Lost your job? Here are some financial tips.
Have you recently lost your job? This can be a difficult time with potentially significant financial and emotional implications. Even before you think about getting a new job or what’s next for your working career, you may need to immediately address some of the considerations below.
Here are a few places to start….
Severance
When you leave employment, your last paycheck typically includes payment for any earned and unused vacation or sick days. In addition, you may receive a severance package, which may include severance pay: “pay granted to an employee upon termination of employment”, according to the Department of Labor. The amount of severance pay you may receive varies widely based on the situation, but often includes at least 2 weeks of pay. Your severance package may also include other benefits such as getting a bonus you earned in the prior year even though you are no longer employed, help with a job search, or more. The details of a severance package are unique to your specific employer and situation, and often are not negotiable. Read through the documents thoroughly before sign anything to be sure you know exactly what is included in your package.
Health Insurance
Many employees get health insurance through their employers. Losing a job is typically a “qualifying life event”, so you may have an opportunity (typically 30 days from the qualifying event) to get on your spouse’s health plan; enroll in a new plan through the government marketplace (link opens in new tab); or continue on with your current insurance through COBRA. COBRA (link opens in new tab) gives workers and their families the right to choose to continue their current coverage by paying the whole premium cost for a period of time. COBRA can be very expensive, so this is typically used only as a temporary bridge to another form of health insurance.
Employer 401k or Retirement Savings Plan
Did you participate in your employer’s retirement savings plan through work? If so, you will need to decide how to handle the funds you contributed to the account. You are always fully vested in the funds you contributed to a retirement savings plan. In addition, you may also be eligible to receive a portion of your employer contributions, meaning, funds that the employer contributed to your 401k on your behalf. Read more about choices you have regarding how to handle your old employer’s 401k here (link opens in new tab).
If your employer offered a stock purchase plan, or granted you shares of the company stock as part of employment, you will need to check your plan documents to learn what you may still be eligible to receive now that your employment has ended. Typically, any stock that has not been fully vested or granted to you is lost.
Other Employer Benefits
Your employer may have offered other benefits. Now that you are no longer employed by them, you will need to evaluate what to do about these benefits. Here is a snapshot of some typical employer-sponsored benefits.
Life Insurance. Many employers offer group term life insurance coverage to employees, sometimes paying premiums for coverage of 1x or 2x your salary. An employer’s premium payment typically ends with employment or after a grace period, but you may receive correspondence from the life insurance provider offering a continuation of benefits if you pay the premium yourself. Carefully evaluate the costs and whether you need this coverage before purchasing it, and talk to your professional adviser about your situation.
Disability Insurance. Many employers offer group short-term and long-term disability insurance policies. These policies typically end with employment (or after a short grace period). The premiums for these policies may be partially covered by your employer and partially covered by you. Just like group life insurance, you may receive correspondence from the insurance provider offering a continuation of benefits if you pay all the premium yourself. Read through the details carefully, and talk to your professional adviser about your situation.
FSAs (Flexible Spending Account). If you have qualifying dependent care or healthcare expenses, you can typically still turn in receipts to receive reimbursement even after employment but before year end. Talk to your old employer’s HR or the FSA provider to learn more about requirements. But don’t forget about this money because you can’t get it back if you don’t use it within the year.
HSAs (Health Savings Account). These can be used as reimbursement for qualifying healthcare expenses, or they can be saved and invested for future healthcare needs. Unlike an FSA, an HSA does not need to be used in the current year. Reach out to your HSA provider to learn about fees and investment options available for your account now that you are no longer employed.
Filing for Unemployment
Depending on the circumstances of your loss of employment, you may qualify to receive government unemployment benefits. Unemployment benefits may be about half your former salary (up to a cap), depending on your prior income level and your state, and taxes are typically owed on these benefits. Reach out to your state’s unemployment office to learn more about how to apply. Note that there can be a several-week delay in receiving benefits from the time you apply, so don’t delay in applying. In some states, severance is not considered employment income but rather payment for past employment, and so you may be able to apply for unemployment while receiving severance. Check with your state rules. Here are some tips from the state of Illinois regarding filing for unemployment, along with the IL claim filing link.
Personal Budgeting
Hopefully you have built up a rainy day fund to cover your essential spending for a few months. Even so, now is a good time to tighten your spending habits at home. Without a paycheck, carefully examine your latest credit card and bank statements to see where you may be able to cut expenses. An easy place to start can be subscriptions or other ongoing expenses you can do without (think streaming video or music, news service subscriptions, or cable television add-ons). Here is more information on budgeting.
Emotional Toll of Losing a Job
So far, we’ve focused on the financial aspects of losing a job. However, job loss can also come with a large emotional toll. So along with assessing the financial impact in the areas discussed above, build up your own sense of resilience. Think back to a time in the past when you’ve been able to overcome a challenging situation. Remember the specific details around this situation. What practical steps did you take? How did it feel to overcome that challenge? What resources helped you?
Second, consider your emotional support network. Who can you rely on for emotional support? This could be pets; your spouse or a sibling; close friend; therapist; a podcast or book.
Coping with Financial Shocks
Dr Sarah Newcomb at Morningstar has written about coping with financial shocks (link opens in new tab), and she addresses the importance of reframing the situation in a more positive light. She references research that concludes, “people who respond pessimistically to a layoff have little psychological energy left to pursue problem-focused strategies. Positive reappraisal may be especially useful because, rather than depleting mental resources through distraction and distancing efforts, reappraisal countervails negative emotions with positive ones.”
Positive reframing might sound like a good idea but not very realistic when you’re faced with job loss. Dr Newcomb says, “Positive reappraisal works by creating a more tolerable emotional response to the situation, which frees up psychological resources to put toward problem-focused strategies.”
Problem-focused strategies can include resume creation; proactive job searching; skill appraisal and training; and professional networking.
It’s not easy to lose a job.
Your day to day schedule may be changed. Your finances may be affected. Who you spend time with each day may be different. But one thing is not different, and that is your intrinsic value as a person. You can get through this. And a little planning can help.
