Furlough finances 101
Managing money when your job's in limbo

By Kelly Greene, TIAA Senior Director and co-author of New York Times best-seller The Wall Street Journal Complete Retirement Guidebook
You’ve been furloughed. What does that even mean?
Until this year, the term was rarely used--sometimes to describe soldiers’ visits home in wartime, or when federal employees were caught up in budget stand-offs. Then the COVID-19 pandemic hit, and millions of workers in many walks of life, from service industries to higher education and healthcare, were let go from their jobs indefinitely.
Now we are all too familiar with the concept of a furlough as a temporary unpaid leave of absence. The hope is that you’ll get back to work before too long, maybe keeping some of your benefits while you wait—though whether you still have health insurance, and for how long, depends on the employer.
 The uncertainty can make it challenging to manage financially and emotionally. But you do have control over what you do with the money you still have. Here are some action steps to consider for now, while reminding yourself that our current state of limbo won’t last forever:
  1. Get the benefits.
The first step after a furlough, or layoff, is to file for any unemployment and related federal and state programs for which you qualify. Those benefits were expanded through the CARES Act , so it’s important to file as soon as you can so you don’t miss out on weeks for which you’re eligible. Also take a close look at the way your employer-provided benefits could be changing. Do you get to keep health coverage, and for how long? Would your premium increase enough that you should try to get added to your spouse or partner’s plan instead, or explore any available government options?
  1. Follow the money.
Now is the time to get a true grasp on where you stand. Your monthly take-home income is changing, so the first step is understanding, in detail, how much income you have. Next, you need to track down exactly how much you are spending each month. It’s a big job, but you should be able to find the information you need from your bank records, bills and credit-card statements. Remember the expenses that hit a few times a year, such as tax payments or insurance premiums. A budget worksheet can help you get started.
Next comes the moment of truth: Do you have more money going out than coming in these days? Or are you still managing to come out ahead?
  1. Focus first on big expenses.
If you need to scale back your spending, you may want to call any lenders. Ask about modifying payment plans to reduce the monthly amount—or deferring your payments until your furlough ends. Mortgage lenders, student-loan providers, credit-card companies, utilities and other providers with whom you have long-term relationships are worth a call. (Federal student loans can be deferred until Sept. 30, for example.) Whatever you do, don’t just fall behind or miss payments without talking to them first.
  1. Get your priorities straight.
While you’re documenting your monthly expenses, look for things like subscriptions and services you don’t use much or forgot about. Rate what’s important and what’s a waste. You can probably skip some expenses without missing them. Also look for ways to comparison shop: Could you lower your cell-phone bill or car insurance premium by changing providers? Also review giving to family members and charity, asking yourself what you can afford right now. It’s okay to suspend gifts in a crisis.
  1. Make the most of your passions.
Do your passions involve valuable assets? Selling the boat or RV you use intermittently, but spend outsized amounts keeping up, could relieve financial stress and headspace. On the flipside, your passions could also provide a lucrative side hustle: Agents are being swamped with first-novel submissions. My furloughed friend has turned her giant collection of vintage dresses, handbags, heels and hats into a lucrative eBay store. And my teenaged son even follows a furloughed academic on social media who has turned his talents to skateboard graphics.
  1. Before you tap your retirement...
If you have exhausted these steps and still find yourself struggling to cover your expenses, there’s one more possible source of cash before tapping into your retirement investments: Do you have a rainy-day fund? If so, and you haven’t used it yet, now is the time. It makes more sense to utilize emergency savings than to take on debt or chip away at your future. You could also borrow against the cash value of insurance policies or sell investments outside of retirement accounts before considering retirement withdrawals. (Still, before you start selling stock funds, consider the tax implications—especially if you’re selling at a loss.)
If you don’t have any of these options, or you have already used them, it may be time to consider your retirement savings as a resource. You can take COVID-19-related hardship withdrawals, or loans, from your workplace retirement plan, if its rules allow you to do so, or from an IRA. The CARES Act raised the amount you can withdraw to $100,000 from all of your retirement accounts combined, and it erased the 10% early-withdrawal penalty. But you’ll be locking in any losses from the market downturn and could miss out on growth during recovering markets.
Consider taking a loan, rather than a withdrawal, from your workplace retirement plan. That way, you are committed to paying the money back in three years so it can continue to work for your future. If you decide to take a hardship withdrawal instead, you might start with a smaller amount rather than cashing out the whole account.
The good news is that there’s a way to recover from a furlough. When you go back to work and no longer need the money, you could return the distribution to the account—or to a new employer’s plan—at any point in the next three years. And you can rebuild your emergency savings as well. With your newfound money-management skills, you can continue saving confidently for your financial future.
This material is for informational or educational purposes only and does not constitute fiduciary investment advice under ERISA, a securities recommendation under all securities laws, or an insurance product recommendation under state insurance laws or regulations. This material does not take into account any specific objectives or circumstances of any particular investor, or suggest any specific course of action. Investment decisions should be made based on the investor’s own objectives and circumstances.