Financial Advice Offered for Potential Hollywood Strikers

If Hollywood goes on strike this summer, entertainment industry workers can try to soften the economic blow by taking steps in the next few months to bolster their finances.

“Now is a very good time [for them] to get a handle on their money,” said Eric Bruck, a Culver City financial planner.

Here are planners’ recommendations for strike preparation:

Create an emergency plan. It’s smart to have two budgets--one for normal spending and a stripped-down version for financial emergencies such as a strike, planners said. The bare-bones version can help a family predict how it might fare in a strike or extended layoff.

A two-income household might discover, for example, that it can get by on one salary indefinitely with some spending cutbacks, Bruck said. Other families might find they need to significantly bolster their savings or find another source of income to survive more than a few weeks.

Budgeters also should note which expenses might disappear or shrink if they’re not working, such as commuting costs and day care. Those with student loans should contact their lenders to see whether payments can be suspended or reduced, said Kathleen Michon, an editor at Nolo.com, a legal self-help Web site.

Strikers should not count on unemployment benefits or much money from their unions. Strikers typically aren’t eligible for unemployment benefits, and union strike funds usually are reserved for those facing financial emergencies, such as a home foreclosure.

People who are laid off might qualify for unemployment benefits for a few months. The maximum benefit available in California is $230 a week for 26 weeks.

Build your emergency fund. Financial planners recommend most people set aside a cash cushion equal to about three months’ worth of living expenses.

One-income families and those with unpredictable incomes--which includes many in the entertainment industry--should aim for six months or more, said Mitchell Freedman, a financial planner and certified public accountant in Sherman Oaks.

Savings can be supplemented by opening a home-equity line of credit, Bruck said. Home-equity lines are revolving credit accounts that work something like a credit card but use home equity as collateral.

The key: Open the account but don’t borrow any money except in an emergency.

“If you’re already in a position where your spending is not in control . . . those equity lines won’t ever get paid down and you’re putting your house at risk,” Bruck said.

Don’t borrow trouble. Paying off credit cards should be a priority, planners said. Not only will borrowers save money on interest charges, they’ll get some breathing room on their credit cards that can be used in an emergency.

Taking out new loans or making savings-depleting purchases usually is ill-advised, planners said.

Those already in credit trouble should prioritize their debts so they know which should be paid in an emergency and which can wait, said attorney Michon, whose company publishes “Money Troubles: Legal Strategies to Cope With Your Debts” (Nolo Press, 2000).

Rent or mortgage payments, utility bills, child support, car payments and taxes generally should be paid first, even if other creditors--such as credit card companies, department stores or finance companies--apply more pressure, Michon said.

Delaying credit card or other unsecured debt payments can hurt a borrower’s credit rating, but it’s more important to have a habitable home and to stay out of trouble with the law and the IRS, she said.

Health care. Those facing a strike or layoff should try to ensure their health insurance coverage doesn’t lapse, planners said.

Most laid-off workers can purchase health insurance through their former employers for as long as 18 months under federal law, but they must foot the often-considerable expense themselves. Another option might be purchasing a high-deductible policy with a lower monthly cost.

For union members in the entertainment industry--whether they’re strikers or simply laid off from union jobs--eligibility for benefits often depends on how long and how much they have worked in their fields.

Often, benefits will continue even if union members are out of work. Alternatively, union members might be able to purchase coverage from their unions.

Avoid tapping retirement funds. It can be tempting to withdraw money from an IRA or borrow from a 401(k) when financial times are hard. Try to resist the temptation, said Phil Holthouse, an attorney and certified public accountant with Holthouse Carlin & Van Trigt in Los Angeles.

Someone who withdraws money from a retirement account before age 59 1/2 typically faces a 10% federal penalty and a 2.5% California penalty, plus federal and state income taxes on the amount withdrawn.

“If you take that money out of your retirement accounts, you can pay well over half of it in taxes and penalties,” Holthouse said.

There is a way to avoid the penalties, and spread out the income tax hit, by taking what are known as “substantially equal periodic payments”--in essence, a series of annual withdrawals whose amount is based on life expectancy. The withdrawals must continue for five years, or until the taxpayer is 59 1/2, whichever is longer. Otherwise, the penalties apply retroactively. Details about how to figure the withdrawal amounts can be found in IRS Publication 590.

Once removed from the account, the money is no longer growing tax-deferred, and the ultimate cost to retirement savings can be heavy. Someone who takes $10,000 out of a retirement fund now could be losing more than $100,000 at retirement, assuming that money had earned a relatively conservative 8% return over 30 years.

Borrowing money from a 401(k) or other workplace retirement plan also has risks. If the money is not repaid on time, or if the borrower quits, is laid off or is fired, the IRS treats the borrowed money as a distribution and levies taxes and penalties.

Don’t panic. Investors who panic and pull their money out of the stock market can miss out on future gains and put their retirement at risk, said Esther Berger, a Beverly Hills financial planner and money manager.

Likewise, Berger has noticed that some of her entertainment industry clients make vows to cut back their spending, only to suddenly make an expensive purchase or take a lavish vacation. The idea of frugality makes them panic, and they overreact, she said.

Moderation is the better course, Berger said. Small changes in spending and investing might be better than big, dramatic moves for many people.

“We don’t like to see stocks going down, and we don’t like to see a strike looming on the horizon. These are scary things,” Berger said. “But rather than panic, let’s just get the information we need, make informed decisions, deal with it and move on.”