How One Couple Survived 2008 & What We Can All Learn From How

October 16, 2018

It’s hard to believe it’s been ten years since we experienced the Great Recession – for some people, the events tied to that period in our economic history changed their lives forever. I think of all the people who were planning to work just a few more years so that they could pay off debts who found themselves out of a job and unable to get back in. Thousands of people were forced into retirement before they were ready simply because their jobs ceased to exist.

A story of survival

While the probability of another major recession like that is unlikely to happen again during my working years, I talk to plenty of people who have that fear. Going forward, whenever I hear someone express that fear, I’m going to share this story with them:

I talked with a couple the other day who are looking forward to retiring next summer. I’m glad I asked about how they accomplished their retirement plan – there were some bumps and unexpected turns along the way, but how they handled them is a lesson for us all.

A late career lay-off

The husband told me how he did not see the 2008 real estate crash as being anywhere as bad as it ended being. Then in 2009 he was laid off – the company he worked for was in the mortgage industry and eventually went out of business. This situation played out with thousands and thousands – there’s a reason that some people called it the Great “He-“cession. Many of those who lost their jobs where men in their final decade or so of working.

The good news is that he had limited his exposure to company stock in the 401(k) – he had always been told not to put too much in company stock within his 401(k), which turned out to be a very good thing. But while his retirement savings to date was as intact as possible, he was worried about his ability to continue saving for the future. He had worked for this company for a while and was not confident that he would find something that would pay anywhere close to what he was making.

Although their immediate future was uncertain, he and his spouse had done several things that put themselves in a good position.

  1. They always spent less than they made.
  2. Their daughters went to a public university and were able to graduate without any student loan debt. They were also both working and on their own financially at that point.
  3. They had only a small balance left on their mortgage.
  4. They had used some of their stock options (that they didn’t need for college) to invest in a rental property.
  5. They diversified their 401(k)’s; he only had 10% company stock in his 401(k) (see above).
  6. They had no debt and a cash reserve of 5 month’s expenses.
  7. His spouse’s job was not impacted, and she would be able to work remotely if they needed to move.

The first thing he did upon losing his job was to network aggressively. That lead to reconnecting with a former colleague, who told him about a position that paid less and would require him to move to another state. While it wasn’t ideal, they felt strongly that a bird in hand was better than two in the bush. He took the offer.

Making tough decisions

They sold the house they had raised their kids in, moved to another state and rented an apartment. Eventually they found a condo to purchase with the proceeds from their house sale. His spouse worked from home and after a few years he started getting promotions at his new firm. It wasn’t easy to make these decisions, but they kept the long view in mind.

The pay-off

Ten years later, they are moving to a town closer to their children, selling the rental home for a small family vacation home and looking forward to retirement. I asked if they missed their old home and he said, “it would be too much for us in retirement, we would have sold it eventually. No regrets.” Making concessions to their short-term life allowed them to stay on track with the long-term plan.

There is a lot of concern about the markets now, as there always is. If you’re worried about being a casualty of the next recession (should one happen soon), then now is the time to prepare. Here are the takeaways to prepare yourself if a layoff comes your way:

  1. Have a spending plan and spend less than you make.
  2. Make sure you don’t not have too much credit card debt and your mortgage is affordable.
  3. Diversify your investments.
  4. Remain flexible in where you live, which opens options that are not available if you are inflexible.
  5. Make room for a reduction in income – holding off for an income that matches your highest income means you may be without an income for a longer time.
  6. Maintain cash reserves of a least 6 months, more if you’re in a unique industry or have a non-earning spouse.

The best time to prepare for the worst is when times are good. Take some time this fall to make sure your financial house is in order. At best, things will continue as they are and you may be able to retire earlier than you think. At worst, you’ll be in a better position to recover from financial hits should they come. As we like to joke on our team, one of our favorite quotes is, “Gosh, I really regret making a budget and saving for emergencies,” – said no one ever.