Whether you’re nearing retirement or are decades away, one of the scariest situations to be in is being part of a layoff. In March 2020, 8.8% of the workforce was laid off, but this figure was down to less than 4% in August 2021.
If you or someone that you know sees the writing on the wall at their job, we’re going to cover a 10-step survival guide if you are laid off.
Whether the layoff means early retirement for you or having to find a new job, this guide can help you navigate this murky period in your career.
Step 1: Keep Calm and Take It One Step at a Time
It sounds easier than it is, but you need to keep calm and not stress too much. How? It’s difficult. First, just know that you do have options out there. You need to sit down and think about what your options are.
Also, you want to leave your employer on good terms and not ruin future potential employment if/when the employer starts hiring again.
Step 2: Determine Your Living Expenses
What are your actual living expenses? Many people don’t know. Take the time to come up with a spending plan. Look through the following:
- Income coming in per month
- Contributions to your retirement planning
- Expenses going out
Let’s assume that you have $7,000 coming in every month. Work through your expenses, investments and others to calculate the actual expenses you have every month.
Knowing your living expenses will be essential for you during a layoff so that you can learn where your money is really going.
Step 3: Knowing What You Have
What assets do you have to work with now that there’s no money coming in? Assets will include:
- Bank accounts
- Savings accounts
- Brokerage accounts
- IRA / 401(k)
- Home equity line of credit
- Spousal income
These assets can be tapped into to help you survive a layoff. For a 401(k), if you’re 55 or older, you can tap into this asset to continue paying your living expenses.
Step 4: Add in Severance Pay
Some people receive severance pay, and others will not receive any form of payment. If you’re laid off and severance pay is offered, it may be worthwhile to take some this year and the remaining next year.
If you’re accepting severance packages late in the year, it may make sense to ask if you can take most of the package next year.
Taxes. If you receive a 12-month severance in November, you’re likely going into a new tax bracket and will have to pay more money to the IRS. Never say no to a severance package, but always ask if you can split it up in these scenarios.
If it’s the beginning of the year, you can just take the package upfront without much concern.
Step 5: Understand Unemployment Benefits
Unemployment is likely available to you, so it’s important to understand what level of income is available to you through these benefits. Often, you’ll receive 40% – 45% of your weekly pay from these benefits.
Learn the unemployment benefits, how to apply and how long you’ll receive them.
Step 6: Learn About Your Health Insurance Options
Health insurance is going to be a major concern. Most companies offer COBRA benefits that allow you to keep your plan for a certain amount of time. You may be able to tap into a healthcare savings account to help pay for the COBRA premiums.
When COBRA benefits run out, then you need to go out and shop for health insurance, which can be very expensive.
We have some clients paying $1,000 a month in health insurance for each person. So, it’s important to learn your options early on and take COBRA to lower these costs.
Step 7: Get a New Social Security Estimate
You’ve paid into Social Security, and you can start taking out Social Security as early as 62, although at a lower rate. First, you should go to SSA.gov, create an account and then ask for an estimate on the amount of money you’ll receive.
It’s important to think this decision through because it is really a final choice.
Taking your benefits early means less money overall for the remainder of your retirement. Sit down, review the numbers and even speak to someone specializing in Social Security to work through these numbers with you.
Step 8: Consider a Lump Sum Payment
If you’re privileged enough to have a pension, you may want to consider a lump sum payment. Pensions will require you to wait to a certain age before you can take monthly draws from the account.
However, some pensions will allow you to take a lump-sum payment that can be rolled into your IRA and used and invested as you see fit.
It’s important to really crunch the numbers here to see what money you’ll lose out on if you take an upfront payment. Working with a financial advisor can be very helpful to ensure that you’re not losing out on a significant amount of money by taking a lump sum.
Step 9: Determine If You Want to Go Back to Work
If you’re part of a layoff, you need to consider whether you want to go back to work. People who are close to retirement may find that they have enough money in their accounts to retire comfortably.
You need to do your calculations, determine whether you have enough money, and then decide whether you can retire now.
Work the numbers and see if retirement is an option for you. If you can, it’s up to you to determine whether you want to retire.
Step 10: Seek Professional Guidance
This point may seem self-serving to some of our readers, but it’s not meant to be that way. We always recommend seeking professional guidance during a layoff because financial professionals can help you better understand:
- Your income
- Your expenses
- What decisions you can confidently make
When a financial advisor outlines what you can and cannot do based on your expenses and income, it provides peace of mind when taking your next steps forward.
Working through these ten steps can help you make sense of a layoff and what you need to do next.