Financial Planning for Furlough

Jin Lim, CFP®

Financial Counselor

Army Community Service(ACS)

Objectives

What are “sequestration” and “furlough”?

How does furlough affect us?

How can we prepare for furlough?

Mandatory reduction in federal budgetary resources of all

budget accounts that have not been exempted by statute.

DoD expects to receive $46 billion less than it expected

through the remainder of fiscal year 2013.

DoD has determined that planned furloughs of civilian

employees is required should sequestration occur.

By law, sequestration will last 10 years and cut a total $1.2

trillion (half from defense, half from non-defense).

Sequestration

Furlough

Places an employee in a temporary non-duty, non-pay status

The six-month DoD FY13 civilian furlough is estimated to save

nearly $5 billion.

Fed employees may lose 22 days of work overall, or 20% of their

pay for up to 22 weeks if losing one day of work per week, likely

starting late April.

For more information www.opm.gov/furlough/

click on "Guidance for Administrative Furloughs" and

"Supplemental Guidance for Administrative Furloughs."

Furlough

1. Identify how much income you are going to lose as

a result of furlough.

2. Set up a budget that will let you know (1) what

expenses to cut temporarily and (2) what expenses

to cut back on now so that you can save “furlough

fund”.

3. Find quick ways to raise money to help cover your

bills.

4. If you can’t cover the bills, choose to pay the most

import bills first.

What should we do now?

Furlough impact estimate

One work year = (26 pay periods * 80 hours /pay period) = 2080 Hours

22 days of furlough = (22 days * 8 hours/day) = 176 hours

Impact of furlough = Total FY2012s Pay * (176 furlough Hrs/Total 2080 Hrs)

Estimated FY2013 payroll = Total FY2012 pay - Impact of furlough

<Example> Joe, annual pay $50,000

Impact of furlough to Joe = $50,000 * (176/2080) = $4,231

Estimated FY2013 payroll = $50,000 – $4,231 = $45,769

Bi-weekly pay before furlough = $50,000/26 weeks = $1,923

Bi-weekly pay after furlough = {$1,923 * (8/10 days, or 80%)} = $1,538

Impact of furlough to Joe (bi-weekly before tax) = $385

1. Identify impact of “furlough”

2. Set up a revised budget

Start by: Saving immediately before furlough starts

Adjusting or stopping fancy habits

Eating out less

Getting a second/part-time job

Selling something

Keeping a good health, home and car maintained

3. Find ways to raise money

3. Find ways to raise money

Start by: Postponing large purchases or big vacation plan

Buying used

Filing tax now if you are expecting tax return

Reviewing insurance policies

Reviewing cell phone minute plans

3. Find “more” ways to raise money

Temporarily:1. Adjust W-4 (withholding) – temporarily increase # of

exemptions to withhold less tax.

2. Pay minimum on credit cards and watch out using credit

cards.

• Call credit card companies to reduce interest rates or do

something for you

3. Review/Adjust TSP contributions.

• Specific dollar amount vs Percentage contribution

• If contributed more than agency matching %, reduce to

matching%

• Consider loan – only for emergency (interest rate,

processing fee)

3. Find “more” ways to raise money

Temporarily:4. Review/Adjust ROTH IRA contributions.

• Stop automatic contribution or reduce contribution

amount

• Partial withdrawal - only for emergency (tax-free

withdrawal up to contribution amount)

5. Review/Adjust funding for college education.

• Stop automatic contribution or reduce contribution

amount

6. Cash value from permanent life insurance policies.

• Take a loan out of cash value - only for emergency

(interest charge, no tax penalty)

4. If you still can’t cover the bills,Choose most important bills first:

• Always pay family necessities first.• Food, utilities, prescriptions, gas..

• Secured debts are high priority.• Mortgages(rents), car loans, or any debt that has

collateral

• Unsecured debts are low priority.• Credit cards, medical bills…

Remember Keep a positive attitude during this time. You still have benefits. Take advantage of extra time (update job

skills, resume) Find free (or low-costs) events or resource to

enjoy yourself

Preparation is the key!

Any Questions?