10 Money Moves to Make When a Layoff Is Coming


The signs are right there:

  • All departmental budgets are cut way back;
  • Several key senior managers suddenly resign;
  • Entire divisions are consolidated, outsourced, or cut; and
  • Many meetings that were previously open to everybody are now held behind closed doors.

You haven't been laid off (or fired!) yet — but the company isn't doing so hot, and you strongly suspect you'll be on the chopping block soon. What should you do to prepare? Here is your checklist of 10 money moves for when a layoff is coming. (See also: 20 Signs That a Pink Slip is Coming)

Health Care Coverage

Whether you're single or have several dependents, you need to plan how to pay for scheduled and unexpected health care related expenses.

1. Inquire About COBRA Continuation Health Coverage

The Consolidated Omnibus Budget Reconciliation Act (COBRA) requires group health plans to provide a temporary continuation of group health coverage that otherwise might be terminated. Generally, this legislation applies to all private group health plans from employers with 20 or more employees. Some states have similar laws for employers with less than 20 employees.

Inquire through your health plan administrator whether you're eligible for COBRA coverage, what coverage is available for you and your dependents, and how much it costs. If you're entitled to COBRA coverage, you'll have an election period of at least 60 days to choose whether to accept continuation coverage.

2. Gather Quotes From HealthCare.gov

While COBRA may be an option, it's often quite expensive. At HealthCare.gov, you can shop around for health plans available in your Health Insurance Marketplace, check whether or not you qualify for Medicaid, and determine if your children are eligible for the Children's Health Insurance Program (CHIP).

By comparing how much it'd cost to maintain your existing coverage through COBRA vs. alternative options, you can make an informed decision about health plan choices.

3. Update Your Mailing Address With Your Current Health Carrier

This is key so that you receive any plan cards, bills, and forms, such as the Form 1095-A, Health Insurance Marketplace Statement. The Form 1095-A enables you to take the premium tax credit, reconcile the credit on returns with advance payments of the premium tax credit (advance credit payments), and file an accurate tax return.

Retirement Planning

Times may be tough, but continue building up your nest egg. Your future self will be glad you did.

4. Pay Down Any 401K Loans

If you're part of the 20% of 401K holders that took a loan from their plan, plan to pay back as much as you can, as soon as you can. When you're laid off or fired, you have only up to 60 days to pay back outstanding balances — or those funds become taxable income. Also, you would have to pay a 10% early distribution penalty if you're under age 59 1/2 and may be subject to additional incomes taxes and penalties from your state.

5. Check Vesting Period of Employer Contributions

Your employer may require you to work for a specific timeframe before vesting the employer contributions in your retirement account. Contact your retirement plan administrator to understand your fully vested balance.

6. Update Your Mailing Address With Current Plan Administrator

This is important for everybody, but is critical for individuals with a retirement account balance under $5,000. According to a Plan Sponsor Council of America survey, 57% of 401K plans mail a cash-out check to individuals with balances under $1,000 and transfer accounts to an IRA for those with balances between $1,000 and $5,000. If you would like to prevent these events from happening, contact your plan administrator within a period usually of 60 days from the date of termination. Still, having the correct address on file prevents that a check, form, or notice is lost in the mail. (Yes, rolling over a retirement account is still mostly a paper-based process!)

7. Explore All of Your Rollover Options

Besides cashing out and rolling over to an IRA, there are many other options available for you. To find out all of them, review A Simple Guide to Rolling Over All of Your 401Ks and IRAs.

Emergency Fund Planning

Since a rainy day may be coming soon, establish how you'll make ends meet in case it takes longer than expected to find a new job.

8. Strengthen (or Start) an Emergency Fund

Sock away more into your emergency fund than you usually do. One way to strengthen or start your emergency fund is to use the IRS Withholding Calculator to estimate your current tax bill (or return) for next year's return. Since about three in every four Americans get a refund every year, chances are that you'll be able to take home more with you for the next couple of paychecks. Follow the recommendations from the IRS Withholding Calculator to adjust your Form W-4 and put the extra monies from your next paychecks into your emergency fund. (See also: Figuring the Size of Your Emergency Fund)

9. Shop Around for Financing

Now, while you still have a job, is the time to look for financing, not once you're laid off. Select a financing option that would act as a last resort fund in case your emergency fund or saving account runs out. Besides a credit card, take a look at a personal line of credit, peer-to-peer lending account, and home equity line of credit (HELOC). Remember you're securing financing but you don't have to use it unless you really have to.

10. Learn the Process for Unemployment Benefits

Once you're laid off, you'll be worried about too many things. Buy yourself some time and contact your State Unemployment Insurance agency ahead of time to learn how to file a claim by telephone or over the Internet. Each state administers a separate unemployment insurance program, so find out your state's eligibility requirements, steps to file a claim, and reporting guidelines for continued eligibility.

In most states, unemployment benefits (a percentage of an individual's earnings over a recent 52-week period up to a maximum set by the state) are paid up to 26 weeks. Having this support can provide you much need peace of mind during your search for the next job.

How should you prepare for a layoff?

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