I have seen SO many articles about layoffs and jobs being left unfilled. Even if it’s not happening to you, it’s still an unsettling read. It makes you think about your own preparedness in the event of job loss. With that said… here’s my game plan for helping you go from layoff to takeoff. 

– How to be Prepared –

  • On an ongoing basis you should be reviewing your cash flow and commitments. Before you sign on to new debt or expenses, ensure it’s not contingent on everything in life going perfectly. Life is messy and things outside of our control happen all the time. It may be obvious not to live beyond our means, but remember that living right up to the line can be just as bad. 
  • Keep a steady cash reserve. Prior to 2022, earning next to nothing on accumulated cash while the markets were on fire felt like financial negligence. It was a top concern I heard from prospects routinely. But with news about recession, job loss, and high interest rates, cash is looking like a pot of gold. But regardless of world circumstances, our personal lives can get messy at any time for any number of reasons. And when that happens it feels like when it rains – it pours. Like when you lose your job AND the market is down. So please, when things “go back to normal” don’t lose sight of this feeling on cash being ok. We can determine together the right amount to consistently have on the sidelines. 
  • Use your benefits to the max. If you have an inclination of a lay-off, use your insurance while you have it. While you may end up with health insurance post lay-off, it might offer worse coverage or be out of network with your preferred doctors. Dental and vision might also fall off entirely as those are more discretionary policies. So make sure you’re up to date on your cleanings, get those wisdom teeth pulled, have that knee replaced, get new glasses, bloodwork, annual visits – anything really!
  • Keep 401(k) loans to a minimum. Once you separate from service you have a 60-day window to repay your 401(k) loan. If not paid, it’s considered a distribution which is taxable and could carry a 10% penalty.

– You got your papers… what to do immediately –

  • Review all severance paperwork to understand what you’re due and for how long.
    • How long will health insurance be provided and at what cost?
      • Are they simply offering COBRA? Can you switch to a spouse’s insurance? Are you better off reviewing marketplace options? Can you switch to a new employer in a short-period of time if you already have a lead on a job?
    • What income will be provided, if any, and for how long? Are there any stipulations on the income? Sometimes they want you “available” to them for a period of time and a new job will terminate severance income. Other times you can collect severance + income from a new job.
    • Do you need to make decisions for any other benefits, like buying out or transferring life/disability insurances from a group plan to an individual plan?
    • What happens with any stock options? Are you in a position to excersize and fund them? 
  • Explore any opportunities to set up debt forbearance or restructure debt to help minimize expenses during this period of time without ruining your credit.
Depending on what you’re offered through severance, state unemployment, and creditors, you’ll be able to back into how much you’ll need to supplement your income by and from what source. Ideally you’ll tap cash first, followed by HSA/FSA funds to cover medical and/or dependent expenses, strategic funds from brokerage assets, and Roth IRAs. You may also explore hardship provisions within your 401(k) or IRA. Depending on the situation, tapping home equity, taking a personal loan, or leverage margin may also make sense. Credit cards will likely be your most expensive financing option unless you can quickly qualify for a 0% offer – which would be great! 

– Can we make lemonade out of lemons? –

Most bad situations have a silver lining, it’s a matter of finding them. 

  • Roth Conversion: with less income for the year and a 401(k) just sitting there, it may make sense to do a full or partial conversion to a Roth IRA. This potentially WON’T make sense as cash could be tight to pay the taxes, but if your bracket ends up being low enough and you’re not too strapped it could make a ton of sense. At a minimum, you might be able to qualify to simply make a direct contribution to a Roth if you had otherwise been phased out.
  • Capital Gain Harvesting: You may hear about tax-loss harvesting, but what about tax-gain harvesting? You’re income is low so this may be the best time to recognize some gains to pay at the 0% or 15% rate vs 15 or 20%. 
  • Escape a bad 401(k) Plan: While you’re an active employee you’re held hostage to your 401(k), and not all are created equal. I typically find that smaller companies have the employees shoulder the cost of the plan, meaning the fund and administrative expenses can be quite high. And worse, sometimes new fees pop on once you leave. This may be a great time to reassess investment options, custodian preferences, and consolidate accounts.
  • Travel?: If it’s financially feasible, is now the best time for a sabbatical, retreat, or refresh? We’re so often offered 2-3 weeks of vacation time and it’s somehow suppose to cover vacation, sickness, child care commitments (schools seem to have early dismisall constantly – amiright?), hobbies, networking events – all of it. This may be a rare opportunity to take a REAL vacation. Or a sabbatical to put words and ideas on paper. A retreat or conference to bring your skills to the next level and network with peers beyond your old office. Recognize the time for what it is – a bit of freedom to be you. 
For a checklist on how to handle a job loss, check out our Guide.