Advisers help federal employees financially manage the shutdown

Some workers have rainy-day funds, while options exist for those living paycheck to paycheck

Jan 7, 2019 @ 5:06 pm

By Mark Schoeff Jr.

Federal-employee clients of financial advisers in the national capital area are taking the federal government shutdown in stride, even though they're due to miss their first paychecks this week. Others, however, will struggle without the immediate income.

The shutdown, which has put 800,000 federal workers on unpaid status and resulted in the furlough of 380,000, is entering its third week. Most federal agencies issued paychecks just before their doors closed Dec. 22. Wages that are due Friday will not arrive if the shutdown drags on.

Several advisers said their clients are weathering the shutdown thanks to financial planning that ensured they would have a cushion. Others aren't so lucky.

"It seems that the rainy-day fund we have encouraged our clients to establish has finally found its rainy day," said Erik Scudder, financial planner at Integrated Financial Partners in Fairfax, Va. "While this by no means makes this a comfortable circumstance, it perhaps makes it less uncomfortable knowing that they should have at least three to six months of living expenses in a liquid position to get them through this."

A cash buffer helps clients make ends meet and keeps them out of their individual retirement accounts.

"If they don't have that emergency fund, they'll tap into assets that aren't as ideal as rainy-day funds," Mr. Scudder said.

Ric Edelman, founder of Edleman Financial Engines in Fairfax, Va., said his clients are insulated against missed paychecks, but thousands of other federal workers need the help of an adviser.

"It's unconscionable that there are federal employees who are in immediate financial distress because of the shutdown," Mr. Edelman said. "These folks are living paycheck-to-paycheck and are clearly unprepared for adverse economic events."

Those who are in financial difficulty because of the shutdown should contact their mortgage lenders, banks and credit card companies to tell them about their circumstances, said Brent Weiss, co-founder and head planner at Facet Wealth in Baltimore, Md.

"Most institutions will work with you, but you have to call them," Mr. Weiss said. "If you keep waiting, all of a sudden after two weeks or a month, you're behind the eight ball. Act today."

The Office of Personnel Management has posted on its website sample letters that federal employees can send to creditors and mortgage companies. Some federal credit unions are offering generous loan terms.

"Just don't panic," said Patrick Beagle, owner of WealthCrest Financial Services in Springfield, Va. "There are a lot of resources out there."

Mr. Beagle also advises furloughed federal workers to apply for unemployment compensation during the shutdown. Typically, the government has given employees all their back pay when operations resume. In that case, workers who received unemployment would have to pay it back to their state once Uncle Sam makes them whole again.

And how can some workers best play catch-up when the shutdown ends?

Federal workers have a retirement program that is among the most admired, the Thrift Savings Plan, because of its low costs. Those who are furloughed would probably be better off taking a loan against their retirement savings to cover any outstanding bills than to stop contributing to the plan for weeks or months after the shutdown, said Karen Schaeffer, owner of Schaeffer Financial in Rockville, Md.

"If you underfund your Thrift, you pay for that for the rest of your life," she said.

She said the federal employees she works with are sanguine so far.

"Even though they're missing paychecks, they're fine," Ms. Schaeffer said. "Their plan is not going to fall apart."

But President Donald J. Trump and congressional Democrats don't seem close to resolving differences over funding for a border wall, increasing the prospects for a long shutdown that also has brought most activity at the Securities and Exchange Commission to a halt.

Most federal workers are probably used to shutdowns, having gone through them in 2013 and several other years. That makes putting together a financial plan crucial, Mr. Weiss said.

"In a divided Congress, you're going to see some impasses, and you have to be prepared for it," he said. "This is the new normal — the yo-yo economy. You're on your own and are going to have to plan for it."

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