Thousands of residents of the Detroit area are facing economic decisions some thought they would never have to confront, and financial advisors there are trying to help their clients work through both the emotional and financial chaos. Some financial experts feel the economic turmoil hitting Michigan, specifically the auto industry, may be the beginning of a wave that will wash over the United States for months to come, even if its impact on investors and their advisors elsewhere is less severe.

"Every single day someone comes in who has lost their job or who is about to lose their job, some after many years of employment," says Tim Herbert, a Michigan financial advisor, and he's unable to hide the underlying regret in his voice. "I have couples who are clients where one person loses a job and then finds one in another part of the country, but the spouse has years invested in the auto industry and cannot leave the job or they cannot sell the home." Other auto workers are offered good buyouts-payment incentives to leave-but are not ready to retire yet. "The threat is on everyone's radar screen," he says.

While the overall U.S. unemployment rate stood at 7.1% at the end of December, up 2.3% from a year ago, it was much worse in some industries. The construction industry, whose health is used to gauge other parts of the economy, saw its unemployment hit a high of 15.3%, up from 9.4% a year ago, while joblessness in manufacturing was up to 8.3% from 4.6% a year ago. Unemployment in professional and business services also hit 8.1%, up from 5.7% a year before, while in financial activities it was up to 5.6% from 3.2% a year ago, according to the U.S. Bureau of Labor Statistics.

Herbert and his clients have been hit by the downturn sooner and harder than most other people in the country because he specializes in financial planning for auto industry employees through the Timothy Herbert Financial Group in Auburn Hills, Mich. "I have a client who had a home in the suburbs and his wife's mother had a home in the city," says Herbert. "The mother-in-law ran out of investment money so the couple moved in with her. But they can't sell their suburban home. Things are so bad here you can't give a home away." Herbert predicts it will be a decade before Michigan recovers.

"This client really does not want to renege on his debts but he may have to let the house go to foreclosure. But that will have long-term repercussions on his credit, as well as the emotional repercussions because he wants to pay his bills," Herbert says. "I have another couple who are clients, and she took maternity leave from her teaching job, then the husband was offered a buyout at Chrysler. They decided he would stay home while she goes back to teaching much earlier than planned."

For Herbert and other financial advisors, the circumstances facing clients are all a little different, but the planning process is similar for all. "First, they have to build up more adequate cash reserves, even if they are not facing immediate job loss," he says. "You usually want three to six months cash reserves but now we may try to go to a year's cash reserve in case both people of a couple lose their jobs. You also want to pay down any debt that has accumulated."

The decision has to be made about which savings and investment plans to cut back on. Money that is left in a 401(k) plan may be adjusted to a more defensive, conservative position. "You may want to put money in a stable-value fund, or put some in a money market if it may be needed in the next year or so," advises Herbert.

For those under age 55, IRS rules allow withdrawals from IRAs without the 10% penalty, so a 401(k) plan can be rolled over into several IRAs. Some of the funds can then be used as an income stream in an emergency while the others continue to accumulate. Then when the client gets another job, contributions can be made to the IRAs that were left untouched.

Herbert says he tries to emphasize the positive for his clients. For some, the advice can change over a short period of time. His client Chris Sweeney in Clinton Township, Mich., was a design engineer for General Motors for 24 years.

"A few months ago, Tim advised me not to take a buyout," says Sweeney, "but then the industry got worse. We reassessed things and I am doing better than a lot of people, so I took the next buyout offer. It is good to have an advisor who can look at just the facts, without emotion."