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ACS - Planning for Furloughs


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ACS - Planning for Furloughs

  1. 1. Financial Planning for Furlough Jin Lim, CFP® Financial Counselor Army Community Service(ACS)
  2. 2. Objectives What are “sequestration” and “furlough”? How does furlough affect us? How can we prepare for furlough?
  3. 3. Sequestration Mandatory reduction in federal budgetary resources of all budget accounts that have not been exempted by statute. DoD expects to receive $46 billion less than it expected through the remainder of fiscal year 2013. DoD has determined that planned furloughs of civilian employees is required should sequestration occur. By law, sequestration will last 10 years and cut a total $1.2 trillion (half from defense, half from non-defense).
  4. 4. Furlough
  5. 5. Furlough Places an employee in a temporary non-duty, non-pay status The six-month DoD FY13 civilian furlough is estimated to save nearly $5 billion. Fed employees may lose 22 days of work overall, or 20% of their pay for up to 22 weeks if losing one day of work per week, likely starting late April. For more information click on "Guidance for Administrative Furloughs" and "Supplemental Guidance for Administrative Furloughs."
  6. 6. What should we do now?1. Identify how much income you are going to lose as a result of furlough.2. Set up a budget that will let you know (1) what expenses to cut temporarily and (2) what expenses to cut back on now so that you can save “furlough fund”.3. Find quick ways to raise money to help cover your bills.4. If you can’t cover the bills, choose to pay the most import bills first.
  7. 7. 1. Identify impact of “furlough”Furlough impact estimate One work year = (26 pay periods * 80 hours /pay period) = 2080 Hours 22 days of furlough = (22 days * 8 hours/day) = 176 hours Impact of furlough = Total FY2012s Pay * (176 furlough Hrs/Total 2080 Hrs) Estimated FY2013 payroll = Total FY2012 pay - Impact of furlough<Example> Joe, annual pay $50,000 Impact of furlough to Joe = $50,000 * (176/2080) = $4,231 Estimated FY2013 payroll = $50,000 – $4,231 = $45,769 Bi-weekly pay before furlough = $50,000/26 weeks = $1,923 Bi-weekly pay after furlough = {$1,923 * (8/10 days, or 80%)} = $1,538 Impact of furlough to Joe (bi-weekly before tax) = $385
  8. 8. 2. Set up a revised budget
  9. 9. 3. Find ways to raise moneyStart by: Saving immediately before furlough starts Adjusting or stopping fancy habits Eating out less Getting a second/part-time job Selling something Keeping a good health, home and car maintained
  10. 10. 3. Find ways to raise moneyStart by: Postponing large purchases or big vacation plan Buying used Filing tax now if you are expecting tax return Reviewing insurance policies Reviewing cell phone minute plans
  11. 11. 3. Find “more” ways to raise moneyTemporarily:1. Adjust W-4 (withholding) – temporarily increase # of exemptions to withhold less tax.2. Pay minimum on credit cards and watch out using credit cards. • Call credit card companies to reduce interest rates or do something for you3. Review/Adjust TSP contributions. • Specific dollar amount vs Percentage contribution • If contributed more than agency matching %, reduce to matching% • Consider loan – only for emergency (interest rate, processing fee)
  12. 12. 3. Find “more” ways to raise moneyTemporarily:4. Review/Adjust ROTH IRA contributions. • Stop automatic contribution or reduce contribution amount • Partial withdrawal - only for emergency (tax-free withdrawal up to contribution amount)5. Review/Adjust funding for college education. • Stop automatic contribution or reduce contribution amount6. Cash value from permanent life insurance policies. • Take a loan out of cash value - only for emergency (interest charge, no tax penalty)
  13. 13. 4. If you still can’t cover the bills,Choose most important bills first: • Always pay family necessities first. • Food, utilities, prescriptions, gas.. • Secured debts are high priority. • Mortgages(rents), car loans, or any debt that has collateral • Unsecured debts are low priority. • Credit cards, medical bills…
  14. 14. Remember Keep a positive attitude during this time. You still have benefits. Take advantage of extra time (update job skills, resume) Find free (or low-costs) events or resource to enjoy yourself
  15. 15. Preparation is the key!
  16. 16. Any Questions?