Layoffs rocked workers across all sectors in 2022. The tech world was hit especially hard, with companies like Amazon, Twitter, Meta/Facebook, and DoorDash reporting mass layoffs. Business and professional jobs saw significant layoffs, as well—2.12 million throughout the year. Some companies, such as AMC Networks, have announced plans to lay off employees soon. Here’s what to do if you get laid off: first, assess your financial situation and make a plan.

This follows 2021, which saw 17 million layoffs across all industries.

Many of those who experienced a layoff or separation from their job quickly scrambled to ensure they could afford food, bills, and other necessities. 46% of those polled reported feeling unprepared for layoffs or separations. According to the Federal Reserve, a significant portion of Americans lack sufficient emergency savings, highlighting the importance of financial preparedness in the face of unexpected life events like layoffs.

Understanding what to do if you get laid off can help ease your transition. Focus on immediate steps like budgeting, applying for unemployment benefits, and finding health insurance coverage.

No one will ever fault you for making ends meet in any way you can. Unfortunately, lost in the shuffle of sustaining our present, we sometimes ignore how our actions—or inaction—could affect our future.

Today, we’re talking about the financial steps you should take when impacted by a layoff, and how to keep your retirement savings intact even during the worst circumstances.

In this guide, we provide detailed information on what to do if you get laid off, including financial strategies, emotional support, and career networking tips.

What to Do If You Get Laid Off

When considering what to do if you get laid off, it’s crucial to create a budget that reflects your new financial reality.

Create a monthly budget

When facing any financial hardship, it’s important to take a full inventory of your current monetary situation. Create a detailed budget that includes such items as:

• How much accessible cash you have in your checking and savings accounts
• Your total monthly expenses—bills, necessities (food, gas, etc.) subscriptions (be sure to review your fixed expenses and consider ways to reduce them during this period)
• Debt repayments—loans, credit cards, etc.
• Any additional income you might receive

As you build your budget, pay close attention to your cash flow to help maintain financial stability during this transition.

When creating a budget, try to gain an understanding of how far you can stretch the money you currently have. Evaluate your current spending to determine how long your resources will last. If you can, cut any unnecessary spending.

Finally, consider creating or revising a comprehensive financial plan to help you navigate this period of unemployment.

The problem with early retirement withdrawals

Part of the goal of creating a budget is to avoid dipping into your retirement savings. While making withdrawals from your 401(k) or other retirement plans and other retirement accounts might eventually become necessary, it should be a last resort.

This is because making early withdrawals from your 401(k) or other retirement accounts can come with a few big disadvantages.

First, withdrawing money from your 401(k) before you turn age 59 1/2 can come with heavy penalties—up to 10% of your withdrawal!

Second, there’s opportunity cost. Because retirement plans and other retirement accounts are investment accounts, they’re designed to grow over time. Once you take money out, you lose the opportunity for that amount to grow and build more wealth. It’s difficult to recoup this kind of loss and it can greatly affect your retirement.

The information provided here is for general guidance only and does not constitute legal or tax advice. For personalized tax advice or questions about your specific situation, consult a qualified tax advisor.

Avoid abandoning your 401(k)

Whenever you change employment—regardless of the reason—you risk abandoning your employer-sponsored 401(k). Abandoned 401(k) plans are a common problem that leads to a lot of lost money: according to Capitalize, there was over $1 Trillion lost to abandoned 401(k)s as of 2021 (one of many shocking 401(k) stats)!

When leaving a job, be sure to review all employer benefits you may be entitled to, including severance pay, health insurance, and stock options, as these can impact your financial planning after a layoff.

The best way to avoid abandoning your retirement plan is taking control over it as soon as you can. Odds are, one of two things will happen to your retirement funds after your employment ends. Either:

1. Your account closes, and they send your money to you
2. Your account remains open and stays with your former employer

Under the best circumstances, your former employer’s retirement plan offers varied and unique investment options that grow in ways that suit your needs. If that’s true, you might choose to keep your 401(k) with them. However, you risk forgetting your plan exists or worse—your former employer going out of business. Additionally, the company could change the rules associated with your plan, making it more difficult to maximize your contributions or access your account. Severance pay and other benefits, such as continued health insurance or stock options, may also depend on how long you were employed at the company, so be sure to check your eligibility if you were longer employed.

Usually, you’ll want to take your retirement savings with you. Luckily, there’s a simple process to roll over your 401 k from your previous employer to a new plan.

Performing a 401 k rollover

There are two methods for performing a 401k rollover: direct and indirect. The primary difference between the two is whether you take control of the money before rolling it over into your new account. Some rollovers may involve a direct deposit of funds into your new account, so check with your financial institution for details.

Whichever method you choose, you must perform the rollover within 60 days of closing your account. If you don’t rollover your funds before the grace period ends, it becomes income and you’ll be required to pay taxes on it at the end of the year. Be aware that certain types of transfers may incur a transaction fee, so review your provider’s fee policy, as it may change.

Before performing a rollover, it’s important to make sure you have a new 401(k) account. If you’ve found new employment, you can likely enroll in a new plan when you begin work. Otherwise, you can search online for a new plan that fits your needs and retirement goals, but ensure you are using reputable third party websites.

If you are unsure about the rollover process, consider seeking professional guidance to help you make the best decisions for your financial future.

Method 1: Direct rollovers

Direct rollovers are ones where your money goes directly from your old plan to your new one. You can contact your previous plan administrator, provide them with information about your new plan, and have them transfer it directly.

Sometimes, your previous plan administrator won’t be able to send it directly to your new one. Instead, they’ll liquidate your account and mail you a check for the full amount. In that case, you’ll have to use the second rollover method.

Method 2: Indirect rollovers

In an indirect rollover, you become the middleman. Your account is closed and you receive a check for your full amount. It becomes your responsibility to send the funds to your new plan.

To do so, we recommend contacting your new plan administrator and following their instructions for depositing the money into your account.

Traditional vs. Roth 401(k)

Traditional 401(k)s are often the default option when you sign up. The contributions come directly out of your income before you pay tax on it. This technically lowers your year-end income, potentially lowering your annual tax. However, once you make any withdrawal (including distributions once you retire), it’s considered taxable income.

Roth 401(k)s are another popular option. They feature post-tax contributions. So, though you must pay tax on your income before you contribute, you can receive tax-free distributions once you retire.

When you perform a rollover, you can choose to roll your traditional 401(k) into another traditional 401(k), a Roth 401(k), a Traditional IRA, or a Roth IRA. If you have a Roth 401(k), you can only roll it into another Roth 401(k) or Roth IRA. Each comes with their own tax requirements and investment choices, so consider shopping around.

Rolling over a traditional account into a Roth account is called a Roth conversion and comes with rules and limitations. We recommend speaking with your financial advisor before changing account types so you can better understand any tax obligations or other penalties doing so might incur.

Apply for unemployment benefits

To receive unemployment insurance benefits, you need to file for unemployment promptly after a layoff. Each state has their own requirements for how to apply, so it’s best to search online for your local rules and regulations. Most states allow you to apply online.

If you have questions about the application process or your eligibility, consider seeking professional guidance from government agencies or financial professionals.

There can sometimes be a wait for your application to be accepted or for checks to arrive, so it’s best to apply for unemployment benefits as soon as possible.

Find health insurance coverage

If you’ve lost your health coverage because of a layoff, consider finding a replacement health care plan—even if you don’t currently have any medical expenses. Medical emergencies are often expensive. And, without insurance to protect you, an emergency could quickly deplete your savings.

Losing your job is considered a qualifying life event, which allows you to enroll in new health coverage outside of the usual enrollment period.

One option is COBRA coverage, which lets you continue your employer-sponsored health insurance for a limited time. However, you may have to pay the full premium yourself, which can be costly.

If your spouse has employer-sponsored health coverage, you may be able to join your spouse’s plan after a layoff.

Maintaining health coverage is important to address health concerns and avoid major expenses if you need care during this transition.

Luckily, there’s a public marketplace for health coverage options. You can browse online to find a plan that fits your budget and comes closest to meeting your medical needs. Some plans cover a broad range of health care services, including dental and vision. Dental and vision plans are also available and can be found by performing a search online.

Building an emergency fund

Building an emergency fund is one of the most important steps you can take to protect your financial stability after a layoff or any unexpected income loss. An emergency fund acts as a financial runway, giving you the ability to cover essential expenses—like housing, food, and health insurance coverage—without having to rely on credit cards or dip into your retirement savings. Ideally, aim to set aside three to six months’ worth of essential expenses in a dedicated savings account. This money should be easily accessible, so consider keeping it in a high-yield savings account linked to your checking account for quick transfers when needed. Setting up automatic transfers from your checking account to your emergency fund can help you build your savings consistently, even if you’re only able to contribute a small amount each month. Having this financial cushion in place will help you cover expenses and maintain your insurance coverage during periods of income loss, giving you peace of mind as you navigate your next steps.

Managing debt and creditors

Managing your debt and communicating with creditors is crucial when you’re facing a job loss and reduced income. Start by reviewing all your debts and prioritizing those with the highest interest rates, such as credit cards. If you’re struggling to make payments, reach out to your creditors as soon as possible—many financial institutions offer hardship programs that can temporarily lower your payments or interest rates during periods of income loss. Being proactive can help you avoid late fees and protect your credit score. Take a close look at your monthly budget and identify areas where you can cut discretionary spending, freeing up more money to cover minimum debt payments and essential expenses. If you have extra money, try to pay more than the minimum on high-interest debts to save on interest over time. You might also consider options like balance transfer credit cards or debt consolidation loans to manage your payments more effectively, but be sure to read the fine print and consult a financial advisor before making major decisions. Remember, open communication and a clear plan can help you maintain control over your financial situation during this challenging time.

Emotional support and wellbeing

The emotional impact of a layoff can be just as significant as the financial one. It’s normal to feel a range of emotions, from stress and anxiety to uncertainty about your financial life and future job prospects. Prioritizing your mental and physical wellbeing is essential for maintaining financial stability and making informed decisions about your next steps. Engage in self-care activities that help you manage stress, such as exercise, meditation, or spending time on hobbies you enjoy. Don’t hesitate to reach out to friends, family members, or professional networks for support—they can provide encouragement and practical tips as you navigate this transition. If you’re struggling to cope, consider seeking guidance from a career counselor or therapist who can help you process the emotional impact of job loss and develop strategies for your job search. Establishing a daily routine, including time for job search activities, can help restore a sense of normalcy and purpose. Remember, taking care of your emotional wellbeing is a vital part of your overall financial life and will empower you to move forward with confidence.

One effective strategy for what to do if you get laid off is to actively seek emotional support and professional guidance during this challenging time.

Career strategies and networking

A successful job search after a layoff relies on both effective career strategies and strong professional relationships. Begin by updating your resume and LinkedIn profile to reflect your most recent accomplishments and skills. Reach out to former colleagues and peers to let them know you’re seeking new opportunities—many job openings are filled through personal connections before they’re ever advertised. Attend industry events, join professional organizations, and participate in online networking groups to expand your reach. Consider working with a career coach or recruiter who can offer insights into the current job market and help you tailor your application materials. Informational interviews are another valuable tool; they allow you to learn more about potential career paths and build connections in your desired field. Remember, networking is a two-way street—offer support and share opportunities with others as well. By investing in your professional network and staying active in your job search, you’ll increase your chances of finding your next job and advancing your career.

Finally, remember that knowing what to do if you get laid off includes taking proactive steps to network and look for new opportunities.

Disclaimer

This material is for informational and educational purposes only and does not constitute investment, tax, or legal advice. Individual circumstances vary, and readers should consult a qualified financial professional before making financial decisions.