Key steps to take following a job loss
Consider these adjustments to your financial strategy to help you stay on track.
Understand the terms of your layoff
Before signing on the dotted line, make sure to review the terms of your layoff carefully so you know exactly what you’re agreeing to. For example, if your company offers a severance package, note the amount and whether it will be paid in a lump sum or a continuation of salary for a set period. Also note how long your employer’s health care coverage will last, as well as any unused time off you may be paid for.
Taking the first steps following your layoff
File for unemployment
While unemployment insurance typically covers less than half of your previous paycheck, it can provide some financial relief for the first few months after a job loss — generally up to 26 weeks. The process of filing a claim can be time-consuming, so it’s best to file immediately to begin receiving payments as soon as possible.
There are some requirements to be eligible for unemployment, however, including your unemployment being involuntary and through no fault of your own, and meeting your state’s time worked and wage requirements. You can learn more about your state’s unemployment insurance program online.
Adjust your budget and spending
The loss of income following a layoff will likely require some changes to your budget and spending, at least for the time being. Try to focus your spending on the essentials, like housing, utilities and food, and see where you can cut costs — or substitute for cheaper alternatives — on the nonessentials, like dinners out and entertainment.
If you’re saving for longer-term goals, like retirement or college savings, it may make sense to pause those contributions temporarily.
Evaluate other sources of income
As you review and adjust your spending, consider how other sources of income can help support you during this career transition. In addition to severance and unemployment, the income of a spouse or partner may cover a portion of your expenses. For any shortfall, look to cash in checking, savings and investment accounts or emergency savings.
Other options may include stock incentives, using the cash value of insurance policies or annuities, accessing retirement accounts early, selling taxable investments and various borrowing options. Your Edward Jones financial advisor can help you navigate the trade-offs of these alternatives.
Ensure you have health insurance coverage
Some employer health benefits may continue for a set period after a layoff, so it’s important to know which benefits are included and how long you’ll be covered. Here are some common options for maintaining coverage after that grace period ends.
- Spouse’s/partner’s health care plan — If your spouse or partner has health insurance through their employer, receiving coverage through his or her plan may be your least expensive option. You may have only 30 days to enroll, so it’s important to notify the employer and sign up quickly.
- COBRA — This option enables you to continue your employer’s group coverage through an extension. This option tends to be expensive, however, as you’ll be responsible for up to 102% of the cost of the premiums. The benefits begin on the day you otherwise would have lost coverage, and generally last for up to 18 months.
- Health Insurance Marketplace — Also known as the Affordable Care Act and Obamacare plans, the health insurance marketplace enables you to enroll in a new health insurance plan at various coverage levels. This may be a more affordable option for lower-income households, since you may qualify for subsidies. Learn more at healthcare.gov.
Understand your health savings account and flexible spending options
Flexible spending accounts (FSA) and health savings accounts (HSA) are the most common options to contribute funds pre-tax to be used for qualified health expenses. Following a job loss, you’ll want to get the maximum benefit from these accounts.
- FSA — The funds sitting in an FSA are subject to the “use it or lose it,” rule. You generally have 60 days from termination to claim the money for expenses incurred during your employment, or the funds go back to your employer. There are also various FSA plan options, including a Health FSA, Limited Purpose FSA and Dependent Care FSA. Consult your Summary Plan Description to understand how your former employer’s FSA works.
- HSA — Your HSA is yours to keep after leaving a company, and there’s no deadline to use the funds. Although you typically can’t use HSA funds to pay for health insurance premiums tax free, there are exceptions for COBRA premiums as well as other health insurance premiums (such as through a marketplace plan) if you’re receiving federal or state unemployment benefits. This is in addition to the usual tax-free expenses such as copays, coinsurance and prescriptions.
Understand your employer retirement plan options (e.g., 401k, 403b)
Though you can no longer contribute to a retirement plan once you’ve left a company, there are various options to get the most from your former plan that may be right for you.
Address retirement plan loans
If you have a loan outstanding, some plans will immediately treat the outstanding loan balance (including accrued interest) as a distribution, while others will allow you to pay it back within a set time frame. A distribution will typically be subject to taxes along with a 10% penalty if you’re under age 59½. If a loan balance is treated as a distribution due to job loss, you can avoid taxes and penalties by rolling over the amount of the loan balance to an IRA before the due date of your tax return (for the year in which the loan balance was treated as a distribution). Check with your plan administrator on how your specific plan works, and be aware of deadlines.
Decide what to do with the money you’ve saved
- You can usually leave the money in the current plan, although some plans will make you move your account if the balance is less than $5,000.
- You can choose to roll your money into an IRA. If it’s rolled over, there will be no taxes or penalties.
- You might be able to move your retirement savings into a new employer plan without taxes or penalties (if permitted by the new employer plan)
- You can take the money out of your retirement plan but may be subject to income taxes and a 10% early withdrawal penalty.
Understand your employer life insurance options
If you had life insurance through your employer and need to maintain that coverage, explore whether your policy is portable (you can keep group coverage for a limited period) or convertible (you can convert your group policy to an individual policy). You generally have 30–60 days to elect this, so keep your deadline in mind. Check with your financial advisor to determine whether a standard individual policy would be more cost-effective.
Explore assistance relief programs
Loan forgiveness or forbearance options can provide some financial relief following a job loss. Start by calling companies you make regular payments to — for your mortgage, car loans, student debt and other bills — which may lead to temporarily reduced financial obligations.
Ask about the terms and implications of these programs. They may result in additional costs later and can be reported to credit bureaus, but that may be worth avoiding late fees, penalties and defaulting on your payments.
Carving a career path forward
Working through the list above may help you feel more confident in your financial position following a job loss, and more prepared to take on your next career opportunity.
As you start looking for new positions, consider speaking with a legal professional if you’ve signed a noncompete agreement with your former employer to understand how this may impact your future job options, as it may still be enforceable even if you were laid off. From there, update your resume and LinkedIn profile and start networking both for moral support and potential career opportunities.
A job loss can feel overwhelming, so don’t hesitate to reach out to a financial advisor, who can help prioritize your budget, explore different options for covering your living expenses and help minimize financial impact.