You’ve been laid off. You took my advice to Just Don’t Do Something, Stand There during the first few days. But now, now it’s time to do some stuff.
In last week’s blog, career coach Kristen Knepper gave some strong advice (I do like that woman’s energy) about what to do with your professional life in the aftermath of a layoff. This week, I want to dive into the un-fun responsibilities in your financial life. Sometimes, ‘tis true, being a Grown-Up just sucks.
If you search the intertubes, you will find a bunch of other things you can also do in response to being laid off. And it’s mostly reasonably advice. Here I try to highlight the most important considerations, and prioritize them from high on the “Oh shit” meter, to lower.
#1. The Bogeyman. Health Insurance.
Figure out how you’re going to remain covered by health insurance. And DO IT. This is not only a requirement of the Affordable Care Act and you’ll be penalized if you don’t have health insurance, but much more importantly, it’s really really important to not put your finances at risk by not being insured!.
You do, in fact, have several options:
- COBRA: This is simply a continuation of your employer-provided insurance, where you pay full freight. The advantages are that it’s simple and you already understand the coverage. The downside is that it’s usually very expensive. There is a nifty strategy that takes advantage of COBRA’s retroactive clause, which might allow you to effectively be covered without paying any premiums.
- A policy on your state’s Affordable Care Act exchange
- Short-term health insurance. As the name implies, this coverage is really only appropriate for short-term gaps in coverage.
- Medicaid. Don’t look at me like that! Medicaid is an income-based program, and guess what? You ain’t got no income now. I can speak from personal experience that Medicaid, at least in the state of Washington, can be awesome. Investigate your state’s Medicaid offering.
- Your partner’s health insurance plan. Do you have a spouse or, in some more generous states, “just” a committed partner who has their own employer-provided health insurance? You losing your health insurance should qualify you to be added to their policy within 30 days of you losing yours.
#2. Don’t sign anything without serious thought.
Maybe your company is asking you to sign a separation agreement, or some other legal document associated with your lay off. Please do not sign it with at least first reading it thoroughly.
And ideally consult with an employment lawyer to make sure you’re not waiving any rights (like suing the company for something they might very well deserve to get sued for) or committing to do or not do something. In California you could consult with an attorney from the California Employment Lawyers Association, and I’m sure other states have the equivalent.
#3. Review your spending.
Hopefully you’ve prepared for being laid off (or an emergency of any sort) by having a beefy emergency fund that can easily cover 6 months of expenses. The longer your money can last, the less pressed you’ll feel to take “a job! any job!”, and the less stressed out you’ll be in the meantime.
So, take a look at your spending and look for places to reduce spending, just until you get a new job, or your life adjusts in some other way. When you finally do get that new job (which you will, eventually), make sure to make it a priority to build back up your emergency fund.
#4. File for unemployment.
The sooner you file, the sooner you can get benefits (that is, money). New York state even encourages you to file within the first week of losing your job. Unemployment benefits are nice (hey, money!) but don’t expect them to cover much. It’s all state and situation dependent, but it could replace less than half of your income. (See above “Review your spending” )
#5. Deal with your federal student loans.
You might be eligible for an immediate unemployment deferment . So, call your student loan servicer to discuss this option. [ETA 8/4/2022: Obviously, with the deferral introduced during the Covid-19 pandemic, that continues to this day, this might be moot until the federal government changes it mind!]
#?. Deal with your 401(k).
This could probably fall under the “First couple months” version of this blog post, but I don’t know if I’ll write that, so I include it here. You have a few options for your 401(k) at your old job:
- Keep it there. On the upside, you don’t have to do anything! And possibly it’s a really great plan (low expenses, broadly diversified investment choices, good customer service and website interface). If it was a “meh” kind of plan, however, leaving it there keeps your money in a “meh” place. And you’ll want to check with your former employer’s HR to see if you’ll be restricted in any way now that you’re a former employee. Does your access to the website or customer service change?
- Roll it into an IRA at a financial institution like Vanguard or Schwab. By doing this, you would have access to the world of investment choices (including the low expense, broadly diversified ones), you can have the money professionally managed, you’re no longer attached to your former company, and you have complete control over your account. On the downside, maybe the 401(k) plan is awesome…why leave it? Rolling it to an IRA can also make more difficult some more-advanced financial planning techniques like a Roth conversion.
- Roll it into an IRA at a roboadvisor like Betterment or Ellevest. You don’t have much choice over how it gets invested (beyond how much risk you want to take), but their investment approaches are reasonable and they make it reeeeal simple. For straight-up investing, I’m a fan of roboadvisors.
- Roll it in your eventual new job’s 401(k). Obviously, if you’ve just been laid off, you likely don’t have a new 401(k) yet. But once you do get a new job, this is a possibility. Then the question, of course, becomes: Is the new 401(k) great? If not, then rolling the money into an IRA, after all, is probably the best bet.
And continue to take care of yourself! This is a really hard time, for your pocketbook, for your career, and perhaps most of all for your ego.
Read more in our small series of articles about responding to a layoff:
- You Just Got Laid Off. What Should You Do Now? The First 24 Hours.
- You Just Got Laid Off. What Should You Do Now? The First Two Weeks.
- You Just Got Laid Off. What Should You Do Now? Career Edition.
Sign up for Flow’s weekly-ish blog email to stay on top of our blog posts and videos.
Disclaimer: This article is provided for educational, general information, and illustration purposes only. Nothing contained in the material constitutes tax advice, a recommendation for purchase or sale of any security, or investment advisory services. We encourage you to consult a financial planner, accountant, and/or legal counsel for advice specific to your situation. Reproduction of this material is prohibited without written permission from Flow Financial Planning, LLC, and all rights are reserved. Read the full Disclaimer.