Losing a job is one of the most difficult things that can happen in your working life. In addition to the obvious financial issues involved in losing your income, we tend to include our job in our self-image, and build the routines of our life around it. If you find yourself in that situation, it is important to make a plan immediately because the things you do in the days immediately following the loss of your job can make a difference financially and making the wrong moves can jeopardize your finances for years to come.
Depending on your age and resources, one of the first decisions you might have to make is whether to retire or go back to work. Obviously, the main factor in this decision will be whether you have enough money to last the rest of your life. If you lose your job a little earlier than you had intended to retire, it’s possible that any severance or vacation pay to which you are entitled could be enough to help you retire.
If you decide that you do want to re-enter the workforce, this can be a good opportunity to reassess your career. Were you happy doing what you were doing? Is it realistic to make a change if not? What qualifications would you need for your new career? Do you have the education and skills necessary? Often, people want to use job loss as an opportunity to start a business. If so, you’ll need to assess your financially readiness to do that. You may need to have savings equal to two years of living expenses to get a new business up and running.
If you are going to look for a new job, you should start immediately. It is tempting to take a vacation, but that might be a mistake. Potential employers might not be impressed with a six-month vacation on your r sum Also, any gap in employment will mean that you will be draining your emergency fund. Announce to everyone that you are looking for a new job and let them know that you would appreciate any help they might be able to provide.
While you are engaged in your job search, there are some financial steps to take. First, file for unemployment. Second, handle your severance package with care – it might have to last a while. Review your employee handbook to see what benefits you are promised. If you have stock options, see what you need to do to benefit from them.
You will also need to maintain your health insurance coverage. See if you qualify for retiree health benefits from your employer. Sometimes you can convert benefits from group to individual. If your spouse works, see if you can get on their plan. Job loss might be a “life event” which will allow you to enroll on your spouse’s plan outside of open enrollment. You also can also continue under your old plan through COBRA for up to 18 months. Continue your life and disability coverage. You may be able to convert it to individual.
Next, develop an emergency spending plan. List the sources of income you can count on such as severance, unemployment, spouse’s income, temporary work. Check with your creditors like your mortgage and credit card companies to see if you qualify for unemployment insurance through them. Avoid dipping into your retirement funds. Job loss is temporary, but retirement may last a very long time. If you tap into those reserves, you will lose the tax deferral and potentially trigger high taxes. Use your retirement funds a last resort. Next, list your expenses in order of importance. Start with mortgage or rent, utilities, food, and continue down to the least important items. Subtract the expenses from the income. Make plans to cut back or increase your income if the current amount isn’t enough.
You will also have to make decisions about your retirement plans. With your 401(k) you’ll have to decide whether to leave it in the plan or roll it over to an IRA. If you cash it out, you will likely owe taxes – and a penalty if you are under 59 ½. Avoid making short-term investment decisions. The temptation can be to become more conservative. Investing, particularly retirement investing, should be for the long-term.
While your job loss, may be unexpected, you will be able to find a way to get through it. Make a plan, and don’t be afraid to ask for help.
For more information, you can listen to the podcast of Smart Money Management radio show on this topic, along with others, at www.alderferbergen.com.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
Securities and Advisory services offered through LPL Financial, a registered investment advisor. Member FINRA/SIPC.