Expecting to be Laid Off? Here’s How to Prepare Financially and Come Out on Top

By Scott Meyer, Wealth Manager, Partner

According to a CNBC article, nearly 150,000 employees were cut in major U.S. layoffs over the first three months of 2023, led by massive headcount reductions at Amazon, Google, Meta and Microsoft.

With more layoff news expected in 2023, it’s understandable if you are wondering about your own financial security, particularly if there’s a chance you could be at risk. While a state of panic may be your first inclination, I encourage you to take a deep breath and focus on getting organized and making smart financial decisions.

How can I prepare for a possible layoff?

In a fragile job market as 2023 is panning out to be, it’s wise to take steps to prepare for a layoff, even if you believe your job is secure. Workers generally find themselves on an emotional roller coaster with a long list of questions when a layoff occurs. Preparing in advance can take a huge amount of stress off your plate if you already know some of the answers.

First, if you don’t already have a solid emergency fund, take this time to sock away as much as possible. Ideally, you should have enough saved to cover three to six months of living expenses. The purpose of emergency savings is to have it available when you need it; while you may feel compelled to try to earn money on cash that’s sitting in the bank, the most important thing is that this cash is accessible. The good news is as rates rise, online banks pay higher interest rates – some more than 5%

Second, in order to make sure you can cover your bills if you are laid off, you should open a home equity line of credit, or a HELOC. A HELOC is a line of credit that allows you to borrow against your home equity. Most banks won’t underwrite you if you aren’t employed and don’t have an income, so if you don’t have a large emergency fund or are concerned about making ends meet if you get laid off, make sure to apply for a HELOC sooner rather than later. HELOCs are inexpensive to apply for, and their interest rates are much lower than credit cards. If you don’t end up using the loan, you won’t owe anything, but you will have peace of mind knowing the funds are available if you need them.

What should I do immediately after being laid off?

Immediately following the news of a layoff, you should reach out to your HR department to ask the following: 

  • When and how (check or direct deposit) will I receive my last paycheck?
  • Am I eligible for any severance?
  • Will I be able to cash in on any outstanding PTO? How much have I accrued?
  • How long will I have access to my health insurance and what is the cost of COBRA?

The next step is learning if you qualify for unemployment. Learn how to apply and where to find eligibility rules by visiting your state’s program.

You will also want to be prepared from a career standpoint. You may consider gaining new skill sets or switching industries all together. Make sure you have an updated resume and LinkedIn page. Reaching out to your immediate network, your LinkedIn connections, and even third-party vendors that you have previously worked with can be helpful in kicking off your job search.

Finally, you will want to review your monthly expenses and eliminate any unnecessary spending during this time. Now is the time to limit all your discretionary spending and take a look at non-essentials like subscriptions and dining out. Adjust any automatic payments that need to be changed and start adapting your daily spending habits. Assigning purpose to every dollar you have helps you make good financial decisions.

What should I do in the long term?

In the next phase, you will need to collect information on your 401(k) and consider what you want to do with the funds. If you are laid off between the year you turn 55 and 59.5 years old  and getting close to retirement, chances are, you will just want to leave your 401(k) where it is. If you are younger than 55 or older than 59.5, you may want to  roll it over to an IRA or another company-sponsored retirement account. Knowing your 401(k) options are important, but making big portfolio moves to your long-term assets at this time is not necessary. Cashing out your 401(k) to pay bills should be a last resort due to high penalties if you are younger than 59½, but it’s there for you if you need it. 

If you are struggling to find a job, consider getting a part-time job, so long as it doesn’t have a negative impact on your unemployment checks. If you are looking to transition to a new industry, find a friend who works in that industry and ask for their recommendations on getting started. There are also a lot of virtual courses available that are a great way to learn about new fields and positions.

How do I get back on track after a layoff?

Once you find yourself in a new full-time role, it’s important to develop a new retirement plan and focus on building on your emergency savings again. Having this safety net will allow you to move confidently between any unforeseen transitions or situations in the future. You will also want to focus on paying back any loans you took out in the layoff period or any unpaid bills. This will get you back on track toward your path to a comfortable retirement.

With the explosion of tech layoffs in the United States, it is reasonable to want to be prepared for a layoff situation in your household. Just remember not to take it personally. When an organization makes layoffs, it is not a reflection of who you are or what you have or have not contributed.

Are you concerned about layoffs or need assistance reviewing your finances? Contact Merit Financial Advisors today for a free complimentary consultation.


Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.