I’ve Been Laid Off. What Should I Do?

Written by: Grace Kvantas

Throughout 2022 and into 2023, many companies, including ones in North Carolina and the Research Triangle Park (RTP) area, have had layoffs or have announced that layoffs are coming.

Companies from Lenovo, Amazon, Meta (Facebook) to Zillow, Cisco, and Google.

Being laid off often comes as a shock and can be very emotionally trying. It could also throw a wrench in your financial plan and your peace of mind.

If you have been laid off, below is a list of items to consider: 

Where Will I Get Money?

If you’ve been offered a severance, that’s wonderful. But if you have not, or if your severance is small or has ended, you’ll need to have a plan for where to pull money to cover normal living expenses.

  • Bank savings: Hopefully you have saved an emergency fund for situations like being laid off or unable to work. This would be the first place to look to pull money when needed.
  • Brokerage Accounts: If you have any brokerage accounts (like a bank account, but the money can be invested), that would be another place you can pull from. You can sell investments in the account(s) to provide cash. If you’re selling investments that have grown since you purchased them, you’ll be taxed at the capital gains tax rates (15% for most people) on the growth.
  • 401(k) or Retirement Savings Accounts: If you are over the age of 55, you can pull from your 401(k) without penalty upon termination. This will cause taxable income, however, so be sure to have a good grasp on your tax planning before utilizing this option.
  • HELOC: If you own a home and have equity built up in it, that could be an option to cover expenses. This is especially true if most of your financial savings are tied up in IRAs or 401(k)s.

What Do I Need to Know About Employer Benefits?

After losing your job, you may be entitled to payouts from employee benefits, which you’ll need to consider for tax purposes. You may also need to consider alternatives for benefits like health insurance while you’re between jobs.

  • Severance/Pro-Rated Bonus/Vacation or Sick Leave Payout: Many of these will be paid to you right away, but you may have the option to spread out the severance payment over separate tax years. You might want to review your tax picture to consider whether splitting it over two tax years would help you max out the 12% federal tax bracket, for example, instead of pushing you into the 22% and higher brackets with a one-time lump sum severance.
  • Stock Options: If you have been laid off, your stock options may become 100% exercisable or may vest on your termination date. This will, of course, help with income, but it will also increase your taxable income.
  • 401(k) Loan: 401(k) loans typically are required to be paid in full upon being laid off. If not repaid, then the loan is treated as a taxable distribution (taxable income for the amount not repaid).
  • Health Insurance: Review your health insurance options from your employer. COBRA coverage or an employer retiree medical insurance plan can be helpful options, if affordable, until you find a new employer or become eligible for Medicare.
  • Life Insurance: Depending on your family situation and future income-producing years, you may need to explore alternate life insurance options if your employer group plan lapses upon termination. Your life insurance needs may have changed since last calculated as well, so that’s something to consider or ask your financial planner about.

What’s Next for Me?

The time after being laid off can feel stressful, but it can help to think of it as an opportunity or a restart. You could use your time to do the following:

  • Job Hunting: For most people who are laid off, they’re hoping to start a new job as quickly as possible to make an income again and have employer benefits. It’s time to freshen up your resume and practice your interviewing skills.
  • Consider a Change: This can be an opportunity for a life change that you might not have otherwise made or might be hesitant to make without a push. This might include deciding to retire, making a career change, investing in your personal capital with additional training or education, starting a business, or switching to a less demanding job. All of these options have their pros and cons, so having a financial plan created to help compare options can help provide a lot of clarity when it comes to big decisions like these.

Now is a great time to sit down and create a financial plan to help get you through this period to the next phase of your career or life.

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