BALTIMORE — Government jobs typically had greater job security, but that's been upended as the Trump Administration and Department of Government Efficiency, or DOGE, looks to shrink the federal workforce with thousands of employees now facing financial uncertainty.
The first notice came with the “Fork in the Road” email on January 28, notifying federal employees that their position or agency could be eliminated as the workforce is downsized through restructurings, realignments, and reductions.
“A lot of the concern is, am I going to have a job tomorrow?” said Jon Pearlstein, managing director with Blue Pearl Wealth Management. He’s been meeting with clients impacted by these sudden changes.
“Part of the desire to work for the federal government is not just the mission, but the fact that I have stable employment, I have solid benefits. Those are attractive features, so most of these people haven't been thinking about what if,” Pearlstein noted.
But “what if” has turned into when, which is why he says it’s imperative to prepare or take immediate action if you’ve been laid off.
“File your unemployment claim, right? Make sure your health insurance is going to continue, right? That is a life change. So, if you have a partner or spouse that has the option for coverage, even though it's not the open enrollment period, you should be able to switch to their coverage in that situation,” Pearlstein advised.
Then take stock of your overall financial situation.
“Where do I need to pull from? What makes sense? There's probably a smart way and a not so smart way to pull from your accounts,” Pearlstein cautioned.
He further emphasized that 401(k)s or the Thrift Savings Plan for government employees should be considered a last resort.
“If you're under 59 1/2, you're going to have federal and state taxes. You're also going to have the 10 percent IRS penalty that when you add all those up, could be more than 40 percent depending on your bracket. And people are shocked,” said Pearlstein. “People that are over 59 1/2, they do not have the 10 percent IRS penalty, but they're still going to have federal taxes and state taxes.”
He also pointed out that accessing these funds means missing out on the benefits of compounding growth over time.
“Well, why can't I just take a loan from it? Once you separate from service, loans are no longer an option,” said Pearlstein.
Personal loans taken without secured debt and without employment may come with steep interest rates.
Emergency savings are the best immediate solution, but if that safety net is lacking, a financial advisor can help evaluate your situation and identify the best options.
For those concerned about future employment, Pearlstein urges taking proactive steps now.
“How do we build up a bigger cushion if this does happen, so that we're as well prepared as possible? Start connecting with other companies, people that you know in other industries, where you could possibly land and brush up your LinkedIn, any of your profiles, your resume,” Pearlstein recommended.
And in Maryland, it could get competitive. The state has the second highest concentration of federal employees in the nation with 160,000 federal civilian workers, or 6 percent of the state’s workforce. It’s second only to Washington D.C.
In response, Maryland has recently launched a resource website to assist impacted workers as many try to navigate their careers, and the ability to provide for their families.
If you withdraw from your 401(k) but subsequently secure a new job or determine that you no longer need the funds, you may roll it over into another retirement plan or IRA within 60 days to avoid taxes. This process can be complex, so it is wise to consult with a trusted financial advisor.
Eligible workers can receive up to $430 a week in unemployment insurance benefits. And workers should apply for benefits in the state of their “duty station,” so if you live in Maryland and your job is based in Virginia, you should apply for benefits in Virginia.
Click here to access resources for Maryland workers impacted by these federal changes.