Losing a job due to a layoff can be overwhelming, but taking proactive financial steps can help you stay on track. Whether you’re navigating unemployment, starting a new job, or considering early retirement, this checklist will guide you through key financial decisions.
1. Evaluate Your Current Financial Standing
Review Your Emergency Fund – Determine how much you have saved and whether it can cover at least 3–6 months of essential expenses. If your savings are limited, create a plan to stretch your funds as efficiently as possible.
Adjust Your Budget if Needed – Reassess your income and expenses, prioritizing necessities such as housing, utilities, groceries, insurance, and minimum debt payments. Identify areas where you can cut discretionary spending.
Apply for Unemployment Benefits – Submit your application as soon as possible, as processing times may vary by state. Keep in mind that unemployment benefits are considered taxable income, so plan accordingly for potential tax implications.
2. Explore Health Insurance Options
COBRA Coverage – You may have the option to continue your employer-sponsored health insurance for up to 18 months through COBRA. However, since you’ll be responsible for the full premium plus administrative fees, it can be expensive. Your employer’s Human Resources department should provide you with enrollment paperwork soon after your termination date but be aware that you have a limited window to apply.
Marketplace Plans – Visit healthcare.gov to explore plans that may be more affordable, especially if you qualify for subsidies based on your reduced income.
Spousal Coverage – If your spouse has employer-sponsored health insurance, check if you’re eligible to be added to their plan. Be mindful of enrollment deadlines to ensure continuous coverage.
Health Savings Account (HSA) – If you have an HSA from a high-deductible health plan, you can use the funds tax-free for qualified medical expenses, including doctor visits, prescriptions, and COBRA premiums.
3. Manage Your Retirement Savings & Investments
401(k) Rollover – Leaving funds in your former employer’s plan may limit investment choices and increase fees. Consider rolling it into an IRA which can provide:
Lower costs
More investment options
Better control over your retirement savings
Check Stock Options & Vested Benefits – If you had company stock, verify if you can exercise any vested options before your departure.
Avoid Cashing Out Your 401(k) – Early withdrawals (before age 59½) may trigger taxes and penalties.
4. Plan for Taxes & Income Adjustments:
Understand Severance Pay & Final Paycheck – Review the details of your severance package, including whether it will be paid as a lump sum or in installments. If you receive a large payout, it could push you into a higher tax bracket, so plan accordingly. Also, confirm the payout details of your final paycheck, including any accrued vacation or unused benefits. Consider setting aside a portion for taxes.
Consider a Roth Conversion – If your income is lower due to a job loss, you may temporarily be in a lower tax bracket. This could be an opportunity to convert part of your traditional 401(k) or IRA into a Roth IRA, allowing for tax-free growth and withdrawals in the future. Consult your financial advisor to determine if this strategy aligns with your overall retirement goals.
Plan for Unemployment Taxation – Unemployment benefits are considered taxable income, but taxes aren’t automatically withheld unless you request it. To avoid a surprise tax bill, you may opt to have taxes withheld from each payment or set aside money to make estimated quarterly tax payments.
5. Protect Your Financial Future:
Review Insurance Needs – Employer-provided life and disability insurance often end with your job, leaving you unprotected. If you still need coverage, consider converting your employer plan to an individual policy (if allowed) or shopping for a new policy.
Reassess Investment Allocations – Changes in income and employment status may impact your risk tolerance and financial goals. Review your retirement and investment accounts to ensure your asset allocation aligns with your current situation. If you're withdrawing funds to cover expenses, consider adjusting your strategy to minimize potential losses.
Check Beneficiary Designations – Life events like a job transition are a good time to review your 401(k), IRA, and insurance policy beneficiaries. Ensure your designations reflect your current wishes, especially if you’ve had major life changes like marriage, divorce, or the birth of a child.
Avoid These Common Financial Pitfalls After a Layoff
Cashing Out Retirement Accounts Prematurely – While it may be tempting to access your retirement savings during a layoff, doing so can lead to significant penalties and long-term financial setbacks. Unless you have no other option, it’s generally better to leave your 401(k) or IRA intact to preserve its tax advantages and compound growth.
Ignoring Health Insurance Options – Skipping over health insurance coverage can lead to a gap in care, which may result in high medical expenses if unexpected health issues arise. Be sure to explore COBRA, marketplace plans, or spousal coverage options to ensure continuous coverage and avoid costly out-of-pocket expenses.
Overspending Severance or Emergency Savings – It can be tempting to treat severance or emergency savings as a windfall, but it’s essential to stretch these funds as far as possible. Prioritize necessary expenses like housing, food, insurance, and debt payments to avoid draining your savings too quickly.
Failing to Plan for Taxes – Severance pay, unemployment benefits, and stock payouts are all taxable income. Failing to account for taxes on these sources of income could result in an unexpected tax bill. Consider setting aside a portion of your funds for taxes or making estimated tax payments to avoid financial surprises.
Next Steps: Get a Plan in Place:
A layoff can feel overwhelming, but taking proactive steps now will help you regain financial stability and lay the foundation for future success. We’re here to guide you through this transition and help you make informed decisions that align with your goals. Let’s work together to create a personalized plan that addresses your unique financial situation. Contact our office today to schedule a financial review and receive the support you need during this transition stage.
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