5 Steps to Take if You’ve Lost Your Job
Layoffs and job losses have hit millions of Americans recently. To navigate the financial challenges, focus on these five priorities first.
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A record 39 million Americans have filed for unemployment benefits since March as a result of the economic crisis stemming from the coronavirus pandemic. The total number is staggering, particularly when you consider the impact a sudden job loss has on the lives and families of those who’ve been let go.
If you’re among those who have been laid off, you may be feeling overwhelmed and anxious about your financial stability. That’s understandable, but don’t let panic or fear guide your reactions. Now is the time to take stock of your situation and control what you can. Here are five tips to help you manage your finances during this difficult time and establish good habits that can serve you well into the future.
1. Manage your expenses
After a job loss, re-evaluate your monthly spending and look for ways to reduce your expenses. Consider cutting discretionary services that you can handle yourself, such as house cleaning, landscaping or other household tasks that you’ve previously hired others to do.
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Also, use the opportunity to reach out to your service providers of essential items — like internet, phone service and insurance coverage — and see if you can trim back these expenses. Now would be a good time to negotiate a lower rate, especially if you haven’t done so in some time. This move can reduce your expenses without sacrificing important things.
2. Obtain health care
As the global health crisis evolves, now is not the time to be without health insurance. If your employer provided you with a severance package, check the details to see if you qualify to remain on the company medical insurance and for how long. It’ll give you some time to decide how to handle health insurance, once you’re no longer on the company plan.
Typically, you have three health care options to choose from.
- If you’re married, and your spouse remains in his or her job and it offers health coverage for you, then that’s most likely the family’s best bet.
- You can also choose to go on COBRA (Consolidated Omnibus Budget Reconciliation Act), which may allow you to continue the insurance coverage through your former employer for potentially 18 to 36 months. This will usually be your most expensive option, since you must pay the full premium on the coverage without your company’s subsidy.
- The third option is to search the Affordable Care Act marketplace. Depending on the state you live in, there can be a variety of plans that offer an array of coverage options. You’ll need to do some research. You also might check with your doctors to see if they take the coverage before committing to a specific plan.
3. Avoid tapping retirement accounts
Though you may be looking for ways to make ends meet after losing your job, tapping your retirement accounts should be a last resort for covering expenses. Normally, by withdrawing money from your 401(k) or IRA before age 59½, there’s a 10% penalty on the distribution, plus you have to pay income tax on your withdrawal as well. The $2.2 trillion stimulus bill, the CARES Act, which passed in March, lifted the penalty for 2020. If you’re financially affected by the coronavirus crisis, you can take a distribution up to $100,000 penalty-free, and spread the tax payment on the money over three years.
However, I discourage using this option if you can avoid it. By pulling money out of a retirement account now, you’re selling your assets during a downturn, which means you’re selling more shares. This reduces the number of shares in your portfolio, which cuts into how well your portfolio will compound moving forward. It potentially puts your retirement at risk.
4. Decide what to do with your 401(k)
While you should avoid making an early withdrawal from your nest egg, you’ll need to decide what to do with your employer-sponsored retirement account if you have one. This may not be your first thought, but it’s an important decision to consider now that you no longer work at the organization. If you like your investments, then you often have the option to keep it within the employer retirement plan. Look into whether there’s an extra fee for doing so.
Another option that many investors prefer is to roll their 401(k) over into an individual retirement account (IRA). By doing so, you’re often able to access an increased number of mutual funds and investing strategies. It can offer a more flexible and personalized way to allow those funds to grow, even after you find your next job.
As you’re considering what to do with your 401(k) discuss with your tax and financial professional all the pros and cons of any action you might pursue so that you make a fully informed decision.
5. Leverage government relief options
Last, but not least, make sure to sign up for unemployment insurance benefits if you qualify based on your state’s rules. The CARES Act also provided an additional $600 more per week in unemployment, under the new law, running through the end of July. While unemployment benefits may not cover all of your expenses, they can provide a much-needed influx of cash, potentially paying for your health insurance and other essential needs.
The CARES Act has a variety of provisions set in place that may provide relief to those who have lost their jobs. Creditor protection, foreclosure protection and eviction protection are among the benefits that the CARES Act provides. Take the time to understand how this bill can provide relief for your situation.
Losing a job can present you with many financial challenges and decisions. However, taking these steps can help you get through this challenging time and protect your financial future.
Ameriprise Financial, Inc. and its affiliates do not offer tax or legal advice. Consumers should consult with their tax advisor or attorney regarding their specific situation.
Ameriprise Financial Services, LLC., Member FINRA and SIPC Copyright disclosure
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