NOVEMBER 10, 2009
Life on Severance: Comfort, Then Crisis
By MARY PILON
WSJ
SILVER SPRING, Md. -- Paul Joegriner hasn't worked since March 2008, when he was laid off from his $200,000-a-year job as chief executive officer of a small bank. But you wouldn't know it by appearances. His wife, Marzena, shuttles their two young children to private school every morning. The family recently vacationed in Virginia Beach, Va., and likes to dine on Porterhouse steaks. Since losing his job, Mr. Joegriner, 44 years old, has had several offers. He's turned each down in hopes of landing a position comparable to what he held before. When Severance Falls Short The family's lifestyle over the past year and a half has been propped up by a $200,000 severance package and another $100,000 in savings -- funds the family has burned through rapidly. By Mr. Joegriner's own calculations, the family will be out of money in six months if he doesn't find work.
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Mr. Joegriner is a member of what might be called the severance economy -- unemployed Americans who use severance pay and savings to maintain their lifestyles. Many lost their jobs in 2007 and 2008, and thought they'd soon find work. Now, they're getting desperate. Last week, lawmakers passed a bill extending unemployment benefits up to 20 weeks. Unemployment benefits, which typically last about 26 weeks, were expected to run out for 1.3 million people by the end of the year, according to the National Employment Law Project.
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Those affected often have trouble accepting their diminished prospects. Hefty severance packages, while intended as a safety net, can lull the unemployed into a false sense of security. Some people continue spending as before.. When Michelle Patterson was laid off as an executive director of marketing for a publishing company in January, she figured she could subsist comfortably, at least for a while, on the $20,000 she had reserved from her savings and severance combined. She continued to eat out regularly and made daily Starbucks runs. "It made me feel like I was still at work," says the 41-year-old resident of Newark, N.J. She spent as much as $250 a week on networking meals and drinks with contacts. Some days, she scheduled up to four coffee meetings a day, picking up the tab most of the time. She also spent $30 a month for pedicures and $150 on her hair.
The reckoning came in August, when she examined her finances. Her condo had been on the market for six months but she'd yet to receive a single offer. Her severance and savings were nearly gone. She finally cut her spending. She doesn't dine out anymore. Gone are the fancy salon visits; Ms. Patterson sips Starbucks just once a week. She downgraded her cable TV to basic channels, saving $8 a month. Ms. Patterson sometimes wishes she had cut her spending earlier. But the money spent networking and socializing, she says, has "helped
keep sane." Like many of the long-term unemployed, she surfs sites like Monster.com and is a "serial résumé sender" -- emailing at least 10 résumés a day. Still, "I keep running into dead ends," she says. Coming to terms with the new job math hasn't been easy. Ms. Patterson's old salary was $140,000 a year. Now she is targeting jobs paying about half that. She recently turned down a per-diem arrangement earning $250 a week, or a mere $13,000 a year, selling education software.
After working for more than a decade in New York ad shops, Chuck Hipsher moved to Detroit in 2005. He took a position at the Campbell-Ewald agency, where he helped launch the Chevrolet Silverado campaign.. He met his wife at the ad agency, and the two had a $40,000 wedding. Kelly Hipsher, 32, was laid off in October 2007 and found out she was pregnant in February 2008. A week later, Mr. Hipsher's pink slip followed. Two months after that, the out-of-work couple moved to Greenville, S.C., to be closer to family and get a fresh start. Together, they had received about $60,000 in severance. "Now we have $600 to our name," says Mr. Hipsher. Although their rent was cheaper, Mr. Hipsher says the family continued to spend like before. They moved with three cars -- two BMWs and a Chevy Silverado. They continued to buy cases of $36-a-bottle wine. They spent $250 a month on a cleaning lady, and Mr. Hipsher dropped $50 a week on flowers for his wife. The couple still dined out regularly.
"We were stupid," he says. "You become accustomed to a certain lifestyle. When your world changes and things dictate that you change, you're pretty stubborn to give things up." He sold the BMWs and voluntarily turned in his beloved Silverado to avoid the repo man. "It was heartbreaking," he says. He replaced the fancy wheels with a Chrysler minivan. Before the layoffs, the Hipshers had no debt. Today, they owe about $70,000 -- including money borrowed from family members and $31,000 in credit-card debt. To hold off the collection companies that call daily, Mr. Hipsher says he is doing his best but is also considering filing for personal bankruptcy. After a stint selling new and used BMWs on a lot in Greenville, Mr. Hipsher recently began consulting for free for a small marketing firm, "to stay busy." In September, a Web solutions company hired him as a marketing director. Between salary and commission, he thought he could match half his old income. But so far, he says he's only received about $1,220. Tight for cash recently, he pawned his wife's $12,000 wedding ring for a $2,000 loan. He has until Dec. 28 to pay back the principal, plus $500 in interest -- or else he forfeits the ring. Looking back, he kicks himself for failing to enforce financial discipline right after losing his job in Detroit. "That precious nest egg is gone," he says.
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http://online.wsj.com/article/SB125780714976639687.html (subscription)
Printed in The Wall Street Journal, page A1
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