The situation isn't dire for everyone. Of Herbert's clients looking at a job transition, about 60% are struggling and 20% face a real disaster. But another 20% are doing very well.
"For those who have no debt and are 58 or 59, they are being offered incentive pensions as if they are 62 or they are getting six months' pay as a bonus. Chrysler is offering a $75,000 bonus and a $25,000 car voucher. I have had several clients who took the incentive pension or buyout and are now traveling.
"But the norm is the couple who built a dream house 'up north on the lake,' as we say here, but took the buyout from Chrysler. Then the husband got a job in Arizona and they can't sell the house. It is upside-down-worth less than what they owe on it," he says.
Other advisors in the area are also seeing mixed results for clients. Marilyn Capelli Dimitroff, a financial planner with Capelli Financial Services in Bloomfield, Mich., says the current financial conditions are devastating for those who have not planned well, and the problems are going to grow and affect younger and younger workers.
"These situations can be very scary and look like the end of something, but they can also be the beginning," Dimitroff says. "I have an auto industry client who took a buyout and went back to school to pursue a career in art history. You have to help clients look at everything from the best case scenario. We recommend they be careful with all spending and use the resources for networking or executive searches that the company offers."
The biggest problems can occur for those who do not know if their pension or deferred compensation plans will exist in the future, she says, and a lot of repercussions need to be considered that are not obvious at first. "We are urging clients to make sure they have enough insurance because thefts are going to go up and the number of people driving without insurance is going to increase as times get worse," Dimitroff says.
"At the same time, we are trying to find a place where our clients are comfortable. Risk tolerance is definitely relative, but we do not want to see clients hurt twice by getting out of the market when they shouldn't and then trying to get back in when it is too late."
Dimitroff says she is actually somewhat optimistic about the future for her clients. "There are a lot of new industries that are being born and a lot of investment that is going to be possible. We do not want our clients to be too scared to get back in the market when they can," she advises. "We are on the cusp of so much new technology. Some of the investments available today are going to be great values."
Of course, a client's age can be an important factor in many decisions, says Mike Martin, a registered financial consultant and founder of Mike Martin and Associates in Independence, Mo., a suburb of Kansas City. Martin is a tax expert as well as a financial advisor, and has many middle-income clients. He advises those under 55 years of age who lose their jobs to roll over their 401(k)s, 403(b)s and 529 plans whenever possible. Those nearing 60 can start withdrawing, but those caught in the middle have to leave it where it is unless they are prepared for the hefty penalty.
"Our clients want to make good on their bills, so we try to lower expenses as much as possible and maybe work out a payment plan with credit card companies," Martin says. "They can draw on nonqualified accounts, then they can draw some from a Roth IRA if they have one, which is the least painful from a tax perspective. If they are getting unemployment, they should have taxes withheld so it is not a big shock at the end of the year.
"But the psychological aspects have to be addressed, too," he adds. "People tend to blame themselves when they have financial problems because they think they failed to plan properly. We point out they are in very good company with a lot of educated, sensible people. They cannot let themselves become debilitated with self-incrimination."