tax bracket.

If you need a chunk of money for a short period of time, consider the 60-day rollover requirement. This rule allows you to take money out of a qualifying retirement account, tax- and penalty-free, once a year, regardless of your age — but the full amount must be deposited back into the account within 60 days.

2. Health Insurance

"It really is penny wise and pound foolish to go without" health coverage, says Mr. Pond, especially at an age when health-care expenses can start to rise.

Maintaining coverage is easier said than done when the pennies are hard to come by. But your lower income may qualify you for options you may not have considered if your Cobra coverage is coming to an end or you didn't have employer-provided insurance to begin with. (Cobra allows terminated workers to continue under a former employer's group plan.)

Most states have programs that offer low-cost coverage, typically if one earns less than $30,000 a year. The MassHealth program in Massachusetts, for example, covers adults and children under age 19 if they live with the parents.

Short-term insurance policies, which typically cover unexpected illnesses and accidents, can run as low as $30 per person for a month. Catastrophic insurance typically starts as low as $30 a month depending on a person's age and health.

Have you been denied coverage or been quoted an exorbitant rate because of a pre-existing condition? You can enroll in the federal Pre-existing Condition Insurance Plan, a part of the new health-care law. (The provision banning insurers from denying coverage based on pre-existing conditions doesn't take full effect until 2014.)

Premiums range from $320 to $570 a month per person depending on the state. But with private insurance, premiums for people with "pre-existing conditions...could easily run into the four figures," says Henry Aaron, a senior fellow at the Brookings Institution.

You also may be able to use out-of-pocket health-care costs to your advantage come tax time. You can deduct medical expenses exceeding 7.5% of your adjusted gross income. While that may have been too high of a threshold in the past, you may qualify now because of your lack of income. (See Topic 502 at www.irs.gov.)

3. Real Estate

The typical advice is to downsize to a cheaper home in a cheaper locale. But today's real-estate market is anything but typical. And for people who are hunting for work or have a spouse with a much-needed job, moving to a state with a lower cost of living may not be feasible.

So use your home to make some extra cash. If you live near a college or university, for instance, rent an extra room to a student or recent graduate. You can easily get a few hundred dollars a month. Contact a school's student-housing department or put up fliers on campus.

For homeowners who are 62 and over and still have equity, another option is a reverse mortgage, which allows older homeowners to tap their home's equity while they remain in the house. The loan typically doesn't come due until the homeowner sells the house or dies. And upfront fees have come down some recently.

4. College Expenses

Still on the hook for college tuition for your kids or yourself? Try renegotiating loan and aid terms.

Jerome Chester, a 51-year-old from Bethesda, Md., who has been unemployed since June, went to student-loan provider Sallie Mae to renegotiate his tuition loan. He was able to defer payments, about $1,000 a month, for six months.

And a school's aid package isn't always set in stone. Go back to the school and ask for more aid given your financial troubles. Results will vary by school and a family's financial status.


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