Steps to take after a layoff

[Charles Sherry]

The economy may be in shambles and unemployment keeps rising, but a layoff can still be an unexpected and nasty surprise that puts you on an unexpected and rocky path. Though a job loss may happen through no fault of your own, the emotional toll can still be devastating and leave you in a fog for weeks as you cope with a new reality.

Your mind may not be ready to tackle the challenges ahead, but actions must be taken to deal with the financial consequences. In order to ease the transition and the anxiety as you face the unknown, there are several steps one should take in order to ease the strain on your finances.

First, if you have never put together a budget, now is the time to get started. Most of us know how much we pay for our home or apartment, but the incidentals like entertainment, clothing, and food may be a less certain.

List all your spending categories on a spreadsheet and estimate the monthly outflow. The more details the better. And be honest. How much are you spending every month on clothes, eating out, or coffee at the local coffee shop?

Ask yourself, "Do I really need five pairs of shorts heading into summer?" Can I do without the extra toys that might be nice to have but really aren't a necessity. Discretionary purchases may have to wait.

Another way to reduce spending is to look at generic brands at the grocery. Do you have the costly triple platinum cable package or will a basic line-up of channels suffice? Minimum payments on credit cards can also reduce outlays. And DVD rentals can substitute as cheap entertainment. Be creative. Just don't put together a budget that is so draconian that not even the stingiest individual could adhere to it.

By tracking each item, no matter how small, and recording on your spreadsheet, you'll see where each dollar is going and have a better idea how you can cut back.

Now that you know your outlays, find all of your bank and brokerage statements and add up how much money is stashed away in checking and savings. Did you receive a severance package in a lump sum? If so, add to the total. Once you know what your cash resources are and how much you spend every month, you'll have an idea how long you can financially survive.

Finally, it's time to apply for unemployment compensation. A colleague of mine that I worked with a number of years ago mentioned his wife had been laid off. But she had no intention of applying for unemployment insurance because she felt it was welfare and didn't want the "stigma" of government aid attached to her. This line of thinking is ridiculous.

The government has set up unemployment insurance as an economic stabilizer, and your company pays into the fund. So apply! If you qualify (rules vary from state to state), the extra cash will stretch out your available resources during the period when you are out of work.

If you begin to run low on cash, look for ways to keep afloat. A home equity line of credit is an inexpensive but risky way to tap the net worth in your home. But be careful, if you get into a situation where you fall behind on payments, foreclosure or the need to quickly sell your dwelling could be an unintended consequence. Raiding your retirement accounts and IRAs are also options but should be considered when cash runs low because there may be penalties and taxes can be steep.

Heath insurance and retirement accounts

Employer-sponsored health plans are the rule for nearly all large- and medium-sized companies in the US. We rely on our employer to pay most of the costs while we pick up the rest. As an added bonus, the benefit is tax deductible.

But in the event of a layoff, it is critical to maintain your coverage. Some may have the option of joining their spouse's group plan. But if you are single or your spouse doesn't work, the loss of health insurance can leave the formerly-employed worker with the expensive option of paying COBRA premiums at a time when cash flow has been greatly reduced.

Thanks to the American Recovery and Reinvestment Act, eligible individuals may now continue their benefits at just 35% of the premium. The Employee Benefits Security Administration notes that "the premium reduction applies to periods of health coverage beginning on or after February 17, 2009 and lasts for up to nine months for those eligible for COBRA during the period beginning September 1, 2008 and ending December 31, 2009 due to an involuntary termination of employment that occurred during that period." Your former employer can provide you with additional details.

Retirement accounts lead us to another area that must be examined. If you have a 401(k) plan, you have the option to maintain the account with your employer (depending on the size) or roll it over into an IRA account. An IRA rollover gives the person added flexibility when it comes to investing options and expenses of remaining in a 401(k) can be high, especially if you worked for a small company.

But larger firms sometimes negotiate mutual funds with lower expense ratios that are otherwise not available to the retail investor, which increases the attractiveness of staying put. Taking a distribution exposes the participant to potential penalties and taxes. If you would like additional information, I found Rethinking 401(k) Rollovers in US News and World Report to be helpful.

Pensions are more difficult. The options include leaving the pension with your prior employer, taking a lump-sum distribution and rolling it into an IRA, or purchasing an annuity with the distribution. There are too many variables that go into the decision-making process and are beyond the scope of this article, but please recognize that you may have a limited time frame before the company resorts to its default option, so advice from a qualified financial advisor may be in order.

This article was previously published in two-part series at Examiner.com by myself and has been updated with slight modifications.

[Murtaza]

Great info and great links too. Thanks you.

[David Sandusky]

Personal finances is a difficult subject and a source of stress for individuals and families. Talking about it and building a plan as you suggest is highly beneficial and relieving. Your post can be a useful discussion piece, thanks for sharing Charles!

The confidence of knowing where you are and being in tune with your values can help get through lean times. The discipline can be a new found benefit sustaining into better times -- that preparedness can take the peaks and valleys out of the financial roller coaster many families experience.

Keep on thriving!

[greyhounds]

Many feel insecure after layoff and have a touch time hiding it. During interviews and networking people can tell leaving an image of insecure rather than confidence. It is hard, but find a way to recall what you are great at and focus there. Most people loose their job, remember that.

thanks a lot

[missy]

great post you have here Mr. Charles. I found this very useful so I manage to re-post this on other similar sites. keep it up!

[Martin98]

Many feel insecure after layoff and have a touch time hiding it. During interviews and networking people can tell leaving an image of insecure rather than confidence. It is hard, but find a way to recall what you are great at and focus there. Most people loose their job, remember that.

thanks a lot

You are absolutely right.. self confidence is very important in such cases. The only thing you need to remember is that you are the best sole in the world that's it you can win the race.
Thank you...

[InternetFiltering]

The economy may be in shambles and unemployment keeps rising, but a layoff can still be an unexpected and nasty surprise that puts you on an unexpected and rocky path. Though a job loss may happen through no fault of your own, the emotional toll can still be devastating and leave you in a fog for weeks as you cope with a new reality.

Your mind may not be ready to tackle the challenges ahead, but actions must be taken to deal with the financial consequences. In order to ease the transition and the anxiety as you face the unknown, there are several steps one should take in order to ease the strain on your finances.

First, if you have never put together a budget, now is the time to get started. Most of us know how much we pay for our home or apartment, but the incidentals like entertainment, clothing, and food may be a less certain.

List all your spending categories on a spreadsheet and estimate the monthly outflow. The more details the better. And be honest. How much are you spending every month on clothes, eating out, or coffee at the local coffee shop?

Ask yourself, "Do I really need five pairs of shorts heading into summer?" Can I do without the extra toys that might be nice to have but really aren't a necessity. Discretionary purchases may have to wait.

Another way to reduce spending is to look at generic brands at the grocery. Do you have the costly triple platinum cable package or will a basic line-up of channels suffice? Minimum payments on credit cards can also reduce outlays. And DVD rentals can substitute as cheap entertainment. Be creative. Just don't put together a budget that is so draconian that not even the stingiest individual could adhere to it.

By tracking each item, no matter how small, and recording on your spreadsheet, you'll see where each dollar is going and have a better idea how you can cut back.

Now that you know your outlays, find all of your bank and brokerage statements and add up how much money is stashed away in checking and savings. Did you receive a severance package in a lump sum? If so, add to the total. Once you know what your cash resources are and how much you spend every month, you'll have an idea how long you can financially survive.

Finally, it's time to apply for unemployment compensation. A colleague of mine that I worked with a number of years ago mentioned his wife had been laid off. But she had no intention of applying for unemployment insurance because she felt it was welfare and didn't want the "stigma" of government aid attached to her. This line of thinking is ridiculous.

The government has set up unemployment insurance as an economic stabilizer, and your company pays into the fund. So apply! If you qualify (rules vary from state to state), the extra cash will stretch out your available resources during the period when you are out of work.

If you begin to run low on cash, look for ways to keep afloat. A home equity line of credit is an inexpensive but risky way to tap the net worth in your home. But be careful, if you get into a situation where you fall behind on payments, foreclosure or the need to quickly sell your dwelling could be an unintended consequence. Raiding your retirement accounts and IRAs are also options but should be considered when cash runs low because there may be penalties and taxes can be steep.

Heath insurance and retirement accounts

Employer-sponsored health plans are the rule for nearly all large- and medium-sized companies in the US. We rely on our employer to pay most of the costs while we pick up the rest. As an added bonus, the benefit is tax deductible.

But in the event of a layoff, it is critical to maintain your coverage. Some may have the option of joining their spouse's group plan. But if you are single or your spouse doesn't work, the loss of health insurance can leave the formerly-employed worker with the expensive option of paying COBRA premiums at a time when cash flow has been greatly reduced.

Thanks to the American Recovery and Reinvestment Act, eligible individuals may now continue their benefits at just 35% of the premium. The Employee Benefits Security Administration notes that "the premium reduction applies to periods of health coverage beginning on or after February 17, 2009 and lasts for up to nine months for those eligible for COBRA during the period beginning September 1, 2008 and ending December 31, 2009 due to an involuntary termination of employment that occurred during that period." Your former employer can provide you with additional details.

Retirement accounts lead us to another area that must be examined. If you have a 401(k) plan, you have the option to maintain the account with your employer (depending on the size) or roll it over into an IRA account. An IRA rollover gives the person added flexibility when it comes to investing options and expenses of remaining in a 401(k) can be high, especially if you worked for a small company.

But larger firms sometimes negotiate mutual funds with lower expense ratios that are otherwise not available to the retail investor, which increases the attractiveness of staying put. Taking a distribution exposes the participant to potential penalties and taxes. If you would like additional information, I found Rethinking 401(k) Rollovers in US News and World Report to be helpful.

Pensions are more difficult. The options include leaving the pension with your prior employer, taking a lump-sum distribution and rolling it into an IRA, or purchasing an annuity with the distribution. There are too many variables that go into the decision-making process and are beyond the scope of this article, but please recognize that you may have a limited time frame before the company resorts to its default option, so advice from a qualified financial advisor may be in order.

This article was previously published in two-part series at Examiner.com by myself and has been updated with slight modifications.

Hi Sherry,
The article about "Steps to take after a layoff" is absolutely correct.
Actually I had faced the same problems when my company has been layoff.
while reading this article, in every line I feel the facts.
Thanks for posting