Navigating the financial challenges of job loss can be overwhelming. Let’s discuss key planning steps you can undertake to aid your financial journey during this transformative period. From augmenting your emergency savings to assessing potential benefits and compensation and making strategic career moves, let’s equip you with the necessary information to make this transition less stressful.
Cash Flow Issues
Are you still employed but will lose your job soon? If so, consider increasing your emergency funds before you lose your job. Also, if you have a flexible savings account, spend the money while still employed (or while covered by COBRA) on items you may need when unemployed.
Are you entitled to any compensation (back pay, sick pay, vacation pay) or severance package? If so, consider confirming the details with your HR department. If you were laid off, downsized, or your position eliminated, depending on the terms of your termination and your state’s laws, you may be eligible for unemployment benefits. Benefits are determined based on your state of residence and typically last for about 26 weeks.
Consider reviewing your budget and looking for areas to reduce spending, especially your discretionary expenses. If cash flow is going to be tight, consider the length of time your emergency fund will last. If you have debts, contact your creditors to see if you can reduce or defer payments between jobs. Consider part-time jobs, freelancing, or consulting to provide some income while you are between jobs – it might even lead to a permanent job. Also, if you are 62 or older, you may be eligible for social security benefits, but review how timing affects your benefit amount and overall retirement situation.
Health Insurance Issues
If you lose your health insurance soon, rest assured that there are options available. Consider ensuring you are up-to-date on medical and dental exams and any medical procedures before your health insurance ends. If you need health insurance, consider COBRA, joining your spouse's work plan, or joining the health insurance marketplace. If you are over 65, you may be eligible to sign up for Medicare if you haven’t already. The special enrollment period for Part A and B is an eight-month window, beginning the month after the earlier of the end of your employment or the end of your employer-provided health insurance.
Asset & Debt Issues
If you have a home equity loan or line of credit, consider that these may be a source of help during a period of unemployment—they tend to have lower interest rates than credit cards. However, note that if you are currently unemployed, you most likely will not qualify for a new or increased line or loan. If you have a Roth RIA, the contributions can be withdrawn tax and penalty-free if you need to supplement your cash flow.
Do you have unvested/vested stock options, company stock, or other deferred compensation? If you have unvested stock options, consider reviewing the plan documents, as you will likely forfeit some or all these stock options; review your vesting schedule to understand what will vest next and how you can coordinate your departure with the schedule. If you have vested stock options, consider post-termination exercise periods, usually three months from your last day of employment (or sometimes before your departure). If you were terminated for cause, your vested options might be canceled.
If you have any deferred compensation, review the plan documents to understand the distribution schedule and options selected, such as yearly or lump sum. Also, if you own stock in a private company you were employed by, look at the impact of the illiquid shares and whether there are any clawback or repurchase rights.
Tax Planning Issues
If you expect this year to be a low-income year, consider Roth conversions if you have the cash to pay the related income tax. Similarly, if your income has dropped below phaseouts, you can contribute to Roth IRAs and/or deductible to traditional IRAs. If you have taxable investments, you might be able to sell them and pay capital gains tax at a lower rate (possibility 0%). If you are enrolled in the health insurance marketplace, you may be eligible for the premium assistance tax credit (household income and coverage restrictions apply).
Career Planning Issues
A few other things to consider: If you are subject to a non-solicitation or non-compete agreement, consider how this will impact your search for another job. Ask HR if your former employer will offer any outplacement services. Finally, consider updating your contact information with your network, professional organization, etc.
Conclusion
Despite its hardships, employment loss can be managed effectively with careful financial planning and strategic career moves. By solidifying your emergency savings, evaluating potential compensation options, and gearing up for the next phase in your career, you can navigate through this difficulty and transition smoothly into the next chapter of your professional life.
WHWM is here to guide you in identifying your priorities, developing a plan, and making adjustments along the way. By choosing WHWM, you're partnering with our Founder and President, Stephen Bodwell. As a CPA and CFP® professional, Stephen is committed to helping you achieve your financial goals and aspirations. Don't hesitate to take the next step toward realizing your dreams. Schedule your complimentary, no-obligation 30-minute consultation with Stephen.
Walnut Hill Wealth Management, LLC (“WHWM”) is a registered investment advisor offering advisory services in the State of Texas and in other jurisdictions where exempt. The information provided is as of the date indicated and is subject to change.
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