Spring is in the air–and so, apparently, are corporate layoffs.
Companies including Microsoft Corp, Amazon, Meta, Pepsi, Boeing, Disney and Goldman Sachs Group have cut thousands of jobs. The information sector, which includes many tech workers, saw employment decline for the third straight month, by 25,000. Finance and insurance, which are affected by rising interest rates, saw a decline of 10,000 jobs to 6.7 million.
Wall Street economists began 2023 anticipating a recession by midyear. If that happens, layoffs would almost certainly increase. I have some advice on important steps to take now, even before you get that dreaded layoff notice.
- Get organized–As soon as you suspect that a layoff is in the picture, start analyzing your finances, medical needs and job skills. That includes looking at your spending to see how you can cut back. If you don’t already follow a budget, you can get started with the guide on our website. Check out our Financial First Aid Kit Infographic packed full of actionable steps you can take now:
- Understand your benefits, including possible severance pay–According to the Society for Human Resource Management, the average severance equals one to two weeks of your salary for every year of service.
- Collect all pertinent phone numbers, including your 401(k) provider, pension provider, retiree insurance HR contact, reference letters and possible job contacts. Familiarize yourself with your state’s unemployment laws and file as soon as you are laid off.
- Tap unused benefits, including unused vacation and sick pay, if possible. If you have a flexible spending account, try to use the funds before you lose your job.
- Have a professional financial advisor or attorney review all your buyout documents with you, including such details as your last day and any other terms of the separation.
- Examine your severance package–Employers are not required by federal law to offer severance but if they do, the terms often can be negotiated.
- If you are in good standing with your company, ask your manager if you can get a few extra months of severance pay, and an associated extension to medical and dental benefits.
- Ask if you can extend your employment (and delay the layoff) by a few months. This becomes especially important if you’re close to being, but aren’t yet, fully vested in benefits.
- There may also be room to negotiate staying on part-time or as a freelancer. This factor may be particularly important for workers closer to retirement age who aren’t confident they’ll be able to find another job quickly.
- Know your health care options–See whether you can be added to your spouse’s health insurance plan. Once you’ve been terminated, you can continue your health insurance under COBRA. That lets you stay on your employer’s plan for up to 18 months, but it’s usually quite expensive because you must pay the full premium. A better option might be to choose a plan under the federal Affordable Care Act. (Each state has an exchange where you can shop for coverage.)
- Network and prepare for the hunt–Update your resume, LinkedIn profile and cover letter. Make a list of former colleagues and bosses and reach out to them. Ask colleagues and work friends to give you leads on other jobs.
- If you post online, don’t burn any bridges, express an appreciation of the time at your former employer and express your enthusiasm for finding a new opportunity.
- If possible, get a referral from a company insider; it can help you stand out from other applicants.
- Figure out which assets to tap, in what order–Knowing where to draw money from can be tricky because of potential tax consequences.
- If you need to pull from financial accounts, cash from an emergency fund –hopefully, you have one – is likely to be your best choice, financial advisors agree.
- Savers with Roth IRAs can typically withdraw their account contributions tax-and penalty-free. (That’s not true of investment earnings, though. Some limitations may also apply to pre-tax IRA contributions that were subsequently converted to Roth IRA funds.)
- Roth 401(k) account holders can also pull out money tax- and penalty-free, under two conditions: The owner must be over 59½ years old and to have made a contribution at least five tax years ago.
- Tax-deferred accounts, such as a pre-tax 401(k) or IRA, generally should be a last resort; the Internal Revenue Service allows savers to pull money out only for for certain economic hardships, including preventing foreclosure or eviction and covering medical and funeral bills.
- Other hardships include buying a primary home, paying college tuition and the cost of certain home repairs.
- The law also allows 401(k) plans to let participants borrow an amount that is generally up to half of their balance or $50,000, whichever is less.
- In December, Congress passed a law that eliminates the requirement that savers must submit evidence of a hardship, such as an eviction notice, before making withdrawals.
- Decide–carefully–what to do about your 401(k)—You have a few options in what to do about the retirement savings nest egg you have amassed while you were employed. You can leave all or part of your savings in the plan of your soon-to-be-former employer; you can roll over the funds into an IRA or you can withdraw the funds. Withdraw the funds–which generally will incur taxes and penalties–ONLY as a last resort and not without consulting your financial advisor first!
- What to consider when deciding about your 401(k)—What are the fees and expenses of your employers’ plans compared with others? Are there higher administrative fees for former employees? What are the investment options of an IRA compared with a typical company-offered 401(k) plan?
- Doing a rollover of your funds likely would make it easier for you to manage and keep track of the funds and give you added flexibility. Also look at the plan’s rules about withdrawals.