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PHOTO: MELISSA GOLDEN FOR THE WALL STREET JOURNAL (PAUL JOEGRINER) |
When the Money runs out
BY MARY PILON
Paul Joegriner hasn’t worked since March 2008, when he was laid off from his $200,000-a-year job as CEO of a small bank. But you wouldn’t know it by appearances. His wife, Marzena, shuttles their two young children from their Maryland home 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 has turned each down in hopes of landing a position comparable to what he held before. The family’s lifestyle was propped up by a $200,000 severance package Mr. Joegriner received from his former employer and another $100,000 in savings—funds the family has burned through rapidly. “It will be D-Day,” he says. “But on the outside, no one has any idea that we’re in trouble.” THE SEVERANCE ECONOMY 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. Late last year, Congress extended federal unemployment benefits up to 20 weeks. Those benefits, which typically last about 26 weeks, would have run out for 1.3 million people by the end of the year, according to the National Employment Law Project. All of this is happening as the long-term jobless rate hits its highest point on record. More than a third of those who are out of work have been looking for more than six months, making this category of unemployed the biggest since the government began tracking it in 1948. Overall, companies have been eliminating or trimming severance packages. For those who do receive severance, the median pay allotted is 12.5 weeks’ salary, down from 21.8 weeks a decade ago. But this downturn has brought heavy layoffs to the financial and auto industries, two places where generous exit packages remain more common. The dramatic changes in such sectors mean that many of the eliminated jobs will never come back. Some workers may suffer a permanent hit to their standard of living. 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. “There is an end date when that severance is going to run out,” says Ellen Turf, chief executive of the National Association of Personal Financial Advisors. “At that point, the only life preserver is unemployment [aid] or getting another job... . It’s an awful situation.” DEAD ENDS When Michelle Patterson was laid off as an executive director of marketing for a publishing company last 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. 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 had 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 [me] 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. ‘WE WERE STUPID’ After working for more than a decade in New York, Chuck Hipsher moved He met his wife, Kelly, at the ad agency, and the two had a $40,000 wedding. Ms. 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 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 turned in his truck to avoid the repo man. 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. 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. ‘SOMETHING AT NIGHT’ After losing his job, Mr. Joegriner expected to land on his feet within six months, he says. In that time, he turned down three job offers to be a chief financial officer, because he didn’t like the salary or the description of duties, and thought he could do better. One was nearby; the others would have required the family to move out of state. All paid somewhat less than he had previously earned. After years of being a chief executive and hiring people, it’s been a tough adjustment. Recently, he began shooting off his résumé for mid- and senior-level positions “just to try and land something.” No replies. Mr. Joegriner doesn’t use the word “unemployed” in front of his children, ages 9 and 6, preferring to say that he’s a consultant and that income is patchy. Rough times have even moved him to contemplate seasonal employment this winter, “a stopgap job,” while he continues his executive job search. “Maybe something at night stocking shelves,” he says. “That way people wouldn’t have to see me.” (Related Opinion article on Page 19) Originally committed to staying in the Washington, D.C., area, Mr. Joegriner expanded his search. In September, the family flew to tiny Gillette, Wyo., where Mr. Joegriner was in the final interview stages for a CEO position at a credit union. The salary was $60,000 less than what he earned before, and uprooting his family from Maryland would be difficult. But they all seemed excited about a possible move. A few days later, Mr. Joegriner received an offer and a contract. Despite the earlier enthusiasm, doubts began to surface. “What if we went all the way out there and they laid me off?” After fruitless negotiations, he turned down the job. The reason: The position didn’t include a guarantee of severance pay. Says Mr. Joegriner: “I just couldn’t take the risk.”
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