Are you prepared if you lose your job or your employer files for Chapter 11?
Brooks Brothers, founded in 1818, is the latest retailer to file for Chapter 11 bankruptcy protection, pushed over the edge by the impact of COVID-19.
Considered one of the oldest-line retailers that brags of having dressed 40 of the 45 U.S. Presidents, Brooks Brothers joins a growing list of retailers that have announced bankruptcies, store closings, and employee layoffs due to COVID-19, including:
• J.C. Penney filed for Chapter 11 bankruptcy in May and plans to close 154 stores
• Neiman Marcus and J. Crew filed for Chapter 11 bankruptcy in May
• Tuesday Morning filed for Chapter 11 bankruptcy in May and plans to close 230 stores
• Macy’s announced plans in late June to cut 4,000 jobs after announcing pre-COVID that it was closing 125 stores
• Lucky Brand Dungarees filed for Chapter 11 bankruptcy on July 3
• The parent company to Ann Taylor and Lane Bryant is rumored to be preparing a Chapter 11 bankruptcy filing in July
Brooks Brothers employs over 4,000 people, but the U.S. Department of Labor estimates that there are 4.8 million people working in the retail industry, with that number expected to decline by 2% by 2028 due to “competition from online sales [that] will lead to employment declines in brick-and-mortar retail stores.”
Well, COVID-19 might push that 2% estimate even higher.
Ask Yourself the Tough Questions
The Brooks Brothers bankruptcy reminds us that while confidence and positive thinking serve us well most of the time, it should not stop us from preparing for unexpected catastrophes such as a job loss. As ugly as that sounds, it’s unwise to procrastinate or avoid making plans to get through tough times.
Here are some tough questions to ask yourself when developing a contingency plan:
• How long can I pay my existing bills if I lose my paycheck?
• What expenses could I cut?
• How long do I get paid if I am sick and unable to work?
• How much of my paycheck would I get?
• How long can I keep my group benefits?
• What are my financial obligations if I were to lose my job unexpectedly?
• How much income would my family need to maintain the existing household?
• How long would my assets last if I need longterm medical care?
• Would my spouse have adequate income?
Put Pen to Paper
Write your answers down and be realistic. Can a 60- year-old who has been working at the same company for 25 years find a ready job market for his or her skills? Would you downsize your family home or cash in your retirement plan to pay current expenses? Hopefully not.
You need to develop a contingency plan just in case calamity strikes. Your plan should be incorporated into your day-to-day financial decisions.
If you have a high mortgage, auto and credit card debt, you are at greater risk due to loss of income. As you make important financial decisions, ask yourself whether you can continue to meet your obligations even if you lose your job.
Establish an emergency fund of approximately six months of living expenses. This fund will provide cash flow for short-term income loss and protect your retirement investments from the penalties and expenses of cashing out. Also, it will protect you from creating more problems by using your credit card for emergencies.
Review Your Insurance Too
It’s also important to look at your life and disability insurance options. Are your life insurance benefits adequate? How much of your life insurance is tied to your job? You might need to get a personal policy that provides adequate coverage for your needs.
Do you have insurance that replaces your income if you become sick or hurt? A good disability policy should replace at least 60% of your income for several years at least. Some group plans provide benefits that are taxable when received. This could create an unexpected shortfall in income when it is needed.
You might need to personally supplement your group plan with an individual policy to make up the difference.
If you are nearing retirement, you should have insurance to cover long-term medical care. Even a well-funded retirement account could be depleted in a short time if you or your spouse needs this care. Will your existing retirement plan cover the costs of the care and still provide a lifetime income to the healthy spouse?
Update your estate planning documents such as wills and trusts to make sure they reflect your wishes. They should also provide instruction for your loved ones in case you become incapacitated and are unable to provide guidance.
Talk to a Financial Planner
Of course, it isn’t easy to think about worst-case scenarios, but these things happen. Most of us know someone who had a seemingly secure job become a casualty of downsizing or bankruptcy.
And remember: nobody is immune to illness and accident.
The more you prepare your contingency plan, the better you will weather these storms and emerge with your financial plan intact.
An Into Call with us will help make sure you cover all of the contingencies. We will review your situation and help you develop a plan that meets your specific needs.
It’s uncomfortable and stressful to think about, but having a solid backup plan gives you more peace of mind to enjoy your life.
Feel free to schedule an Intro Call here!