Severance pay
My husband recently received a years salary severance after being let go due to reduction in workforce. We are wondering if we should use a large portion of that to pay down our mortgage (it’s not enough to pay it off) to lower our monthly expenses or keep that money in case money gets tight. He is not going back into the same field and will be making significantly less money. Your thoughts?
Terry Says
Don’t pay off the mortgage unless your rate is well over 5%. You’ll want to keep the liquidity for emergencies. This is true “chicken money” — money you can’t afford to lose. So put some in a money market mutual fund for easy access, and for money you hope you won’t need to touch in the next 6 months, but U.S. Treasury bills are earn about 4.7%.
Read this article: https://www.terrysavage.com/t-bills-beat-cds/
And remember to set aside some money for taxes on this pay — if they didn’t deduct taxes from the lump sum.
Also, make some decisions about his 40l(k) plan. It can stay thee for a while, but read the new column on my website entitled “Rollover Now.”
And don’t forget to make plans for health insurance. COBRA will be expensive, but if you expect lower income this year you might qualify for a subsidy under Obamacare. Go to www.Healthcare.gov to check. Compare coverages for sure, as well as whether your physicians are included in the plan. Open enrollment has ended — but losing a job opens a new window. Just don’t allow a gap in your family health insurance.
