When pink slip arrives, it?s not the end of the world

In recent months, we've seen report after report of companies making major layoffs. It may not happen to you, but if it does, what financial moves should you make? Before taking any steps, it's important to remember one thing: you don't need to panic. While getting laid off is certainly not pleasant, it's also not the end of the world.

In fact, many people who go through this ex-perience land on their feet, with jobs as good as or even better than they had before. Nonetheless, anyone laid off will want to make the right decisions. Here are a few ideas.

Be prepared

The best time to deal with any financial pressures resulting from a layoff is well before the layoff occurs. That's why an employee should maintain an emergency fund to cover at least six months to a year's worth of living expenses. He may want to keep these funds in a money market account that offers liquidity and competitive returns. Then, if he does get laid off, he won't have to rush into selling off long-term investments.

Protect 401(k)

If a person is laid off, a 40l(k) presents a tempting target. After all, it's just sitting there and it may contain a lot of money. But raiding a 401(k) could be one of the worst mistakes possible. If the laid-off employee does cash it out, he'll have to pay income taxes on the proceeds, and if he's younger than 59 1/2, he also may have to pay a 10 percent premature distribution penalty. And, just as bad, he'll be depriving himself of a major source of retirement income.

If really cash-strapped, the laid-off employee may be able to take out a loan on the 401(k), but he should take this step only as a last resort. He'll be better off either keeping the 401(k) in the former employer's plan, moving it to an existing IRA, or transferring it to a "rollover" IRA from which he can eventually move it to a new employer's 401(k).

Adjusting asset mix

If an employee has maintained a diversified portfolio of investments, he'll be in good shape to make some needed adjustments in case of a layoff. For example, if he has a lot of growth-oriented investments, such as stocks, he may want to think about selling some and then investing the proceeds into income-producing vehicles such as bonds.

That way, he won't have to deplete all of his assets and once he's employed again, he can readjust his portfolio to match his investment personality, time horizon and long-term goals.

Borrowing wisely

If the laid-off employee has to borrow, he should be smart about it. A loan from a family member or close friend may affect his pride, but it's less expensive than one offered by a high-interest-rate credit card.

By planning ahead and using resources wisely, workers can almost certainly get through a layoff with their financial fu-tures intact. So take the necessary steps and keep moving forward.

(Betty J. Neal, CFP, is an investment representative with Edward Jones in Springfield.)