Last June, Belinda Kuo got laid off from her marketing job at Stanford University. Six weeks later, she boarded a plane for a two-month trip to Australia and New Zealand.
Even as the first signs of a labor market recovery appear — the Department of Labor reported Friday that the U.S. economy added 162,000 new jobs in March 2010, including 123,000 jobs created by by private employers: the largest number since May 2007 — the unemployment picture remains dire. Nearly one in ten Americans (9.7%) is unemployed and millions more are underemployed.
And while most of those lucky to have a job make due with two weeks of vacation a year – sometimes less — some unemployed workers like Kuo take so-called “pink-slip trips”: longer vacations that allow time for introspection and self-discovery after a lay-off.
Kuo’s trip was already in the works when she was laid off, so she called the airline and moved the trip sooner. This would allow her to avoid scheduling conflicts with potential employers who may not want to give extended time off to a new hire.
“The unemployment rate in the San Francisco Bay area was around 15%, and I’d heard that the economy wasn’t expected to pick up before the fourth quarter [of 2009],” Kuo says. “In my mind, there wasn’t any point in starting my search before then.”
Pink-slip trips can be a welcome escape from a demanding job, followed by the frustrations of a lay-off and job hunt. But do they make financial sense?
“If you’ve got a cushion built up you may consider a taking a trip to clear your head and help you think about what you want to do next,” says Paula Harris, co-founder and principal of WH Cornerstone Investments, an independent wealth management firm in Duxbury, Mass. “Maybe signing up for something like Vocation Vacation to try out a new career or a retreat to a place like Kripalu Center for Yoga and Health.”
However, Harris cautions those with insufficient savings and small severance packages not to overextend themselves. “If that’s the case, maybe you could plan a series of local outings by leveraging the museum passes that most local libraries offer patrons,” she says. “Or maybe you could do a road trip and stay with friends.”
If you have the funds for a pink-slip trip, don’t forget to get your finances in order beforehand. Here’s a pre-travel checklist.
File for unemployment and COBRA. COBRA, short for the Consolidated Omnibus Budget Reconciliation Act, allows workers to continue using their employer-provided health insurance policy after a lay-off. In the past, that had been a prohibitively-expensive choice for many individuals. But recent legislation mandated that employers cover 65% of COBRA premiums, while the former employee pays just 35%. What hasn’t changed is the importance of taking care of your severance paperwork on time so you don’t cause a delay in your COBRA coverage, says Harris. “You should file your unemployment claim as soon as you are eligible.”
Update your retirement account. Before leaving on her trip, Kuo met with her financial advisor to discuss rolling over her 403(b) funds into an Individual Retirement Account, or IRA. If you participate in an employer-sponsored retirement plan, when leaving your job you can leave the money in the 401(k) or 403(b), or you can roll it over into an IRA. Do nothing, and the money will likely stay in the employer’s plan. There is no penalty for that, but in most cases, you’ll have more investment options and lower costs by rolling them into an IRA. Just be sure to do it the right way, or you may be served a 10% early withdrawal penalty (if you are younger than 55) or a 20% tax withholding. (Both could happen if you ask your employer to cut you a check for the full vested amount, instead of asking them to do a “direct rollover.”)
Pay your credit cards while you’re gone. Depending on your situation, you might pay off all your cards before you leave or arrange for automatic payment so you have one less thing to worry about. “The last thing you need at this time is to be late on your bills,” says Harris. “Your credit score is largely based on how timely you pay your bills.” She points out that many employers now run credit checks on potential hires, so late payments could impact your future job outlook. “The theory is if you are not responsible with your own personal finances, chances might be that you would not make good decisions in your new job,” she says.
Arrange to receive your last check. Many employees get paid via direct deposit, but your company may issue you a paper check once you’re no longer an employee. By the time this check is ready, you may be half-way around the world. That’s what happened to Kuo, who asked her sister to pick up and deposit her check while she was traveling.
Though Kuo is still looking for work six months after her return, she has few regrets about the trip. “I am very happy with the way my trip turned out,” she says. “I met wonderful people, saw amazing things, and had a great time.”
Have you ever gone a pink-slip trip? Did it lead to improved mental health or other benefits? What did you do to prepare? Let us know in the comments.
Susan Johnston is a Boston-based freelance writer who covers business and lifestyle topics.