Losing your job without a new position lined up can be a scary scenario — even if you have measures in place to protect your finances. Regardless of your situation, you will likely need to make some changes. Here are some steps to help ease the burden and take control of your finances after a job loss.
NOTE: If you receive a severance package from your former employer, be sure to review the details closely as it could affect steps listed below.
If you lost your job through no personal fault (like a company-wide layoff), and you meet your state’s requirements, you may be eligible for unemployment benefits. The purpose of unemployment benefits is to partially replace lost wages, so if you’re eligible, you shouldn’t shy away from applying.
Many states offer online applications that could speed up processing and get you benefits faster. Required information can vary by state, but could include:
• Social Security number
• Driver’s license
• Contact information, including your address
• Previous employer information
• Bank account information in states that offer direct deposits of benefits
While you look to replace your income, see where you can cut back on your budget. Review your expenses and adjust where you can to protect your savings. If you have an emergency fund, you might need to tap into it to help cover your regular expenses after losing your job.
If you are struggling with debt repayment, research if any federal, state or lender relief programs are available, including mortgage relief programs, credit card hardship plans or credit counseling.
If it’s been years since you searched for a job, this can feel intimidating. The first thing you should do is update your resume. Then, if possible, reach out to your former employer, and ask how they would describe the reason for your departure, as that could come up in future interviews. You can also ask for a letter of recommendation, especially if you lost your job for reasons not related to performance.
Figure out how long you can reasonably take to search for a job, based on your savings and unemployment benefits, as well as your spouse or partner’s income, if you have one. This can help you assess how selective to be when evaluating new opportunities.
Decide what to do with any employer-sponsored retirement plans associated with your former job. Typically you will have the option of leaving the previous plan in place, rolling the funds over to an individual retirement account (IRA) or another retirement plan or cashing it out. Note that you may need a minimum account balance to leave a retirement plan in place with a previous employer.
When rolling over, you can ask the previous retirement plan administrator to pay funds directly to another retirement plan or IRA in what’s known as a direct rollover. If distributions from a retirement plan are paid directly to you, you have 60 days from receiving them to deposit part or all of the funds into an IRA or another retirement plan.
You can cash out part of your plan if necessary, but this should be a last resort. Not only will you lose the tax advantages of a retirement account and any potential growth, but also any funds you withdraw will be subject to both federal and state income tax. In addition, if you are not at least age 59 ½, you’ll likely be subject to a 10 percent early withdrawal penalty.
Fortunately, the loss of a job doesn’t always mean an immediate loss of health insurance coverage. The Consolidated Omnibus Budget Reconciliation Act (COBRA) requires continuation coverage be offered to employees after termination for reasons other than misconduct or a reduction in the number of hours of employment.
COBRA coverage lasts either 18 or 36 months, depending on the qualifying event. Even if you qualify for COBRA coverage, you should consider all your available insurance options. You may be able to find more appropriate or affordable coverage options from another source, such as the Health Insurance Marketplace.
While losing your job can disrupt your daily rhythm, it doesn’t have to disrupt your finances. A proactive approach may lighten your stress and help you feel more in control of your future.
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