Without pay, some federal workers felt they had no choice but to tap their Thrift Savings Plan (TSP), the government’s version of a 401(k). But if you take money out of your TSP before you reach age 59 1/2, you might have to pay an early-withdrawal penalty of 10 percent in addition to regular income tax.
Then there are the contract workers who won’t receive back pay. With many of them already living paycheck to paycheck, these workers will find it hard to recover. If they were contributing to a retirement plan through their employer, their contributions probably stopped with the shutdown. And they aren’t likely to make catch-up contributions.
Most troubling is that there’s still a threat of another shutdown in a few weeks. Congress passed only a stopgap funding measure that lasts through Feb. 15 for the affected agencies.
Whether you’re a federal employee or contractor impacted by the shutdown or you’re back at work after being laid off or unemployed for another reason, here’s some advice for recovering from missed paychecks.
Keep that forbearance in place. Many financial institutions sympathetic to customers affected by the shutdown offered them an opportunity to place their loans in forbearance. Under forbearance, a borrower who is suffering from financial difficulty is allowed to stop making loan payments.
If your lender gave you a reprieve on your loan payment for February and even March, don’t rush to end the forbearance if you’re still struggling to cover other expenses.
Don’t splurge. Federal workers will be getting two paychecks at the same time. Getting such a large sum can lead to overspending. But it’s not time to celebrate with a meal out or a movie. You are not free of the financial strain just yet if you still don’t have an emergency fund, which you may have depleted to stay afloat during the shutdown.
Don’t immediately restart your aggressive debt-reduction plan. Before the shutdown or a job loss, you may have been trying to get rid of debt. Now that money is coming in, you’re probably eager to get back on track to reduce your debt. But you still need to preserve your cash in case another shutdown occurs. The same is true even if you land another job after a layoff.
Keep making the minimum payments on your debts until you’re being consistently paid.
Keep your side hustle -- or find one. Federal employees are prohibited from engaging in outside employment that conflicts with their official duties. Employees are encouraged to seek advice from an agency ethics official, but many of these folks were furloughed, too. Now that everyone’s back at work, contact your agency’s ethics office to get clarity on what type of extra work you can do should there be another shutdown.
If you found a job during the shutdown that did not conflict with any ethical rules and you can still do it part time, don’t give it up. Work the job until you’ve accumulated at least three months of living expenses.
Whoever you work for, aim to figure out a way to have multiple streams of income.
Keep living like you’re in a shutdown situation. Don’t lose that sense of deprivation, which can be a powerful motivator to budget better.
Finally, commit to having an emergency fund. In the case of federal workers and contractors, call it your “Shutdown Safety Fund.”
I often had government workers -- mostly federal -- argue with me about their need to have an emergency fund. They saw their employment -- barring some malfeasance of their own doing -- as super secure. The people who frustrated me the most were those who earned enough to have an emergency fund but instead lived paycheck to paycheck. They saw no urgency in making sure they had even one month of living expenses saved, pointing to the likelihood they would get retroactive pay in the event funding for their agency lapsed.
After a 35-day shutdown, how are you feeling about that paycheck security now?