Updated: Nov 8
Clients sometimes find themselves in the position of losing their job. In today’s economic uncertainty, business closures and layoffs are increasingly common. The loss of a job can cause serious stress for our clients, personally and financially. To help guide our clients through a disruption in employment, we’ve created the checklist “What Issues Should I Consider If I Lose my Job?”
In this checklist, we cover a number of issues to consider when clients are facing unemployment, including:
Severance options, if any are offered
Employer benefits, including the continuation of health insurance, sick pay, etc.
Eligibility for unemployment benefits
Health insurance options
Employer-sponsored retirement accounts, stock plans, and other benefits
Income tax considerations
Retirement or future employment options
This is a comprehensive checklist of the financial issues that clients need to consider surrounding a job loss.
Hi, Todd Pouliot, Gateway Financial. Again, mygatewaymoney.com. Feel free to visit us and connect with us on that website. Appreciate you guys that are subscribers and I noticed a few of you are sharing our video and that's a – very grateful to you folks for doing that. Today, we're going to talk about a topic we don't like to talk about it as we always do here in this room it seems. But today, we're going to find a checklist, “What issue should I consider if I lose my job?” Clients sometimes find themselves in a position of losing their job. In today's economic uncertainty, business closures and layoffs are increasingly common. The loss of a job can cause serious stress to our clients personally and financially. So, to help guide them, we’ve created this checklist, and we're going to cover several issues today. We're going to cover severance options, employer benefits, including the continuation of health insurance and sick pay, eligibility for unemployment benefits, budget adjustment, health insurance options, employer-sponsored retirement accounts, and again that's not only your 401(k), that could be your stock plan or any other benefits, income tax consideration, and also retirement or future employment options. So, I think this is a pretty comprehensive checklist that we’ll go through. And again, as always, I'm going to share my screen with you, so you can see our checklist. The cash flow is obviously the biggest issue we want to take up first. Are you still employed but will be losing your job soon? Try to increase your emergency fund and those reserves before you lose your job and if you have a flexible spending account, consider the money while still employed, and make sure you spend it or while covered under COBRA. You may lose when you become unemployed so make sure you spend that money. Are you entitled to any compensation, any back pay, sick pay, vacation pay, or severance package? Make sure you talk to your HR department and know that upfront if you know that you may be on that pending chopping block. And, were you laid off, downsized, or was your position eliminated? Depending on your termination, again each state is very different, and you may be eligible for unemployment benefits. They’re based on your residency and typically last for about 26 weeks. So, note any extensions or enhanced benefits that may be available during that time period. Do you need to review your budget? This is something that I would look at it immediately, and look for areas to reduce spending, especially in discretionary expenses. When I notice a lot of budgets, we see a lot of subscriptions that people aren't even using but are automatically renewed month after month after month. Whether it's a magazine subscription or a membership subscription that you may not be utilizing at the gym or a music subscription, you name it. So, video streaming services, whatever, those discretionary spending that could be turned off rapidly for you. And will your cash flow be tight? Look at the length of time your emergency fund will last. We’ve got a little toggle switch that we can change from three to six months depending on where we feel is comfortable for each client and moving that around can help. And if you have debts, contact your creditors to see if you can reduce or defer payment while you're between jobs. Believe it or not, they can be flexible at times. It's worth that 10-minute phone call. Part-time jobs, freelancing, and consultation may provide some income while you're between those jobs and might lead to a permanent career path. And, are you age 62 or older? Again, not something I'd like to bring to the table often, but you are eligible for social security benefits. However, review the timing, it affects your benefit amount and your overall retirement situation. So, that's on the table, but we don't like to pull it out unless we have to. The big one most people are concerned about is that health insurance. Will you lose your health insurance? Will you need health insurance? Hopefully, you don't need it but we want to make sure you're covered. Don't forget COBRA. COBRA is an option that's out there. I love that we work with several different healthcare people in the area and we can get some good information on COBRA. And, if you're married, your spouse may have a plan through their employer and we may be able to have our client join that plan. Health insurance marketplace, again, that's what we like to look at with some of our healthcare recommendations that we have to look at enrolling in the healthcare marketplace. And, if you're 65, or over 65, the special enrollment period for part A and Part B, it's an eight-month window, beginning the month after the earlier of end of your employment, or the end of your employer-provided health insurance. So, be aware that there are options for you for health insurance. Again, the bigger issue is assets and debt. Do you have debt? Student loans, credit card debts? If so, again, contact those lenders, explain the situation and they may offer a short-term hardship program. Again it's amazing what a 10-minute phone call may be able to do. And, do you have retirement accounts with your former employer? Again, we've done some videos on retirement accounts that are left behind. But, loan repayment can vary by plan rules, although most loans must be paid back by the due date of your tax return for the year you leave your employer. It is a major critical error when we see people leave their employer, have an outstanding loan, and don’t repay the loan back in time and all that money becomes taxable as income tax and also the penalty they may pay on top of that. So, consider what that ramification is before you make those decisions. Distributions may be subject to an early withdrawal penalty of 10 % and if you're at least 55, you may be eligible to begin distributions without incurring a penalty. Do you have a home equity or line of credit? Again, this is one of the reasons why I like Securities backed line of credit (SBLOC) instead of these. They may be a source for you during unemployment and they tend to have lower interest rates than credit cards. So, home equity or line of credit. If you are currently unemployed, you most likely will not qualify for a new or increased loan line. Again, that's why those security-backed lines of credit are such a wonderful tool for you because it’s readily available and sometimes have a cheaper interest rate. Do you have a Roth IRA? Contributions can be withdrawn tax and penalty-free if you need to supplement your income. Do you have unvested stock? This is a big one that we talked about a lot. Consider and review the equity plan documents as you will likely forfeit some or all of the stock options, and refer to your vesting schedule. Understand what will vest next and how you can coordinate your departure with that schedule. Do you have vested stock? So, we went through unvested, these are vested. Review post-termination exercise periods which are usually about three months from your last day of employment, but in some cases, you must exercise those options before your departure. So make sure you understand the difference between unvested and vested. If you were terminated for cause, your vested stock options may be canceled. So, be careful and cognizant of those issues. Do you have deferred compensation? Again, I love deferred comp, it’s a wonderful tax play. If so, review the plan documents to understand the distribution schedule and the distribution options selected, such as yearly or possibly a lump sum distribution. I know a lot of people once they separate from their employer, kind of have a bad taste in their mouth and don't want to leave assets at that prior employer. That's if you're laid off and the company's not doing well. Did you own stock or stock options in a private company for which you were employed? Consider the impact of the shares being illiquid and if there are any clawback or repurchase rights. So again, that would be with a private company. Tax planning, again, work with your CPA, make sure you do the planning, not just the tax preparation. I know “prepare” sounds like looking forward, but preparation for taxes means looking backward. We want to do tax planning which means looking forward. If you have cash available to pay the resulting income tax, doing a Roth conversion in a low-income tax year could be beneficial. Great tax-advantaged play right there. If your income is dropped below the phase-outs, this is another one, we have those others, “Can I make a contribution” and then the, “Can I contribute to my Roth IRA” contribution flowcharts. If you have taxable investments, we may be able to sell them and pay capital gains taxed at a lower rate. And that's a good idea also, instead of pulling from those retirement accounts, paying income tax rates to pay possibly a long-term capital gains rate. So, let's say you're in the 24% tax bracket versus the 15% long-term capital gains rate. That could be an excellent tax decision to make there. Are you an enrollee in a health insurance marketplace? This is what we talked about earlier under health insurance, but you may be able now to be eligible for the premium assistance tax credit. So, look at that household income and coverage that may apply under that. It's always good to have good people around you to help you with those decisions. And also career planning. Alright, we've lost the job, but what's the career plan? Are you subject to a non-solicitation or non-compete agreement? Again, varies from state to state, understand your state laws and if you need to talk to an attorney, you can talk to an attorney but consider how this will impact your search for another job. And does your former employer offer any outplacement services? And also, make sure you go on, on social media, or wherever you are, where people know you. Update your contact information with your network and professional organizations or online subscription. Make sure they know where you are and if they can contact you. Get out there to help yourself get a job and get out and network in those situations. These are not easy topics to discuss. Who wants to lose their job? But it's how you handle the situation and that's something my father always said to me is, “Life’s going to happen to you, but it's how you handle what happens to you that really matters.” So, having a good plan for, you may be losing your job, or if you’re post – you just lost your job, this is a good checklist for you to go through too. But again, I wanted to thank you all for coming back and reviewing these videos. Hit that “subscribe” and “thumbs-up.” We really appreciate you, and you all have a wonderful day, and be well.